Construction Claims

Limitations & Repose Periods

Statute of Limitations for Breach of Construction Contract:

1. Oral (or partially oral) Contract: Action must be brought within 4 years.O.C.G.A § 9-3-26
2. Written Contract: Action must be brought within 6 years. O.C.G.A. § 9-3-24.
3. Contract under seal: Action must be brought within 20 years. O.C.G.A. § 9-3-23.
4. Contract Governed by UCC: Action must be brought within 4 years after cause of action has accrued. O.C.G.A. § 11-2-725(1).

Claims for Negligent Construction:

Action must be brought within 4 years from date of substantial completion of work. O.C.G.A. § 9-3-30; see also Corp. of Mercer Univ. v. Nat'l Gypsum Co., 258 Ga. 365, 368 S.E.2d 732 (1988).

Statute of Repose

If it is later determined that claimant rejected reasonable offer by contractor, claimant’s recovery will be limited to fair market value of the offer or the actual cost of repairs made.

Indemnity and Contribution

O.C.G.A. § 51-12-33 effectively abolished joint and several liability in Georgia, requiring a factfinder to apportion damages to a single defendant in proportion to his, her, or its own relative liability and further stating that the apportioned damages “shall not be subject to any right of contribution.” O.C.G.A. § 51-12-33(b). The purpose of the statute “is to ensure that each tortfeasor responsible for the plaintiff's harm, including the plaintiff himself, be held responsible only for his or her respective share of the harm.” Wade v. Allstate Fire & Cas. Co., 324 Ga. App. 491, 494, 751 S.E.2d 153, 156 (2013)

O.C.G.A. § 51-12-33 has abrogated all avenues for indemnity relief other than “‘as created by contract, [such] as between a surety and a debtor; and under the common law of vicarious liability, [such] as between principals and agents.’” Dist. Owners Ass'n, Inc. v. AMEC Envtl. & Infrastructure, Inc., 322 Ga. App. 713, 715, 747 S.E.2d 10, 13 (2013) (quoting City of College Park v. Fortenberry, 271 Ga. App. 446, 451, 609 S.E.2d 763 768 (2005))

With regard to the latter category, “[i]f a person is compelled to pay damages because of negligence imputed to him as the result of a tort committed by another, he may maintain an action for indemnity against the person whose wrong has thus been imputed to him.” City of Atlanta v. Benator, 310 Ga. App. 597, 608-09, 714 S.E.2d 109, 118 (2011). Outside of this context, however, Georgia courts have been steadily moving away from entertaining common-law indemnity as a right of action.

In the past, Georgia courts allowed “passive” tortfeasors to seek indemnity against a third-party who was the proximate cause of the injury. See Jova/Daniels/Busby, Inc. v. B & W Mech. Contractors, Inc.,167 Ga. App. 551, 307 S.E.2d 97 (1983). This allowance, however, preceded the passage of the amended O.C.G.A. § 51-12-33 abrogating joint and several liability. As a result, a passive tortfeasor arguably no longer needs a right to indemnity since he, she, or it will face no obligation to pay for the wrongs of another. While no Georgia state court has had reason to address the issue directly in recent years, federal courts in Georgia have questioned in dicta the doctrine’s continued viability post-O.C.G.A. § 51-12-33. See, e.g., Georgia Power Co. v. Sure Flow Equip., Inc., 2014 WL 4977799, at *4 (N.D. Ga. July 22, 2014) (noting that Georgia state courts have held that O.C.G.A. § 51–12–33 appears to have abrogated common law claims against joint tortfeasors “that do not arise out of a contract or agency relationship.”) Accordingly, although it appears no Court has explicitly found the passive/active exception to be abrogated by the statute, it is unlikely to remain good law.

Certificate of Merit — Experts

In Georgia, “[t]he “economic loss rule” generally provides that a contracting party who suffers purely economic losses must seek his remedy in contract and not in tort. Under the economic loss rule, a plaintiff can recover in tort only those economic losses resulting from injury to his person or damage to his property; a plaintiff cannot recover economic losses associated with injury to the person or damage to the property of another.” Gen. Elec. Co. v. Lowe's Home Centers, Inc., 279 Ga. 77, 78, 608 S.E.2d 636, 637 (2005)

A contractor may defend against claims of negligence for damages related to loss of economic value due to defective work unless there is some personal injury or damage to other property.

