A three-year statute of limitations for negligence claims was applied by a court to dismiss a claim against an architect in which the claimant presented its claim as one for  breach of contract based upon alleged breach express warranty.  The plaintiff asserted that a six-year period for breach of contract claims should be applied instead of the shorter period for negligence actions.  The court held that despite the contractual language relied upon by the claimant, the essence of the claim was that the architect had performed its contractual services negligently, and the legislative intent was that no matter how a claim is presented, if it arises out of professional negligence, the shorter limitations period must be applied.

Breach of Contract Claims

In the case of Kliment & Frances Halsband. v. McKinsey & Company, Inc., 3 N.Y.3d 538 (Dec. 2004), an architect, Kliment & Frances Halsband (K&H) peformed design services for McKinsey and Company, the lessee of office building space.  Four years after K&H completed its interior design services, McKinsey submitted a demand for arbitration, claiming that the architect failed to provide fire protection in compliance with the building code.  The architect filed suit in court to a permanent stay of arbitration, arguing that the claim was barred by the three-year statute of limitations applicable to professional negligence claims.  The state trial court ruled against the architect.  It concluded that the claim was a breach of contract claim rather than a negligence claim because the architects failed to perform a contractual obligation.  The trial court thus held that the claim was timely within the six-year statute of limitations applicable to breach of contract claims.   This was reversed on appeal, and the appellate decision was further affirmed upon ultimate appeal to the highest court of appeals of the state.

At issue was whether a contract provision concerning code compliance constituted an express guarantee that elevated the architect’s responsibility to higher than the normal standard of care.  The contract provided the following:  “All plans, drawings, specifications and other documents prepared by Architect or its consultants or engineers in connection with the Project … shall be in compliance with al laws, codes, ordinances and other requirements applicable to the Project (including without limitation the relevant building code….)”

The appellate division held that whether the alleged failure to comply with the code was a breach of contract or tortuous (negligent) in nature was immaterial for statute of limitations purposes.  In affirming the appellate court decision, the Court of Appeals quoted the legislative history of the statute of limitations which reads as follows: “  Where the underlying complaint is one which essentially claims that there was a failure to utilize reasonable care or where acts of omission or negligence are alleged or claimed, the statue of limitations shall be three years if the case comes within the purview of [the statute] regardless of whether the theory is based in tort or in a breach of contract.”

Even though the claimant had alleged breach of an express, rather than implied, term of the agreement, the court held that “while compliance with the relevant building code may have been a particular bargained-for result, that result is not inconsistent with an architect’s ordinary professional obligations.  Making such ordinary obligations express terms of an agreement does not remove the issue from the realm of negligence as argued by McKinsey, nor can it convert a malpractice action into a breach of contract action.”

Comment:  This court concluded that although the architect expressly committed by contract to comply with various code requirements, this did not constitute an express warranty that would turn this into breach of contract claim and thereby avoid requirements applicable to professional malpractice claims—such as the shorter statute of limitations period.  This would also mean that the claimant would be required to prove that the architect’s alleged lack of code compliance was the result of negligence.  Thus, it appears that the issue is whether the architect complied with the generally accepted standard of care.  In an action based upon negligence, a claimant would have to prove not only that the architect failed to comply with a code provision, but also that it was negligent in doing so.  Mere failure to comply does not necessarily entitle the claimant to a judgment against the architect.   The reasoning of the court is quite important because quite a few contracts seem to be attempting to make the design professional contractually liable for any and all errors regardless of whether there was negligence or not.  If the reasoning of this opinion is applied, one might argue just as held here that “Making such ordinary obligations express terms of an agreement does not remove the issue from the realm of negligence … nor can it convert a malpractice action into a breach of contract action.

Design professionals and their attorneys are sometimes frustrated by some project owners who attempt to convert all professional obligations into strict contractual commitments with the expectation that they can win a claim against the design professional without proving negligence and that they can even prevail to obtain insurance proceeds from the architect’s professional liability policy in the absence of negligence.  Insurance professionals and risk managers routinely advise design professionals to avoid “contractual liabilities” by which the design professional would have liability for non-negligent performance since the liability expressly excludes coverage for “contractual liability” and express warranties.  This decision might be a useful one to share with such owners during contract negotiation.   Attempting to hold design professionals responsible for anything other than their negligence is not in the best interest of the project or project owner.  As seen in this case, it may be the cause unnecessary confusion and litigation.  And it may also cause an insurance carrier to deny coverage for a claim if the owner in fact recovers for breach of contract instead of for negligence.

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. 7, No. 3 (Jun 2005).

Copyright 2005, ConstructionRIsk.com, LLC