Indemnification

Protecting Yourself From Your Contractor’s (unknown?) Sub-Contractor

By Michael Gelfand, Esq. / Published May 2018

Your association contracted with a contractor. That contractor was provided specifications and the association will pay. But, what happens if the contractor subcontracts with another company and the subcontractor’s negligence causes injuries to a homeowner? Will the association have to indemnify [to secure against or make compensation for hurt, loss, or damage] both companies? Maybe, depending on what the contracts provide. Can the association rely on protection from the subcontractor’s indemnification to the contractor? What language must be included?

       A Florida appellate court recently ruled that a subcontractor had a duty to indemnify the contractor for its own negligence in performing excavation work to provide access to underground utility lines, but the subcontractor did not have a duty to indemnify the main contractor. The facts in Blok Builders, LLC v. Katryniok, 43 Fla. L. Weekly D 253 (Fla. 4th DCA, January 31, 2017), indicate that BellSouth contracted with Mastec North America to perform the work necessary to provide access to the underground lines located in neighborhood easements. Mastec subcontracted with subcontractor Blok Builders to perform the excavation work to access the underground utility lines.

       After Blok performed excavation near a driveway in one of the neighborhoods, a homeowner was injured after falling when his driveway collapsed. The homeowner sued Blok, Mastec, and BellSouth for damages. Mastec and BellSouth filed claims against Blok for indemnification pursuant to Mastec’s contract with Blok.

       This is where contract reading becomes important, perhaps unfortunately in retrospect for the losing party. The court quickly moved to read the contract between Mastec and Blok, which provided that Blok indemnify Mastec for Mastec’s own negligence as follows:

       Indemnification. A) Subcontractor [Blok] agrees to indemnify and hold harmless Contractor [Mastec] and its directors, officers, employees, and agents (collectively the “Indemnitees”) . . . regardless of whether it is, or is alleged to be, caused in whole or part (whether joint, concurrent, or contributing) by any act, omission, default or negligence (whether active or passive) of the indemnitees, or any of them. . .”

       The trial court entered summary judgment in favor of Mastec and BellSouth, finding that the contracts required Blok to indemnify both Mastec and BellSouth in the personal injury lawsuit filed by the homeowner.

       The Florida appellate court agreed that under the contract quoted above Blok had a duty to indemnify Mastec. The court noted that BellSouth did not have a direct contract with Blok. BellSouth’s relationship to Blok was through its contract with Mastec, and Blok’s indemnity contract provisions with Mastec only mentioned Mastec and not BellSouth. Thus, Blok did not have a duty to indemnify BellSouth.

       As a second important issue for contracting associations as well as other property owners, Blok argued that the Mastec indemnification provisions were invalid because the Blok-Mastec contract failed to comply with Section 725.06, Fla. Stat. (2008). That statute provides that an indemnity is unenforceable unless the contract contains a monetary limitation on the amount of the liability. Because this contract did not contain such a limitation, Blok maintained that the indemnification provision was invalid.

       The court pointed out that the statute only applies to “construction, alteration, repair, or demolition of a building, structure, appurtenance, or appliance. . .” Because the project in this case involved the laying and maintenance of utility lines, and did not involve the construction of a building, the court found that the statute did not apply to this contract.

       Drafting indemnification agreements can be a tricky affair as can be seen by this case. The issues are doubled when there is a subcontract. If you have any questions as to whether your association would be required to provide indemnification or would itself be indemnified under a contract, contact your association’s counsel and your insurance agent.

What Is Your Recourse When Payment on a Check Is Stopped? Do Fraud Penalties Apply?

       Associations collect a large number of checks for assessments, and occasionally an owner will stop payment on the check. Does the association have any recourse when this occurs? Florida law allows the association to collect not just the check amount, but three times the amount if the owner had the intent to defraud.

       Having said that, a Florida appellate court recently ruled that the seemingly simple act of stopping payment on a check after receiving services is not enough to establish an intent to defraud. In Sanders Farm of Ocala Inc. v. Bay Area Truck Sales Inc., 43 Fla. L. Weekly D 73 (Fla. 2nd DCA, December 27, 2017), Kerk Sanders, the owner of Sanders Farm, stopped payment on the check he wrote to Bay Area Truck Sales after Bay Area performed repairs on a truck.

       Bay Area sued Sanders Farm under Section 68.065, Fla. Stat. (2015), to recover treble damages on a worthless check. The worthless check statute allows for triple damages in addition to the amount owing if the maker of the check stops a check with intent to defraud and fails to make payment. Bay Area alleged that Sanders wrote the check to induce Bay Area to release the truck and then Sanders stopped payment with the intent to defraud Bay Area.

       Sanders claimed he wrote the check under protest after Bay Area increased the bill from $413 to $4,655.46. Sanders maintained he only stopped payment after he learned from his attorney that he could post bond instead, which he did. The trial court granted judgment for Bay Area, stating that “if you present the check, you get the object, and then you stop payment, boom, intent to defraud.”

       The Florida appellate court disagreed with the trial court’s determination. Just because Sanders stopped payment on the check after receiving work on the truck does not automatically mean that he intended to defraud Bay Area. Because Sanders presented defenses, it was now up to the jury to decide as to whether Sanders intended to defraud Bay Area.

       So, when a check is stopped, there may be a chance to recover triple the amount from the person stopping the check. This is not automatic but can be an effective deterrent to fraud. Note also that “what is good for the goose is good for the gander,” and if an association stops a check, there is a risk the triple damage statute will be invoked against the association! 

Michael J. Gelfand, Esq.

Senior Partner of Gelfand & Arpe, P.A.

Michael J. Gelfand, Esq., the Senior Partner of Gelfand & Arpe, P.A., emphasizes a community association law practice, counseling associations and owners how to set legitimate goals and effectively achieve those goals. Gelfand is a Florida Bar Board-Certified Real Estate Lawyer, Certified Circuit and County Civil Court Mediator, Homeowners Association Mediator, an Arbitrator, and Parliamentarian. He is a past Chair of the Real Property Division of the Florida Bar’s Real Property, Probate & Trust Law Section, and a Fellow of the American College of Real Estate Lawyers. Contact him at ga@gelfand arpe.com or (561) 655-6224.