J. Kent Holland, J.D. © 2012
ConstructionRisk Counsel, PLLC
Originally published by National Ground Water Association, “The Risk Management Report, Col 5, 2012).
Rather than relying upon statutes of limitations or statutes of repose to create the time limit for filing suit alleging damages arising out of breach of contract or negligent professional services, parties to a contract can establish time limits via carefully crafted contract provisions. To clarify when a cause of action accrues for the purpose of measuring the time for filing action, there is much to be said for specifying that date in the contract, for example as the date of substantial completion of construction. The time periods can be further clarified by contractually agreeing to a specified number of years following substantial completion in which a suit or demand for arbitration may be brought. This can completely avoid disputes such as the ones discussed in this newsletter.
The contrasting decisions by the courts discussed below show that the interpretation and application of the statutes of limitations vary widely. It can be tricky to determine which statute applies when it comes to claims for breach of contract where the breach was due to negligence in the performance of professional services.
Court Applied Statute of Limitations for Breach of Contract Rather than Shorter Period for Negligence Based Actions
In a decision that reached the exact opposite conclusion concerning which statute of limitations should be applied, a court in Georgia held that a suit against an engineering firm for professional malpractice was timely filed even though the four year statute of limitations period for tort actions had lapsed. The court concluded that the six year statute of limitations applicable to breach of contract actions applies to all actions concerning the contracted work regardless of whether the alleged breach stems from the express terms of the agreement or duties that are implied in the agreement as a matter of law. Newell Recycling of Atlanta v. Jordan Jones and Goulding, 703 S.E. 2d 323 (Supreme Court, Georgia 2010).
The contrasting decisions by the courts show that the interpretation and application of the statutes of limitations vary. It can be tricky to determine which statute applies when it comes to claims for breach of contract where the breach was due to negligence in the performance of professional services.
Statute of Limitations in Action against Engineer was Barred Due to 3 Year Negligence Statute Rather than the Longer 6 Year Statute for Breach of Contract
In a case where an engineering firm provided design services for the rehabilitation of a bridge, the professional services were completed when the plans were delivered to the City in 2005. The bridge reconstruction was completed in 2007, and the City discovered cracks in December of that year and reported them to the engineer in March 2008. The engineer engaged another engineering firm to review its design and that firm identified certain errors and recommended repairs which the defendant engineer performed at the request of the City. Subsequently, the City found more cracks and asked the defendant engineer to perform and pay for those repairs. Because the engineer declined to do so, the City filed suit in April 2009 alleging breach of contract and negligence. A motion of summary judgment was granted for the engineer (and affirmed on appeal) based on the applicability of the 3 year statute of limitations for professional malpractice actions, which the court found accrued no later than November 2005.
The court concluded that the 3 year negligence statute applied “regardless of whether the theory is based in tort or in a breach of contract.” And the court rejected the City’s argument that the cause of action did not accrue (and the statute did not begin to run) until construction of the bridge was complete, and stated instead that “Ordinarily, ‘a negligence claim for professional malpractice against an engineer or architect accrues upon the completion of performance under the contract and the consequent termination of the parties’ professional relationship.’” City of Binghamton v. Hawk Engineering, P.C., 925 NYS 2d 705 (2011).
State of Minnesota Rescinds its Statute of Repose in Order to Sue Engineer After the Repose Period Expired
The U.S. Supreme Court recently declined to hear a challenge by Jacobs Engineering Group to the right of the state of Minnesota to pass a law with retroactive application to eliminate a state statute of repose that was preventing the state from suing Jacobs for millions of dollars that the state paid to victims of a collapse in 2007 of an Interstate I-35W bridge in Minneapolis.
Jacobs (with support of the ACEC and the AGC) argued that Minnesota lawmakers violated the company’s constitutional rights when they permitted the state to seek damages from the firm related to the collapse.
What we may learn from this case is that even when there is what appears to be a good statute of repose, it may not be possible to rely upon it since the state could at will rescind the statute, as did Minnesota, with retroactive application to allow suits that otherwise would have been time-barred.
Lessons Learned on Establishing Time Limits for Filing Suit
Discussion: Numerous decisions by courts have held that parties are entitled to establish by contract the dates by which claims must be made, and that courts will enforce those time limits. Rather than rely exclusively on statutes of limitations or statutes of repose, you may consider establishing, by contract, a specific time frame limiting the time in which the Owner may bring claims against you. You could agree to a mutual time frame barring either you or the Owner from bringing claims beyond a certain time. The downside of a contractual provision is that it only applies to the parties to the contract and not third parties. However, it is probably the case that most of a Design Professional’s exposure is to the project owner, so a time bar to litigation in your contract may go a long way in reducing your most significant liabilities. An example of a clause limiting the time by which the Owner can sue the Design Professional follows:
Time Bar to Litigation. Any actions by either party against the other party for any cause of action whatsoever whether known or unknown, including but not limited to claims for breach of this Agreement, or for the failure to perform in accordance with the applicable standard of care, howsoever stated, shall be barred two (2) years from the time claimant knew or should have known of its claim, but in any event, not later than four (4) years after substantial completion of Design Professional’s services.
Another example is provided by AIA B101, §8.1.1 Statute of Repose, as follows:
The Owner and Architect shall commence all claims and causes of action, whether in contract, tort, or otherwise, against the other arising out of or related to this Agreement in accordance with the requirements of the method of binding dispute resolution selected in this Agreement within the period specified by applicable law, but in any case not more than 10 years after the date of Substantial Completion of the Work. The Owner and Architect waive all claims and causes of action not commenced in accordance with this Section 8.1.1.
This provision does not establish when the statute of limitations will begin to run but, instead, contractually establishes a 10-year statute of repose commencing at Substantial Completion. The effect of this language is to establish contractually an absolute 10-year period of repose beginning with Substantial Completion while carefully not superseding any applicable state or other law that may set forth other restrictions, including a shorter repose period.
Rather than accepting the uncertainty of whether the state statutes for breach of contract or tort will be applied by the courts, or the possibility that a state might even rescind their statute so they can file suit, it may be prudent for the contracting parties to set their own time limits by including provisions in the contract such as the examples set forth above.
ConstructionRisk articles about time limits for filing suit: