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Why Contractors Get Sued (And How To Avoid It) with Matthew Fornaro · Contractor Business Builder Podcast

• 0:00
  Welcome to another great episode of the Contractor Business
• 0:02
  Builder podcast. What happens when a contractor
• 0:04
  thinks they're protected only to discover one clause in their
• 0:07
  contract, one insurance limitation, or one missed notice
• 0:11
  could cost them hundreds of thousands of dollars.
• 0:13
  In this episode, attorney Matthew Fornaro breaks down the
• 0:16
  hidden legal risk contractor space every day.
• 0:19
  How you doing today, Matthew? Derek, how you?
• 0:20
  Doing good, excited to talk to you.
• 0:22
  I think this is a topic that many contractors don't think
• 0:26
  about until it actually happens to them.
• 0:28
  I have them is probably all they're thinking about for quite
• 0:30
  some time. Can you tell us a little bit
• 0:32
  about your background and how you became involved in in
• 0:35
  construction litigation and representation?
• 0:37
  Sure. So I've been an attorney for
• 0:39
  about 23 years now. You know, most of what I've done
• 0:43
  is commercial litigation, probably 10% transactional.
• 0:47
  And my biggest focus industry, I would say, whether by trial and
• 0:52
  error is actually construction. Construction is huge where I am
• 0:56
  in South Florida and all over Florida.
• 0:58
  And, you know, that's a lot of what I do.
• 1:02
  It's just construction litigation, dealing with
• 1:04
  contractors, subcontractors, things gone wrong.
• 1:08
  You know, people not paid bad projects, you know, just the
• 1:12
  usual construction nonsense that happens.
• 1:14
  And that's a lot of what my practice.
• 1:16
  Is all about yeah, definitely, yeah.
• 1:19
  The industry is ripe for, you know, legal difficulties, if you
• 1:23
  will, between all sorts of, you know, different businesses and
• 1:26
  clients and, you know, there's money involved in production
• 1:29
  involved. What are some of the kind of top
• 1:31
  mistakes or reasons that a contractor would need to, you
• 1:37
  know, utilize their services or get into a legal battle or
• 1:40
  confrontation? Sure.
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  And also for it to mention I'm in Florida, which is the
• 1:45
  unlicensed contractor capital of the world.
• 1:47
  So we also have that issue going on.
• 1:49
  But for legitimate license contractors and subcontractors,
• 1:53
  you know, it's pretty much the usual same issues of, you know,
• 1:57
  money flow issues of payment of either the contractor doesn't
• 2:02
  get paid, then the subcontractor doesn't get paid in the material
• 2:05
  men and whoever else doesn't get paid.
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  So probably #1 issue is money issues would probably be top
• 2:11
  issue. Another issue is obviously
• 2:13
  construction defect issues where whether it's the subcontractor
• 2:18
  didn't do something and then the contractor gets blamed for it by
• 2:21
  the homeowner or the builder or whoever.
• 2:23
  You know, it would be a construction defect for like a
• 2:27
  better term thing. Another thing too is, you know,
• 2:30
  unfortunately, like I said, here in Florida is the, I may be as
• 2:33
  far South used as possible, but it is the Wild West here.
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  You know, there's a lot of fly by night people.
• 2:39
  A lot of people like to take money and walk off the job,
• 2:43
  unfortunately. So there's a lot of that that I
• 2:45
  deal with where, you know, the general contractor or the
• 2:48
  subcontractor, whoever took money from the homeowner or the
• 2:51
  developer and left and didn't pay people.
• 2:54
  And now there's all kinds of lien issues, all kinds of breach
• 2:58
  of contract issues, all kinds of other issues.
• 3:00
  So there's that. And then, you know, a lot of
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  these for where I am in Florida, part of what I do is statutorily
• 3:06
  driven for Florida statute 713, which is our construction
• 3:10
  statute. So there's a lot of lien issues
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  where liens are screwed up, liens aren't done correctly.
• 3:16
  You know, people are foreclosing on liens, homeowners are
• 3:19
  defending against foreclosures on liens.
• 3:21
  You know, people are claiming they got paid, they didn't get
• 3:24
  paid, they're getting lien, they're not getting liens.
• 3:26
  So a lot of, you know a lot of it probably those 345 issues are
• 3:30
  probably the majority of the construction litigation that I
• 3:32
  deal with here. Lots, lots going on there.
