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March 1, 1997 MEMORANDUM TO CLIENTS
CASH IS CASH Directors, managers and owners constantly scratch their heads in wonder and ask: What does the term "actual cash value" mean? The question frequently arises when reviewing insurance policies. Sometimes the term is explained when an insurance policy is purchased. Sometimes the term is not understood until a fire, theft, storm or other event causes a loss. The definition of the term "actual cash value" was at issue in American Reliance Ins. Co. v. Perez, 618 So. 2d 233, 22 Fla. L. Weekly D138 (Fla. 3rd DCA January 8, 1997). The Perez' made a Hurricane Andrew claim pursuant to their American Reliance Insurance policy. A dispute arose between the Perez' and American Reliance regarding the value of the Perez' loss. The Perez' claimed that the term "actual cash value" was ambiguous. The Third District Court of Appeals held that the term "actual cash value" is not ambiguous. Appraisers commonly use the term. It means "market value" or "fair market value". The Court defined the term "actual cash value" as meaning:
The Court noted that there were three well-known methods for appraising value: "the cost approach", the "comparable sales approach", and the "income or economic approach". The Court noted that each approach considers the condition of the property, taking into account the property's physical deterioration. Thus, those responsible for insuring property should consider before purchasing insurance whether the policy will pay the actual cash value as opposed to the replacement cost. The former is generally much less then the latter, replacement cost generally being the actual cost to replace lost property. Of course, replacement cost insurance generally is more expensive. Many declarations of condominium and covenants require associations to obtain replacement cost insurance to ensure that owners can afford to rebuild a community devastated by a major event. Note, generally officers' and directors' liability policies do not provide coverage for not properly purchasing insurance coverage. CONTRACTING WITH CONTRACTORS: EXERCISES IN DEFINITENESS AND PATIENCE
It seems that "season" has just begun; however, season will soon end. Thus, many associations are soliciting contracting bids and signing contracts for off-season work. Most associations take care to obtain reputable contractors and clear contracts; however, occasionally even well-intended associations find themselves in difficult situations. Hurricane Andrew exposed many contracting problems, such as the dispute resulting in The Gables I Townhomes, Inc. v. Sunmark Restoration, Inc., 21 Fla. L Weekly D2376 (Fla. 3rd DCA November 6, 1996). Sunmark agreed to negotiate the Condominium Association's insurance settlement. The Association was to pay Sunmark an amount to be determined by Sunmark and the insurer. The Association thought it had a good deal. With twenty-twenty hindsight on observer could anticipate that a dispute over the amount was certain. The Appellate Court determined that an essential contract term was missing, the price; thus, the agreement was indefinite and was not enforceable. The Gables decision is a recent judicial reminder that proper contract language and contracting procedures are crucial. Generally, an association's or owner's first step is to clearly define a goal. Unfortunately, many contractors will not agree to fix a problem. These contractors provide only a "specifications contract" agreeing to supply certain materials and certain labor. When a specifications contract is used, obtain the advice of an expert in the field is frequently necessary to specify in the agreement what work should be done to obtain your goal. The contract must specify the method of determining the price to be paid and when. For complicated jobs take into account charges that may not be reasonably anticipated. Generally, associations should specify all the work sought because post-contract changes are usually costly. To avoid misunderstandings, contracts generally should specify who is responsible for each ancillary expense, such as licenses and permits, and then clearly allocate the risks of non-performance. Many jobs will require a Notice of Commencement. A Notice of Commencement is intended to protect owners and associations, especially if there are material suppliers, subcontractors, or third party laborers. A Notice when properly recorded requires those other than professionals and direct contractors to timely advise the association of their work before a contractor's lien can be filed for non-payment. With this advice, an owner or association can confirm that everyone who worked on the job was paid before the general contractor's final payment is made, thus avoiding a contractor's lien and double payments. Above all, contracts are intended to ensure that each party has mutual expectations. A contract is not intended to play "gotcha" or to create a document upon which to base litigation. To the extent that parties, especially in a construction job, do not trust each other, then it is probably best for each side to walk away and for the property owner to seek a new contractor before signing an agreement! Beginning a construction project without trust is a certain recipe for disaster. Hopefully, the contract process will reinforce the parties' desire to work with each other. STAFF CELEBRATIONS
The firm is happy to welcome Jamie Stanton. Jamie will be assisting Mr. Gelfand. Please say hello to Jamie when you visit the office or when you call us. Please also congratulate Shona Matthews. Shona will be changing her last name to Turner on March 1, 1997 when she marries Daniel Turner. Wishing her the best, please note that she will be absent the first week of March. We appreciate your patience and understanding when you call her after her return. Scott Stoloff and his wife Stephanie are proud to announce the arrival of their daughter, Samantha Megan Stoloff. Samantha was born on January 20, 1997.
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