AIA Contract For Early Start and Early End To Statute of Limitations: Illinois Court Says Yes - Part 1

Posted on January 29, 2009 by Joshua Glazov
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When an owner and a contractor enter into a construction contract using a form from the American Institute of Architects (the "AIA"), they usually agree to special terms that limit how the amount of time either side can pursue a claim against the other. I often wonder how courts react to these kinds of terms and whether they'll really enforce them.

One court said yes today. It was the Illinois First District Court of Appeals (an intermediate appellate court sitting in Chicago) in the case of Federal Insurance Company v. Konstant.

The Backstory

Thomas and Anita Croghan (the "homeowners") contracted with a Konstant Architecture Planning, Inc. (the "architect") to design a home in the Chicago suburb of Winnetka, Illinois using a standard form architects agreement from the AIA.  Section 9.3 of that agreement said:

Causes of action between the parties to this Agreement pertaining to acts or failures to act shall be deemed to have accrued and the applicable statutes of limitations shall commence to run not later than either the date of Substantial Completion, or the date of issuance of the final Certificate for Payment for acts or failures to act occurring after Substantial Completion.

The contractor substantially completed the home in 1997. But in 2002 the home suffered water and mold damage. The homeowners submitted insurance claims for the damage to their insurer, Federal Insurance Company (the "insurer"). The insurer paid the claims and was subrogated to the homeowners' claims against the architect. Then in September of 2005 the insurer sued the architect for breach of the architects agreement seeking damages for the cost to repair the water and mold damage.

The architect asked the trial court to dismiss the the lawsuit because the four year statute of limitations expired before the insurer filed the lawsuit. The trial court: (1) applied a 4 year statute of limitations, (2) decided that based on Section 9.3 of the architects agreement, those 4 years started in 1997 and expired before the insurer filed the lawsuit in 2005, and (3) dismissed the lawsuit. The insurer appealed.

 

The Arguments and Decisions On Appeal

  • The insurer argued that the applicable statute of limitations is 10 not 4 years. The architect replied that although Illinois's general statute of limitations on breach of contract claims is 10 years, the statute of limitations that specifically applies to design and construction defect claims is only 4 years.  The Court of Appeals agreed with the architect and applied the 4 year statute of limitations explaining that when two statutes of limitation apply to the same claim, the more specific statute applies. 

 

  • The insurer also argued that the 10 year statute of repose under Illinois law extended the time for filing the lawsuit from 4 to 10 years.  The Court of Appeals rejected this argument saying that the 10 year period was a statute of repose.  The Court of Appeals could have done more to explain the often misunderstood differences statutes of limitations and statutes of repose.  But they didn't.  I'll do this in another post one day.

 

  • The insurer argued then that if the limitations period was only 4 years, those 4 years did not start to run until the claim against the architect "accrued" - when homeowners knew, or should have known, that the architect might be responsible for the water and mold damage.  The architect responded that although statutes of limitation ordinarily start to run when a claim accrues, Section 9.3 of the architects agreement changed that to the date the contractor substantially the home.  The Court of Appeals again agreed with the architect explaining that as long as the amount of time they pick is reasonable, private parties may shorten a limitations period.  The homeowners and the architect did that in Section 9.3 of the architects agreement and the courts should recognize and enforce that change.

 

  • The homeowners argued that Section 9.3 was ambiguous, so the courts should not enforce it.  The Court of Appeals said no, Section 9.3 is not ambiguous.

 

  • Under Section 9.3, the 4 year statute of limitations started running in 1997 and expired in 2001.  The insurer did not file their lawsuit until long after in 2005.  So the Court of Appeals affirmed the trial court's decision to dismiss the insurer's lawsuit because the statute of limitations had expired.       

 In my next post tomorrow we'll talk about how this case could affect you.
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