Partners Rick Chaves and Charles Pickett Block Insurance Company’s Attempt to Expand Scope of Standard Construction Industry Indemnity Provision to Cover Insurer’s Attorneys’ Fees

Home/News/Partners Rick Chaves and Charles Pickett Block Insurance Company’s Attempt to Expand Scope of Standard Construction Industry Indemnity Provision to Cover Insurer’s Attorneys’ Fees

Partners Rick Chaves and Charles Pickett Block Insurance Company’s Attempt to Expand Scope of Standard Construction Industry Indemnity Provision to Cover Insurer’s Attorneys’ Fees

In winning an appeal to the United States Court of Appeals for the Eleventh Circuit, the Ciklin Lubitz attorneys successfully argued that a standard construction industry indemnity provision was not a prevailing party attorneys’ fee provision between a general contractor and a subcontractor (or the subcontract’s insurer, standing “in subcontractor’s shoes”).  Had the insurance company prevailed, the reasonable expectations of all parties to large and medium-sized building projects would have been thrown into considerable disarray.

Our client, Americaribe-Moriarty Joint Venture (“AMJV”), a general contractor, appealed the federal district court’s award of attorneys’ fees to International Fidelity Insurance Company and Allegheny Casualty Company (“Fidelity”), the sureties on a performance bond issued for a construction subcontract between AMJV and the subcontractor Certified Pool Mechanics 1, Inc. (“CPM”). After careful review of the record, and with the benefit of oral argument by Mr. Chaves, the United States Court of Appeals for the Eleventh Circuit reversed and held that Fidelity was not entitled to recover the attorney’s fees it incurred in this litigation because neither the performance bond nor the subcontract provided for such an award of prevailing party attorneys’ fees.

The district court had awarded attorney’s fees to Fidelity under a provision of the bond and pursuant to an indemnity provision in the underlying subcontract and the reciprocal fee provisions of Fla. Stat. § 57.105(7). The unchecked effect of the district court’s decision would impact not just our client (AMJV), but contractors and subcontractors across the State of Florida. Contractors and subcontractors routinely enter into bonded contracts which contain prevailing party attorneys’ fee provisions and/or separate indemnity provisions, and have asserted (and likely will assert in the future) claims against performance bonds which are typically challenged by the issuing surety. Fidelity’s position that – despite not having performed their surety obligations under their performance bond– they were entitled to prevailing party attorneys’ fees from AMJV under the indemnity provision of the underlying subcontract (to which Fidelity was not a party) is contrary to Florida’s public policy and, if made into legal precedent, would have turned the construction industry on its head.

Mr. Chaves argued on behalf of AMJV, that the district court erred in its interpretation of the indemnification provision of the subcontract for two primary reasons.  First, the indemnification provision by its plain terms was not a prevailing party attorneys’ fee provision. It did not provide for attorneys’ fees to AMJV for prevailing in litigation with CPM.  Instead, its terms provided for CPM to indemnify AMJV for any damage (including attorneys’ fees) arising out of the subcontract, win or lose. Thus, the indemnification provision did not apply to suits between AMJV and CPM (or, by extension, to Fidelity), but rather, applied to claims by third parties against AMJV arising out of the subcontract work.  Second, Fidelity undeniably was not a party to the Subcontract. § 57.105(7), Florida Statutes, applies only when the party seeking fees both prevails and is a party to the contract containing the fee provision.

Ultimately, the Eleventh Circuit Court of Appeals agreed with Mr. Chaves’ written and oral arguments. The Court concluded that the indemnity provision of the subcontract was a general indemnity clause that on its face applied only to third party claims, not to suits between a contractor and its subcontractor. The indemnity provision did not authorize AMJV as a contracting party to recover attorney’s fees when AMJV was required to take legal action against CPM to enforce the subcontract. The indemnity provision was therefore not a unilateral attorney’s fees provision and the reciprocal effect of Fla. Stat. § 57.105 was thus inapplicable.

Contracts are governed by common law.  An errant judicial decision can create havoc in existing commercial relationships and create uncertainty in future ones.  By working to correct this aberration in the law of construction contracts and indemnity contracts, Ciklin Lubitz has helped to rightly steer the course of law.

November 2018|News|