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  Now, what is your recommendation as far as how to contractors
• 3:38
  protect themselves? I think a lot of them think I've
• 3:40
  got a contract in place or if you got insurance, but obviously
• 3:44
  there's a wide range there. And at the end of the day, are
• 3:46
  those helpful or what do you see as far as like how can
• 3:49
  contractors protect themselves from some of these issues?
• 3:52
  So one of the, you know, the contractor, you know,
• 3:56
  contracting is just a, you know, a type of business, OK.
• 3:59
  So general business acumen, general good business practices,
• 4:03
  obviously also applied to contractors, which is, you know,
• 4:06
  obey all the laws, whether federal, state, local,
• 4:09
  municipal, you know, do everything uniformly and
• 4:12
  objectively, you know, don't cut corners, you know, the usual
• 4:16
  stuff. But for specifically for
• 4:17
  contractors, one of the main things is having a really good
• 4:20
  construction contract. A really good construction
• 4:22
  contract will, you know, avoid some issues, believe it or not,
• 4:27
  just because of the contract itself.
• 4:28
  But when something arises, like the situations I describe,
• 4:32
  having a really good contract in place will make sure that you're
• 4:36
  in the best position possible to limit your liability, whether
• 4:39
  it's downstream or upstream, and make sure that you're in a
• 4:44
  position to get paid. So making sure you have a really
• 4:47
  good construction contract is probably the best thing that you
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  can do other than having good business practices, you know,
• 4:53
  doing your stuff, whatever. But from a backroom kind of
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  standpoint or a preparation standpoint, having a really
• 4:59
  robust, good construction contract is probably the best
• 5:02
  thing that you can do as a contractor.
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  And you know, I've seen it, you know, so many cases where, you
• 5:10
  know, I represent a general contract who has probably what I
• 5:14
  would consider the best construction contract I've ever
• 5:17
  seen. And luckily I didn't draft it.
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  He had a board certified attorney come in that he spent
• 5:22
  five figures on to just draft this contract.
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  And I'm talking deep 5 figures on and he uses in all his
• 5:28
  construction. And you know, I predominantly do
• 5:31
  his litigation and I will tell you that that contract has
• 5:34
  gotten me into and out of a lot of situations that like would
• 5:39
  have had a lot of bigger headaches and a lot of bigger
• 5:42
  problems with if that contract wasn't so good.
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  And that would probably be my best advice is to have like, you
• 5:50
  know, here in Florida, have a board certified construction
• 5:53
  attorney draft a really good contract, have someone else
• 5:57
  review it and make sure like from a litigation standpoint,
• 6:00
  which is predominantly what I do have like a litigation attorney
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  look at it too and make sure it's great.
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  And you know, like my one construct, my one contractor,
• 6:09
  right? That contract, I don't wanna say
• 6:10
  his bulletproof cause there's no such thing as bulletproof, but
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  it's pretty close to it. So that would be my primary
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  advice to a contractors other than the good business
• 6:19
  practices, you know, do quality work, whatever is have your best
• 6:24
  possible contract in place that'll make sure that if issues
• 6:28
  arise, they'll be addressed the best way possible.
• 6:30
  Yeah, definitely don't just slap something together.
• 6:33
  Use the next guys that sent to. Their coffees and actually,
• 6:36
  yeah, it's definitely, you know, definitely wanna also always be
• 6:41
  updating your contract as statutes changes, practices
• 6:44
  change or whatever. But you definitely don't want to
• 6:46
  take some of their dudes contract and be like, hey, this
• 6:48
  looks good, let's adopt it. Or you don't wanna take a form
• 6:51
  you fight off the Internet or whatever.
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  This is definitely something where you want something bespoke
• 6:55
  that's drafted just for you. Yeah, make the investment and
• 6:58
  and get a you know, someone local that understands local
• 7:01
  laws to and construction to to draft something.
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  Now, let's say you've got a good contract, something goes S still
• 7:07
  and you end up, you know, some sort of legal situation or
• 7:12
  potential legal situation. Where does insurance come into
• 7:15
  play or where have you seen insurance?
• 7:18
  I think you you talked about you were helping party that was, you
• 7:22
  know, involved with some mold issues, I guess in the house or
• 7:26
  things like that that that come up.
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  So can you maybe talk about that of what insurance actually
• 7:30
  covers or the contracts have the right type of insurance?
