Construction Law Today : Construction Lawyer & Attorney : Joshua Glazov : Design Build Contracts, Construction Bankruptcy

We've talked about statues of repose and how they affect construction projects in the past.  Well Melissa Dewey Brumback at Construction Law in North Carolina just published a superlative statute of repose piece: Statute of Repose: Putting your Risk to Bed.  I like Melissa's work so much, especially how she compares a statute of repose to a statute of limitation, that I have to mention it here and urge you to read it too.  Enjoy!

 

 Photo: The Repose by Aleksandra Nowak 2008

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Last week Judge Deborah Hedlund hearing lawsuits arising from collapse of the I-35 bridge in Minnesota rendered an order denying an engineer's motion to be dismissed from one of those lawsuits.

The Backstory

The State of Minnesota contracted with Sverdrup & Parcel and Associates, Inc. to design the original bridge in 1962.  Construction of the bridge was complete in 1967.  Then, through a series of post-completion name changes and mergers, the Jacobs Engineering Group, Inc. purchased Sverdrup & Parcel. From here on in I'm going to refer to Sverdrup & Parcel, the Jacobs Group, and all of the names in between together as the "original engineer".

Before the collapse, URS Corp. (the "later engineer") and Progressive Contractors, Inc. (the "contractor") were both working on maintenance for the bridge.  After the bridge collapsed, the State and others sued the later engineer and the contractor.  They looked back to the original engineer's design and decided part of the blame also belongs to the original engineer too.  So they sued the original engineer for contribution and indemnification.  Basically, the later engineer alleged that the original engineer was at least partly to blame for the bridge collapse.  And because the original engineer' was partly to blame, the original engineer should reimburse the later engineer and the contractor for what they must respectively pay-out to the State and others. 

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In yesterday's post we talked about the recent case of Federal Insurance Company v. Konstant. That's the recent Illinois case upholding the section of an American Institute of Architects (the "AIA") architects agreement that imposes an early start to the statute of limitations on owner design defect claims. Today we'll talk about how that case could affect you if you're:

• An architect, other design professional, or one of their insurers.
• A prime contractor, subcontractor, one of their insurers, or a subcontractor default insurer.
• An Owner.

How Could This Case Affect You?

• If you're an Architect or other design professional. Those sections in your architects agreement imposing an early start on statutes of limitations will probably work. This is a big benefit because the Illinois statute of repose on design and construction defects is 10 years after the defective act or omission. But if those sections of your agreement work you turn the 4 year statute of limitations into a 4 year statute of repose. With only the most extraordinary exceptions, once 4 years passes after substantial completion, you're scott free. There's no compelling reason to think this would not apply to other design professionals like engineers. And because cases like this reduce the time that their insureds can be sued, this case benefits design professional errors and omissions liability insurers too.

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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.

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