Where a hotel developer agreed by contract with its builder to limit the time for filing suits to four years following substantial completion, a California court of appeal held that this did not conflict with public policy.  Parties are permitted the freedom of contract to forego the rights they might have otherwise had, based on late discovery of a latent discovery, to bring a suit many years after substantial completion. In Brisbane Lodging v. Webcor Builders, 216 Cal.App.4th 1249 (Cal. 2013), the court explained that although courts around the country have upheld and enforced contract provisions similar to the one in question here that limit the time for filing suit, the California courts had not yet been confronted with the question.

Having reviewed the facts and the law, the court concluded the provision in the standard form AIA contract used here, which essentially abrogated the delayed discovery rule by stating that the statute of limitations began to run on the date of substantial completion, was not contrary to public policy, and would, therefore, be enforced as bargained for by the parties.

In this matter, the hotel developer and Webcor entered into a contract in 1999 for the design and construction of a hotel.  The contract was based on the 1997 standard form AIA contract that contained a provision stating, “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 events not later than such date of Substantial Completion.”

In early 2005, the developer learned of a kitchen sewer line break that caused waste to flow under the hotel.  It notified Webcor who undertook temporary repairs and then instructed its subcontractor to make permanent repairs.  In October 2007, the developer again notified Webcor of sewer problems.  At that time, Webcor retained to the site and learned that its subcontractor had installed ABS pipe instead of the cast iron pipe that had been specified.

The developer then filed suit against Webcor for breach of contract, negligence, and breach of implied and express warranties.  Webcor moved for summary judgment based on the time limitations of filing suit that were established by the contract.  The trial court ruled as a matter of law that the contract clearly and unambiguously abrogated the delayed discovery rule, and barred the suit.

In the appellate decision affirming the summary judgment for Webcor, the court analyzed court decisions from other states that have affirmed the enforceability of the AIA contract language, and it went to great length to explain the deference granted to AIA contract language by the courts, by stating the following:

“This provision is the AIA standard accrual provision and, at the time, was in wide usage throughout the United States. It has been recognized that ‘for the construction industry the standard form contract – particularly the AIA Standard Document set—has in several respects served as a surrogate for a commercial code.  The AIA contract developed gradually over the generations in company with an expanding body of experience in the field and in the courts, and was adopted verbatim, adapted, or parroted in a vast percentage (perhaps the majority) of private commercial contracts.  It offers industry actors a degree of coherence, certainty and uniformity.  Depending upon one’s point of view, it may also serve as a backdrop for performance which more or less reflects commercial realities and competing participant concerns.”

Comment:  In addition to supporting the freedom of contract between commercial entities, the case certainly is supportive of the benefits of using AIA contract forms as a basis of creating a coherent contract that can be uniformly understood and applied.  There would probably be less litigation over confusing and ambiguous contract forms if more project owners would rely upon AIA documents instead of inventing their own unique forms.


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. 15, No. 10 (Oct 2013).

Copyright 2013, ConstructionRisk, LLC