Warranty

Express: a contractor may provide his or her own express warranty concerning the work. Usually, a builder agrees to repair defective or deficient work that appears within a certain period of time, typically one year.

Implied: There is implied in every construction contract a duty to perform the work skillfully carefully and diligently and in a workmanlike manner. Other warranties are recognized under the Uniform Commercial Code. See O.C.G.A. § 11-2-314 (implied warranty of merchantability); O.C.G.A. § 11-2-315 (implied warranty of fitness for a particular purpose).

Negligence

Defective construction may be based upon negligence of the designer or contractor. Negligence is defined as the absence of ordinary diligence as exercised by an ordinarily prudent person under the same or similar circumstances. O.C.G.A. § 51-1-2.

Fraud/Misrepresentation

A latent defect may create actionable fraud where the contractor makes false representations concerning the construction or intentionally conceals a material fact.

Passive Concealment Doctrine

The doctrine of passive concealment was adopted by the appellate courts to afford protection to homebuyers and to limit the application of the defenses of caveat emptor and merger by deed in actions against residential builder-sellers for defective construction. See Holmes v. Worthey, 282 S.E.2d 919 (Ga. Ct. App. 1981), aff'd, 287 S.E.2d 9, (Ga. 1982).

Nuisance

Building Code Violations: violation of a building code will constitute negligence per se. See Florence v. Knight, 459 S.E.2d 436 (Ga. Ct. App. 1995).

Fair Business Practices Act: prohibits unfair or deceptive acts or practices in the conduct of consumer transactions and consumer acts. O.C.G.A. § 10-1-393(a).

Construction Damages

Cost of Repair

An injured party is not entitled to a windfall, and the damages award must “reasonably compensate the injured party, [but] at the same time, be fair to all litigants.” John Thurmond & Associates, Inc. v. Kennedy, 284 Ga. 469, 473, 668 S.E.2d 666, 670 (2008).

In cases of damage to or destruction of improvements to real estate, damages “are determined by measuring the cost of repairing or restoring the damage, unless the cost of repair is disproportionate to the property’s probable loss of value.” John Thurmond & Associates, Inc. v. Kennedy, 284 Ga. 469, 470, 668 S.E.2d 666, 668 (2008). However, “the cost of repair must be reasonable and bear some proportion to the injury sustained.” Empire Mills Co. v. Burrell Eng’g & Constr. Co., 18 Ga. App. 253, 89 S.E. 530, 531 (1916) (quotations omitted); see also Atlanta Recycled Fiber Co. v. Tri-Cities Steel Co., 152 Ga. App. 259, 262 S.E.2d 554, 557, 560 (1979); Cornett v. Agee, 143 Ga. App. 55, 57-58, 237, 239 S.E.2d 522, 524 (1977)

Cost-of-repair damages are not permitted where the “buildings were in poor condition prior to destruction or when they have been completely destroyed, such that repairing or restoring the buildings would result in an inflated measure of damages and thus be absurd.” Overby v. State, 315 Ga. App. 735, 738, 728 S.E.2d 278, 281 (2012). To do so would be an “absurd undertaking.” See Mercer v. J & M Transp. Co., 103 Ga. App. 141, 118 S.E.2d 716 (1961) (cost of repair damages not permitted where entire house was destroyed and could not be repaired). Where the cost of repair would amount to an “absurd undertaking,” “the diminution in market value of the property is allowable as the measure of damages.” Song v. Brown, 255 Ga. App. 562, 563, 565 S.E.2d 884, 885 (2002).

Diminution in Value

The Georgia Court of Appeals has observed that it is possible for cost of repair damages to be awarded even where they exceed the diminution of a property’s fair market value if the property has some historical or other intrinsic worth to the owner which is not reflected in its fair market value. See Am. Pest Control, Inc. v. Pritchett, 201 Ga. App. 808, 809, 412 S.E.2d 590, 592 (1991).

