In 2004, then Florida Governor Jeb Bush signed into law what is commonly referred to as Florida’s “opportunity-to-cure” statutes, more formally referenced as Chapter 558. In short, Chapter 558 was enacted to require aggrieved owners to place contractors and design professionals on notice of construction defects, with an opportunity to inspect and, if possible, resolve the alleged defects without resorting to potentially expensive and protracted litigation. Given the many amendments to Chapter 558 since its inception, Chapter 558 has, if nothing else, proven to be a work in progress, a topic we’ve previously written on in the Sarasota Docket.
Most recently, on June 16, 2015, Governor Rick Scott signed into law House Bill 87, which yet again substantially changed the face and complexity of 558. However, unlike prior amendments to 558, this most recent round of changes brought with it one particular modification that could very well serve to undermine the essential purpose of 558. Specifically, under the pre-2015 version of 558, claimants were merely required to “describe the claim in reasonable detail sufficient to determine the general nature of each alleged construction defect and a description of the damage or loss resulting from the defect.” (See Fla. Stat. §558.004(1) (2014)). By contrast, the current version now imposes a more stringent notice requirement, specifically:
The notice of claim must describe in reasonable detail the nature of each alleged construction defect and, if known, the damage or loss resulting from the defect. Based upon at least a visual inspection by the claimant or its agents, the notice of claim must identify the location of each alleged construction defect sufficiently to enable the responding parties to locate the alleged defect without undue burden. The claimant has no obligation to perform destructive or other testing for purposes of this notice.
(See Fla. Stat. §558.004(1)(b) (2015)). To be clear, unlike prior versions, the 2015 version now requires claimants to identify the location of each and every alleged construction defect. While this seemingly subtle yet profound change to 558 might appear fairly innocuous to the casual observer, the potential economic repercussions of this change could serve to dissuade property owners from participating in the 558 process altogether. This is due to the fact that, whereas the prior iterations of Chapter 558 left open the possibility that a claimed defect might be fairly extrapolated throughout the entirety of the construction project, the 2015 version of 558 would appear to significantly limit – if not preclude altogether – the use of extrapolation, a concept that has gained much prominence in recent years, particularly in the context of high-rise condominium litigation. As discussed in this article, the inability of would-be claimants to engage in extrapolation in the preparation of pre-suit defect notices could have dramatic financial implications on such claimants, and, in turn, could severely steer parties away from utilizing the 558 process altogether.
To better understand how such a change could actually serve to undermine the fundamental purpose of Chapter 558, one must first understand the concept of extrapolation. So what is extrapolation and why should we care? While there are varying definitions as to the process of extrapolation, Black’s Law Dictionary (7th Ed.) defines extrapolation as “[t]he process of estimating an unknown value or quantity on the basis of the known range of variables.” In 2007, the Nevada Supreme Court, in the case of D.R. Horton, Inc. v. Eighth Judicial Dist. Court ex rel. County of Clark, more relevantly expanded on the doctrine of extrapolation in the context of a pre-suit notice process similar to that employed here in Florida. In its opinion, the Nevada Supreme Court outlined the extrapolation and corresponding pre-suit notice requirements as follows:
Extrapolation encompasses the statistical use by an expert witness of a valid and reliable representative sample to formulate an opinion that similarly situated residences and appurtenances may have common constructional defects. The scope of the extrapolated notice must be narrow. Homes included within the scope of an extrapolated notice typically will be similarly situated only if they are part of a subset of homes within the development. In some cases, a subset of homes for extrapolation purposes may be those of a particular floor plan. In other cases, depending on the nature or location of the defect, the subset of homes to which the extrapolated notice applies may be even narrower, such as homes of a particular elevation within a particular floor plan. Likewise, a valid extrapolated notice may be limited to a subset of homes in which a particular product or type of construction was used. In all cases, an extrapolated notice is valid only if it identifies the subset or characteristics of the subset to which it applies. In order to achieve the minimum statistical basis that the reasonable threshold test requires, we suggest that the district court require the claimants’ expert to test and verify the existence of the alleged defect in at least one of the homes in each subset of homes included within the scope of the extrapolated notice.
In simpler terms, extrapolation allows a claimant to use a sufficient sample size as a representative for the whole, and as such, claimants need not test each and every location for possible construction defects. Rather, they need only determine (through the use of an expert) that a sufficient number of locations exhibit a common defect to assert that all other similarly situated locales/appurtenances exhibit the same alleged defect. Considering the exponentially more expensive process of having an expert examine each and every potentially defective location throughout a development or building, particularly multi-unit developments, there can be no question that extrapolation, even with its many criticisms, provides claimants with the potential to save significant sums in pre-suit expert costs.
As noted above, the current version of 558 now requires claimants to identify the location of each and every alleged construction defect. While claimants are under no obligation to perform destructive testing or other testing for purposes of the pre-suit 558 notice, claimants would still arguably be required to at least examine all potentially defective locations in order to successfully meet the heightened notice requirements under 558. Even without necessity of destructive testing, the fact that claimants would be required to undertake such an extensive examination up front would almost assuredly result in exponentially greater pre-suit expert costs for the claimant. Given the recency of Florida’s newest iteration of Chapter 558, it remains to be seen how the courts will interpret the new notice requirements or whether the courts will be taking a literalist interpretation and requiring claimants to identify the location of each alleged construction defect, an interpretation that would surely dissuade the more knowledgeable and sophisticated owners from participating in the 558 process. Nonetheless, prudent practitioners would be well advised to discuss with their clients the potential financial implications of the new Chapter 558 notice requirements in deciding whether or not to opt-out of the 558 process when preparing or negotiating the governing construction contract.
As Sir Isaac Newton’s third law formally states: For every action, there is an equal and opposite reaction. Indeed, while is still a bit early to forecast with confidence whether or not the change to 558’s notice requirements will force a wholesale move away from the 558 pre-suit process, the practical implications of this change are sure to find their way into the courtroom. This all-but-guaranteed certainty is surely ironic given that 558’s fundamental purpose was to keep parties out of the courtroom altogether.