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  Like, like, like I said a few minutes ago, you know,
• 7:37
  contractors were just, you know, you're in business just like
• 7:39
  anyone else. So the first thing you do that I
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  tell all my clients, no matter what industry there is, when
• 7:45
  you're sued, get that lawsuit and send it to every insurance
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  agent that you have insurance coverage with and see if it's
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  covered by someone for something, you know, because
• 7:55
  that's the first thing, because it could be covered.
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  And if it's covered, you're in pretty good shape.
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  You know, a lot of people, a lot of business owners sort of are
• 8:01
  really scared when they get sued, rightly so, but they're
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  really scared to let their insurance company know.
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  So A, you're required to let them know and B, the whole
• 8:12
  reason why you have insurance is so if it's a covered event, they
• 8:16
  come and cover you. So I never, you know, and it's
• 8:20
  funny because I always deal with this issue where you know,
• 8:22
  explain it's kind of me. I'm like, well, did you contact
• 8:24
  your insurance agent? No, I don't want my right.
• 8:26
  Well, I'm like A, you're required to do it and B, you
• 8:29
  should do it anyways because if they cover it, they'll cover the
• 8:31
  cost of your defence. You know, if the pay anything
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  and they'll cover the cost of whatever else.
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  My dear punk had to settle the case.
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  You know, my first and last instruction on anyone when they
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  get a lawsuit, let alone in the construction field, is give it
• 8:43
  to your insurance agent and give it to the insurance company and
• 8:46
  see if it's covered or not. Depending on what the
• 8:47
  circumstances are and what your policy says, it may be covered.
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  If it is covered, obviously do it.
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  The insurance company says they're going to provide
• 8:56
  insurance defence counsel and follow all their instructions
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  and do what they say. Sometimes stuff is excluded, and
• 9:02
  if it's excluded, you make sure that you get a written
• 9:06
  determination from your insurance carrier that it's
• 9:08
  excluded, and then you got to go foot the bill yourself and
• 9:11
  defend the case. And I know we had spoken about
• 9:13
  previously off the air about a case I'm working on right now
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  where it's a big construction job on the West Coast of Florida
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  for a residential, you know, residential construction.
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  And there's like a mold issue. So there's literally 12
• 9:27
  defendants in this case, OK? There's the homeowners who are
• 9:30
  the plaintiffs, and there's 12 defendants.
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  So there's the general contractor and literally anyone
• 9:36
  who had anything to do with that house being built is named as a
• 9:39
  defendant. So I represent in that case a
• 9:43
  subcontractor who all they did was the frame it.
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  So there's no real issue about what my guy did in order for
• 9:51
  there to be water and mold because he just did the framing.
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  And it's not like he was responsible for sealing up the
• 9:57
  property or whatever, but named in lawsuit anyways.
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  So you know, obviously, you know, sent it to the insurance
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  company. The insurance company denied
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  coverage because they said the job was too big, outside the
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  scope of what my guy was supposed to be contracting for,
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  which is another issue which we're dealing with collaterally
• 10:17
  anyways. But with that being said, no, I
• 10:18
  got to come in and defend the case.
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  So, you know, we have to assert all our defences, whatever.
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  And then obviously we also have cross claims against the other
• 10:28
  subcontractors who we think are responsible for if there's an
• 10:31
  issue there. And then most importantly
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  against the general contractor because they're the quarterback
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  or since you're Canadian, we'll say centre for the ice hockey
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  team who are in charge of, you know, putting the stuff
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  together. And we say that the blame lies
• 10:47
  with them, not me, but got to defend it anyway.
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  So that's an example of where there is no insurance coverage
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  and you have to hire your own counsel to come in and defend
• 10:56
  your interests and assert not only your defences, but your
• 10:58
  claims as well. Got it.
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  That's the sort of process, I guess when, when something comes
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  up like this, like you mentioned, you contact your
• 11:08
  insurance company, see if you're covered.
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  Is, is it usually some sort of, let's talk this through and try
• 11:13
  to like avoid, you know, heavy legal battles if, if possible,
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  or is is it typically like it needs to follow protocol and and
• 11:22
  get some sort of legal like process involved?
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  You know, Derek, it's a little bit of both where you're trying
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  to make good business decisions and make, you know, try to make
• 11:33
  business decisions, not necessarily legal decisions
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  about your business. So obviously if you're in the
• 11:37
  business of construction, you make money by being in
• 11:40
  construction, you don't make money by being in a lawsuit.