Punitive Damages

Generally, recovery of punitive damages in construction disputes is rare as punitive damages are not permitted for contract claims. O.C.G.A. § 13-6-10. However, punitive damages may be available where there are claims of fraud or material misrepresentation. See Hulsey Pool Co. v. Troutman, 167 Ga. App. 192, 193, 306 S.E.2d 83, 85 (1983)(punitive damages award warranted in construction defect dispute where plaintiffs alleged defendant made material misrepresentations made with intent to deceive and did purposefully and fraudulently conceal defect).

Attorney's Fees

Generally, awards of attorney’s fees are not given in construction disputes unless such was agreed upon in advance by contract. See Benchmark Builders, Inc. v. Schultz, 315 Ga. App. 64, 726 S.E.2d 556, (2012). There are, however, several exceptions to this general rule.

1. The prevailing party is entitled to recover a reasonable fee for attorney and litigation costs (determined by the court or arbitrator) in an action to enforce a claim under Georgia’s Prompt Pay Act. O.C.G.A. § 13-11-18
2. Attorney’s fees may be awarded to a claimant where the defending party has acted in bad faith in making the contract or has been stubbornly litigious or caused the plaintiff unnecessary trouble and expense. O.C.G.A. § 13-6-11. The term “bad faith” refers to actions in the making or performance of the contract only, while being stubbornly litigious or causing unnecessary trouble and expense can occur in the dispute proceedings themselves.
3. Georgia courts may also award reasonable attorney fees under O.C.G.A. § 9-15-14 where another party has asserted a claim, defense or other position that is wholly unsupported by a justiciable issue of law or fact or if the Court finds an attorney or party brought or defended an action or any part thereof lacking in substantial justification, or was brought only to harass or delay proceedings, or if the Court finds that the party or attorney needlessly expanded proceedings through improper conduct.

Joint and Several Liability (specific to construction)

O.C.G.A. § 51-12-33 effectively abolished joint and several liability in Georgia, requiring a factfinder to apportion damages to a single defendant in proportion to his, her, or its own relative liability and further stating that the apportioned damages “shall not be subject to any right of contribution.” O.C.G.A. § 51-12-33(b).

Cost Incurred to Access Repair Areas

NA

Consequential Damages

Consequential damages are limited in Georgia. “Remote or consequential damages are not recoverable unless they can be traced solely to the breach of the contract or unless they are capable of exact computation, such as the profits which are the immediate fruit of the contract and are independent of any collateral enterprise entered into in contemplation of the contract.” O.C.G.A. § 13-6-8. Generally, recovering under this statute requires a plaintiff to show that the loss can be directly traced to the breach and show a precise computation of the loss. Esprit Log & Timber Frame Homes, Inc. v. Wilcox, 302 Ga. App. 550, 691 S.E.2d 344 (2010).

Coverage Trigger of Coverage

CGL policies often define in their terms what constitutes an “occurrence.” Many CGL policies define an occurrence as “an accident, including continuous or repeated exposure to substantially the same, general harmful conditions,” but do not further define “accident.” Am. Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co., 288 Ga. 749, 750, 707 S.E.2d 369, 370 (2011). The Supreme Court of Georgia has held, however, “that an “occurrence,” as the term is used in a standard CGL policy, does not require damage to the property or work of someone other than the insured.” Taylor Morrison Servs., Inc. v. HDI-Gerling Am. Ins. Co., 293 Ga. 456, 460, 746 S.E.2d 587, 591 (2013).

Duty to Defend

1. If a party is established as an “additional insured” under a policy, that provides primary coverage, the “additional insured’s” insurer has a valid right to seek contribution. BBL-McCarthy, LLC v. Baldwin Paving Co., 285 Ga. App. 494, 646 S.E.2d 682 (2007).
2. Primary insurers do not have a direct duty to excess insurers, as there is no contractual privity between them. A primary insurer does not have a duty to provide notice of claims potentially in excess of their limits to excess insurers. Evanston Ins. Co. v. Stonewall Surplus Lines Ins. Co., 111 F.3d 852 (11th Cir. 1997).
3. Primary insurers do have a duty to disclose excess insurance policies to a claimant suing a mutual insured. Merritt v. State Farm Mut. Auto. Ins. Co., 247 Ga. App. 442, 544 S.E.2d 180 (2000).

