To better manage and price the risks associated with design services, A/E’s often include language in their contracts with their clients establishing a specific limitation on how long a client can wait before filing suit against the A/E for damages arising out of the professional services. AIA B141 includes a clause stating: “As between the parties to this Agreement: as to all acts or failures to act by either party to this Agreement, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all event not later than the relevant Date of Substantial Completion of the Work. . . .”
In the case of Harbor Court Associates v. Leo A. Daly, Company, 1999 U.S. App Lexis 11265 (4th Cir. 1999), the parties signed a standard AIA contract containing the above-quoted time limitation. It established September 11, 1987 as the date of Substantial Completion. That then became the date from which the three-year state statute of limitations began to run. Nine years after the project was completed, a fifteen-square-foot area of brick suddenly exploded off the face of the Complex. According to experts retained by the owner the damage was caused by fundamental and latent defects in design and construction. Since the lawsuit was initiated more than three years after Substantial Completion, the defendant asked to the court to grant it summary judgment. The trial court granted the motion and the plaintiff appealed. The plaintiff argued that the contract provision violated public policy of the State of Maryland that holds that the “discovery rule” should apply when determining when a suit must be filed. That means that a “cause of action accrues when the [plaintiff] in fact knew or reasonably should have known of the wrong.”
The appellate court affirmed the lower court decision to grant summary judgment because even though the Maryland courts apply the “discovery rule,” the parties to a contract are free to negotiate a specific time period for filing suit. The court stated that it is reluctant to strike down voluntary bargains on public policy grounds. In fact the court stated this would be done “only in those cases where the challenged agreement is patently offensive to the public good . . ..” As further explained by the court, “In light of this established judicial commitment to protecting individuals’ efforts to structure their own affairs through contract, we cannot conclude that the Maryland Court of Appeals would decline to allow parties to contract around the state’s default rule establishing the date on which a relevant statute of limitations begins to run.”
———— Risk Management Note ————:
By establishing a definite cut-off time for its client to sue it, an A/E is able to limit its risk to a limited amount of time. On construction projects where plaintiffs have sought recovery 25 years or more after project completion, this relief is important. It also permits the A/E to reduce its insurance costs since it may not need professional liability insurance coverage for as many years after a project is completed. For A/Es maintaining practice policies with retroactive insurance coverage dates going back many years, this may reduce the premium charged by the carrier.
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 Construction Risk 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.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 2, No. 3 (Mar 2000).
Copyright 1999, ConstructionRIsk.com, LLC