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  So you want to try to extricate yourself as quickly as possible
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  from the lawsuit, particularly if there's no insurance
• 11:48
  coverage. However, at the same time, you
• 11:50
  know, you're not going to give away the farm and, you know,
• 11:53
  just walk away, particularly like in the case where I'm
• 11:57
  talking about where, you know, we feel strongly that we're not
• 12:01
  liable. So, you know, we went to
• 12:03
  mediation and, you know, mediation is confidential.
• 12:05
  I can't talk about what happened there, but I can't tell you.
• 12:08
  You know, we thought we were reasonable trying to settle the
• 12:11
  case and the other parties weren't necessarily reasonable,
• 12:15
  particularly given what we think is a pretty, you know, easily to
• 12:19
  show lack of a role in all of this on our part.
• 12:23
  So we wanted to get out of the case.
• 12:25
  We wanted to settle, but you know you can't.
• 12:28
  You know, they say you can't take blood from a stone, but
• 12:30
  apparently you can't give blood to a stone that doesn't want it
• 12:33
  either. So we're stuck in the case.
• 12:35
  So since we're stuck in the case, we have to defend
• 12:38
  ourselves. We have to assert whatever we
• 12:40
  can. But obviously, you know, each
• 12:42
  case is subjective. In each case is different, but
• 12:45
  obviously you want to make the best business decisions possible
• 12:48
  and get out of a lawsuit as quickly, as cheaply as possible
• 12:51
  when it makes business sense. But if it doesn't make business
• 12:54
  sense, sometimes you're stuff along for the ride, like I am in
• 12:56
  this case. Yeah, makes sense.
• 12:58
  And you mentioned earlier about the insurance company stating
• 13:02
  that, you know, the work was bigger outside of the policy.
• 13:07
  How often should this get reviewed or how can kind of
• 13:10
  contractor know to make sure that they're not overstepping
• 13:13
  their, you know, their current policy or need an upgrade or
• 13:16
  something of that regard? Well, you know, you should
• 13:18
  always in any business, let alone construction or being a
• 13:22
  contract, you want to make sure that you actually have some kind
• 13:24
  of relationship with your commercial insurance agent.
• 13:27
  So, you know, it's like with any professional with your account
• 13:30
  and with your attorney. You wanna, you know, it's not
• 13:32
  just like, you know, for us in the states here, you know,
• 13:35
  accountant, a lot of people just think it's a once a year
• 13:37
  relationship where it's like, here's my taxes, do my return,
• 13:40
  I'll see you next year. You want to kind of have an
• 13:42
  ongoing dialogue and the same thing with your insurance agent,
• 13:46
  your commercial insurance agent, particularly if you're in
• 13:48
  construction, you want to make sure that you're able to reach
• 13:51
  out to that person and be like, you know, on a, on a, you know,
• 13:55
  if you're taking a job, you want to be like able to contact the
• 13:58
  person and be like, hey, I just want to make sure I'm going to
• 14:00
  take this job. You modify it, run it by you
• 14:02
  real quick to make sure that there's no issues that are going
• 14:05
  to rise under my policy or whatever.
• 14:07
  And obviously most commercial insurance agents are glad to
• 14:10
  take that call or glad to take that e-mail and go over it with
• 14:13
  you because that's their whole job.
• 14:14
  And that's generally speaking, what you want to do is if you
• 14:17
  have a question over your coverage or your scope or
• 14:20
  whatever you want to raise it before you actually go on to the
• 14:22
  job, before you sign a contract, before you take anything, just
• 14:25
  run it by your commercial insurance agent and be like,
• 14:27
  hey, I'm going to take on a, you know, forgive me since you know,
• 14:30
  I'm an American. I'll use square feet.
• 14:32
  You know, we're going to do like a 5000 square foot job, you
• 14:35
  know, is that covered? You know, it's two stories,
• 14:37
  whatever, you know, and make sure versus, you know, I guess
• 14:41
  you, you know, you would use square beaters or whatever, but
• 14:43
  I'm an American not even know what a meter is.
• 14:45
  So you know, and you want to make sure you, you know, have
• 14:49
  that dialogue. You're able to ask that question
• 14:50
  before you take on any kind of liability.