1. Must first look to contracts and policies to see if contribution or indemnity is discussed. Barton & Ludwig, Inc. v. Fidelity & Deposit Co. of Maryland, 570 F. Supp. 1470 (N.D. Ga. 1983). When two or more policies of insurance cover the same risk, parties should look for an "other insurance clause."
2. Although there are many types of "other insurance" clauses, they can be generally categorized as "equal shares," "pro rata," "excess" or "escape."
3. Where policies contain “other insurance” clauses, this constitutes a sufficient contractual arrangement to allow a carrier to recover from another carrier. Graphic Arts Mut. Ins. Co. v. Essex Ins. Co., 465 F. Supp. 2d 1290, 1297 (N.D. Ga. 2006).

Insureds Right to Independent Counsel and Consequences of Rejecting a Defense

1. The presence of a conflict of interest may enable the insured to retain independent counsel, at the expense of the insurer. American Family Life Assur. Co. of Columbus, Ga. v. U.S. Fire Co., 885 F.2d 826 (11th Cir. 1989).
2. Where the insurer defended the insured under a reservation of rights, apparently without denying indemnity coverage, the court found the insurer was liable for fees the insured incurred for hiring independent counsel, in addition to counsel hired by the insurer. Utility Service Company, Inc. v. St. Paul Travelers Ins. Co., 2007 WL 188237 (M.D. Ga. 2007).
3. Where an insurer allows the insured to select defense counsel, the insurer's payment of the attorney's fees creates an attorney-client relationship with both the insurer and the insured. Cone Financial Group, Inc. v. Employers Ins. Co. of Wausau, 2010 WL 3190619 (M.D. Ga. 2010).

Coverage Defenses

In order to assert a coverage defense, Georgia requires an insurer to provide a timely notice of its reservation of rights which fairly informs the insured of the insurer's position. State Farm Fire and Cas. Co. v. Walnut Avenue Partners, LLC, 296 Ga. App. 648, 653, 675 S.E.2d 534, 539 (2009).

The defense of noncoverage (i.e., whether a claim falls within the insuring agreement and/or the policy exclusions) may not be waived. Prescott's Altama Datsun, Inc. v. Monarch Ins. Co. of Ohio, 253 Ga. 317, 319 S.E.2d 445 (1984).

When an insurer denies coverage and absolutely refuses to defend an action against an insured, when it could do so with reservation of its rights as to coverage, the legal consequence of such refusal is that it waives the provisions of the policy against a settlement by the insured and becomes bound to pay the amount of any settlement made in good faith plus expenses and attorneys' fees. The amount of the settlement might be absolutely immaterial, in and of itself, and can become material only if as a sole consideration it is so excessive and exorbitant as to show bad faith or if it, in conjunction with other facts in the case, shows that the settlement was made in bad faith. Georgia Southern & F. Ry. Co. v. U.S. Cas. Co., 97 Ga. App. 242, 102 S.E.2d 500, 502 (1958).

Choice of Law (Forum Selection Clauses)

Georgia will generally enforce a choice of law provision provided that the law of the state does not contravene some public policy of the State of Georgia. See Kinnick v. Textron Fin. Corp., 422 S.E.2d 303 (Ga. Ct. App. 1992).

Georgia also normally enforces forum selection clauses, provided that the forum selected bears some reasonable relationship to the subject matter of the suit or the parties. See Harry S. Peterson Co. v. Nat’l Union Fire Ins. Co., 434 S.E.2d 778 (Ga Ct. App. 1993).

Targeted Tenders

In Georgia, the insured's selection does not preclude the selected insurers from seeking contribution from those insurers on the risk but not targeted by the insured.

Consent Judgments

An insurer may be liable on a claimant's consent judgment if an insurer wrongfully denies coverage. See Southern Guar. Ins. Co. v. Dowse, 278 Ga. 674, 605 S.E.2d 27 (2004) (an insurer that refuses to defend based upon a belief that a claim against its insured is excluded from a policy's scope of coverage "[does] so at its peril, and if the insurer guesses wrong, it must bear the consequences, legal or otherwise, of its breach of contract.")