Inside this Issue

A1 - Prevailing Party Attorneys’ Fees Contract Clause
A2 - Subrogation Rights of an Insurance Carrier were Violated by the Insured
A3 - Failure to Prove Consequential Damages

Article 1

Prevailing Party Attorneys’ Fees Contract Clause

See similar articles: Attorneys Fees | prevailing party

If you agree by contract clause to pay the prevailing party’s attorneys’ fees, and the court would not have imposed those fees in the absence of the contractual obligation, the professional liability policy will not cover those fees as “damages.” The contractual liability exclusion in the policy applies to prevailing party fees and excludes them from coverage.

When my firm reviews contracts some of our insurance carrier clients like us to delete the clause altogether so as to avoid this uninsurable liability. I prefer, however, to leave the prevailing party clause in the contract but to carefully define who is the prevailing party. In the sample clause below, we state that if a party makes a claim and fails to win at least 67% of its claim, then the other party is deemed to be the prevailing party. We believe this can be beneficial to discourage firms, such as design-build contractors, from filing inflated claims against their subcontractors with the hope of getting a better settlement in their favor.

As we have reported in previous ConstructionRisk Reports, some courts have found that a party is deemed the “prevailing party” on a huge claim even if it only recovered on one small aspect of the claim in some minor dollar amount. Rather than allowing courts to interpret who is deemed the prevailing party, we prefer to define the terms like this:

“Prevailing party is the party who recovers greater than 67% of its total claims in the action or who is required to pay no more than 33% of the other party’s total claims in the action when considered in the totality of claims and counterclaims, if any. In claims for monetary damages, the total amount of recoverable attorney’s fees and costs shall not exceed the net monetary award of the Prevailing Party.”

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 27, No. 4 (May 2025).

Article 2

Subrogation Rights of an Insurance Carrier were Violated by the Insured

See similar articles: Subrogation

Where a condominium association was sued by an individual condo unit owner based on water damage allegedly caused by failure to maintain a common element balcony, the insurance carrier for the Association defended and ultimately settled the suit for its $1 million policy limit. Unbeknownst to the carrier, however, while the unit owner’s suit was pending, the Association filed a separate construction defect suit against the condo developer, designer and contractor and settled that suit for over $12 million. As part of the settlement, the Association gave the defendants general releases from the Association's claims. In doing so, it allegedly failed to inform the carrier of these settlements. The carrier subsequently filed suit against the Association to recover the $1 million it had paid the Association under the policy – based on the Associations impairment of the carrier’s subrogation rights due to the release of the claims against the construction defect defendants. The trial court granted the Association’s motion to dismiss the action as premature, because the carrier failed to first sue the construction defect defendants and suffered a judgment that found the carrier’s subrogation rights had been impaired by the Association. This was reversed on appeal, with the appellate court holding that the insurance policy did not require the carrier to sue the parties that were released by the Insured. Seneca Specialty Insurance Company v. Jade Beach Condominium Association, Inc., 388 So.3d 292 (2024).

As part of the settlement, the Association gave the Construction Defect Defendants general releases of the Association's claims. For example, one of the releases provided:

“[T]he Association, for themselves and each of their respective ... insurers hereby mutually release and forever discharge [the general contractor] and each of their respective ... insurers, ... and any person or entity that provided labor, materials or services under a direct contract with [the general contractor] related to the construction of the [condominium], from any and all manner of past, present and future claims, actions, causes and causes of action, suits, lawsuits, debts, dues, duties, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, liabilities, statutory claims for damages, exemplary and/or punitive damages, claims for indemnity or contribution, controversies, expenses, assessments, penalties, charges, injuries, losses, fees, costs, damages, expenses, agreements, promises, variances, trespasses, judgments, executions, and demands whatsoever, in law or in equity, which they ever had, now have, will have, or may have in the future, against each other, both known and unknown, latent and patent, asserted and unasserted, suspected and unsuspected, discovered and undiscovered, whether now existing, or hereafter arising, that relate to, arise out of, or are in any way connected with, the original construction of the [condominium], including but not limited to all claims which were or could have been asserted in the [Construction Defect Lawsuit].”

In reviewing the issue of whether carrier had to first sue and lose the construction defect defendants the court reviewed Florida law and found no cases requiring such “sue and lose first” rule. The court noted that on prior occasions the court had ruled on the merits of an insurer’s breach of contract claim against its insured without a prior adverse determination of the underlying subrogated cases.

“Florida case law consistently holds that a cause of action for breach of contract accrues and the limitations period commences at the time of the breach.” Seneca pled that the Association breached the insurance policy when it entered into settlements with the Construction Defect Defendants and released them from any further liability. Seneca alleged this breach caused it damages because it could no longer recover the amounts it paid on behalf of the Association through subrogation. While the fact that Seneca did not first unsuccessfully sue the Construction Defect Defendants may ultimately result in a proof problem for Seneca, at this stage of the proceedings, it does not defeat Seneca's otherwise well pled breach of contract action. (citation omitted).”

The court concluded that the carrier sufficiently pled a cause of action for breach of contract against the Association. Because the Association failed to identify any authority requiring the carrier to first obtain an adverse determination in an action against the Construction Defect defendants before bringing the action, the court reversed the dismissal. The action is remanded to the trial court because the carrier sufficiently plead facts establishing all elements of a breach of contract claim and the merits of the case must be decided by the trier of fact at trial.

Article 3

Failure to Prove Consequential Damages

See similar articles: Consequential Damages | damages proof | Failure to Prove Consequential Damages

Owner established that its contractor breached its contract by failing to complete and/or properly perform bathroom tile work in a house being built. The Owner sought compensatory as well as consequential damages allegedly caused by construction delays resulting from failure to complete the tile work on time. The trial court granted the contractor’s motion for summary judgment based on Owner’s failure to produce evidence supporting the actual damages because the alleged consequential damages were too remote.

The judgement regarding general damages was reversed on appeal, with the court holding that deposition testimony demonstrated that there was a breach of contract. Once a plaintiff established a breach of contract, under Georgia law, the plaintiff the injured party has a right to damages even if those are only nominal damages sufficient to cover the costs of bring the law suit. As to consequential damages, however, the court affirmed the summary judgment because the only evidence of such damages that was presented as an amortization table showing interest rate increased on the Owner’s load.

There was nothing in the record to show that the Owner actually paid more interest, however, because of the delays. Moreover, the alleged consequential damages couldn’t be traced solely to the defendant contractor because evidence had been presented showing that other contactors were also behind schedule on the project. Ajigbolkamu v. Milne, 371 Ga.App. 710 (2024).

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