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When the State of New Jersey brought suit against a number of contractors involved in constructing a state prison, alleging that the centralized underground system that distributed hot water throughout multiple buildings of the prison was defective, the contractors obtained summary judgment because the trial court concluded that the10 year statute of repose had run on claims concerning the hot water system that had been installed and accepted as part of substantially completed portions of the project more than 10 years earlier.  This was reversed on appeal, with the appellate court holding that because the hot water system was not, according to the contract, a separate “improvement” that was subject to substantial completion before all buildings to which the system was connected were deemed complete, the only trigger date for the statute of repose for the hot water system was the date that the all the contractors substantially completed their final work on the project.  In addition, the statute of repose would be totally inapplicable to the manufacturer of the pipe because the action against the pipe manufacturer was based on a defective “product” rather than defective design or construction services.   New Jersey v. Perini Corp., et al., 425 NJ Super, 62, 39 A.3d 918 (2012).

The prison was built in the mid 1990s and the hot water system began failing in 2000.  The state filed suit April 28, 2008 against five firms that were responsible for the design, construction and materials in building the prison’s hot water system.  That date was more than ten years after most of the facilities at the prison were put into use, but it was three days short of ten years from the date that the state issued the last of its certificates of substantial completion on the entire project.

New Jersey’s statute of repose provides as follows:

 “No action, whether in contract, in tort, or otherwise, to recover damages for any deficiency in the design, planning, surveying, supervision or construction of an improvement to real property, … nor any action for contribution or indemnity for damages sustained on account of such injury, shall be brought against any person performing or furnishing the design, planning, surveying, supervision of construction or construction of such improvement to real property, more than 10 years after the performance or furnishing of such services and construction….”

 The dispute in this case concerned, dates from which the ten-year period began to run, thus triggering the statue of repose.  The contractors argued that the relevant trigger date occurred more than 10 years before the suit was filed because the state had signed off on dozens of substantial completion certificates for various buildings and parts of the building more than 10 years previous and had occupied and used the entire prison facility more than 10 years before filing suit.   For example, the central plant building housing the boilers was certified as substantially complete in May of 1997 and the State took control of operating and inspecting the hot water system as of June of 1997, almost 11 years prior to the suit being filed.

Over thirty (30) certificates of substantial completion for various parts of the construction project were issued by the state prior to May of 1998.  Each certificate stated that a specifically designated part of the project was substantially complete and suitable for occupancy or use by the State.  The project was built in multiple phases, and 28 of the certificates of substantial completion covered Phases I and II A in their entirety, as well as parts of Phase II.   However, none of the total of 30 certificates of substantial completion designated the hot water system as a separate facility or component of the construction project that was substantially completed.

The State argued that a bright-line starting date should apply to the statutory period of repose “so that construction litigation retains a level of certainty and predictability.”   The contractors argued just the opposite – that the statute of repose for each issue must run from the date of the applicable substantial completion certificate covering the affected work.   In finding against the contractors, the court explained how the trigger date would, and would not, be affected by multiple phases of completion and multiple certificates of substantial completion on different parts of the project.  The court said:

 “We reject application of separate trigger dates of repose for components of project, whether multi-phase or not, that are not clearly identified in the documentary record as distinguishable ‘improvements to real property.’”

 On the other hand, the court concluded that “Any number of components of construction may be substantially completed before the entire structure or project is completed and ready for use…. Subcontractors whose work on any of these components has been completed and who have no further duties may rely on the running of a statute of repose because their participation in the project will be clearly delineated by the date they finished working.  But the statute of repose does not run against the general contractor, the project supervisor, or other contractors who have continuing duties.  As to them, applying a separate trigger date to a component of a construction project can result in unending and complex periods of time in determining what claims for injuries or damages are timely brought.  For contractors who remain on the job, the statute is triggered when their own work on the project is substantially completed.

In this case, since all the contractors except the pipe manufacturer had continuing duties on the project after April 27, 1998, the statute of repose didn’t begin to run as to actions against them before that date, and the suit by the State was therefore timely filed.  As to the pipe manufacturer, the court held it did not fall in the class of “contractors, builders, planners and designers” but was instead a product manufacturer that was subject to “product liability” and, therefore, not protected by the statute of repose.

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. 14, No. 9 (Oct 2012).

Copyright 2012, ConstructionRisk.com, LLC