• 14:53
  And you know, that should be any good relationship that you have
• 14:56
  with your insurance agent should always be able to ask him that
• 14:59
  question before you step on the job, before you sign the
• 15:01
  contract. Yeah, I think what you mentioned
• 15:04
  about contractors typically figuring like they maybe get
• 15:08
  their annual upgrade and they're just very rarely, at least from
• 15:12
  my experience, much communication with the insurance
• 15:15
  company. But yeah, if if you're scaling
• 15:17
  pretty fast, like you're going to increase your revenue
• 15:20
  considerably or taking a large project or project in a new area
• 15:24
  that that's maybe outside of, you know, where you normally
• 15:26
  work, maybe different type of work that you're not typically
• 15:30
  doing or something with high risk potentially.
• 15:32
  That's yeah, just send an e-mail, right.
• 15:34
  It's it's about all, all you need.
• 15:36
  Give me give you. And your insurance, your
• 15:39
  insurance agent should welcome it too because it's a CYA for
• 15:43
  them. Because if they tell you don't
• 15:45
  take that job and then you take that job and something happens,
• 15:48
  then Step 1 is when you go for coverage OHP, guess what?
• 15:51
  Before you even sign that contract, One other thing I sent
• 15:53
  you an e-mail telling you not to do it.
• 15:55
  Yeah, most definitely perfect. So in a general sense, as far as
• 15:59
  business goes, what's maybe some of the best advice you've
• 16:01
  received or given for businesses just trying to mitigate risk and
• 16:06
  and grow a company? You know, I mean, it's kind of
• 16:09
  like what we're talking about where you just want to, you
• 16:11
  know, comply with all the laws, make sure you have all your
• 16:15
  documents in place and make sure you have your governing
• 16:18
  documents in place for your business organization, whether
• 16:20
  it's a corporation with articles of incorporation and bylaws.
• 16:24
  If it's an LLC, make sure you have your operating agreement
• 16:27
  and then make sure that you uniformly and objectively run
• 16:31
  your business. And don't you know, make
• 16:33
  exceptions here or there. Everything should be black and
• 16:35
  white. There should be no Gray because
• 16:37
  when something happens and there's Gray, you're going to
• 16:40
  have problems. So when something happens and
• 16:42
  it's black and white, then you're able to invoke insurance
• 16:45
  coverage or you're able to invoke the, you know, corporate
• 16:49
  shield. So there's no individual
• 16:50
  liability. But when you do things that, you
• 16:53
  know, cut corners or don't do, don't comply with things or
• 16:56
  whatever, then you're going to have problems where you may have
• 16:59
  personal liability, you may not have insurance coverage, you may
• 17:02
  have more damages than you would have otherwise.
• 17:05
  So it's just general common sense kind of, you know, good
• 17:08
  old fashioned business practices are just, you know, things that
• 17:11
  you should do, you know, not just in the old days, but in
• 17:14
  2026 and going forward. I think relying on your team as
• 17:18
  well, like obviously contractors not going to know a whole lot
• 17:21
  about legal stuff typically or insurance.
• 17:23
  So your team is there business is a team sport.
• 17:26
  Reach out to the people around you and make sure you're
• 17:30
  checking in with them, giving them the information that's
• 17:32
  needed and utilizing your your professional team, whether you
• 17:36
  know that's lawyer, accountant, insurance agent, whoever to to
• 17:39
  give you good all advice and double check stuff if you think
• 17:42
  it's off. So thanks so much for sharing
• 17:44
  your expertise here, Matthew, and helping all the contractors
• 17:47
  out there be a little more safe and secure legally.
• 17:50
  What's the best way for people to reach out to you if they want
• 17:53
  to learn more, connect with. You just go to my website
• 17:55
  whichisfunerallegal.com, which is my last name, R&R oll.com.
• 18:02
  It's got all my contact information, all my social
• 18:04
  media, all my blogs, all my papers, all my videos.
• 18:07
  It should answer a lot of your questions, not just about
• 18:10
  business in general, but a lot of specific construction stuff,
• 18:13
  a lot of specific Florida construction stuff.
• 18:15
  If you're in Florida and if you have any questions or whatever,
• 18:18
  just reach out to me. If I don't know the answer, I
• 18:20
  probably know someone who does and I'll put you in touch with
• 18:22
  them. Perfect.
• 18:23
  Great. So we'll put a link to the
• 18:24
  website and the description of this video audio, wherever
• 18:27
  you're checking it out from. Go to the website, connect with
• 18:30
  Matthew if you got questions, learn some of the important
• 18:33
  content there. And yeah, I really appreciate
• 18:36
  you coming on here today, Matthew, and sharing your
• 18:38
  insights.