Dealing With Defect Claims

Most contractors pride themselves on quality and do everything in their power to avoid or promptly remedy defects in their work. Often, contractors will provide a warranty that covers any defects that arise within a year or longer after the project is complete. But the expiration of a warranty does not mean the contractor is off the hook. Latent defects may arise years, or even decades later. When they do, the builder is in the difficult position of defending work performed long ago.

Most states have passed laws known as “statutes of repose” to protect contractors from open-ended liability for defects. These statutes prohibit the filing of certain types of claims after the expiration of a set period of time. The statutory periods vary by state, ranging from two to fifteen years from the completion of construction.

The statute of repose in Pennsylvania is a typical example. It applies to claims for construction deficiencies and any personal injury or property damage arising out of those deficiencies. The statute requires that such lawsuits “against any person lawfully performing or furnishing the design, planning, supervision or observation of construction, or construction of any improvement to real property must be commenced within 12 years after completion of construction of such improvement.”

Unfortunately for the contractors who seek protection under these statutes, there are circumstances in which the statute may be extended or may not apply at all. The following are some situations in which a statute of repose may not provide adequate protection:

An injury occurs near the end of the statute’s expiration.

If an injury occurs near the time when the statute is about to expire, the time limit may be extended to allow the injured party more time to file a suit. For example, in Pennsylvania, the 12-year period may be extended if an injury occurs between ten and twelve years after construction is complete. In Tennessee, claims that arise within the last year of the statutory period may be filed within one year from the date of injury, potentially extending the four year period to five years.

A contractor engages in fraud or misrepresentation, or  tries to conceal a known defect.

If a contractor has attempted to hide a known defect, he or she likely will not be able to use the statute of repose as a defense. But even this exception has exceptions, as illustrated by a Georgia case. In the case, a defendant homebuilder was accused of attempting to conceal the alleged defects. But the defendant was permitted to invoke the statute of repose because the injury occurred so long after the expiration of the statute of repose that the alleged fraud had no impact on the expiration of the statutory period. If the builder had engaged in fraud that prevented the injured party from filing within the statutory period, the court likely would have refused to allow the builder to raise the expiration of the statute of repose as a defense.

The contractor engages in willful misconduct.

Conduct that is not quite fraudulent but more than merely negligent may not be protected by a statute of repose. In California, a court refused to apply the ten-year statute of repose even though the builder had no actual knowledge of alleged defects caused by subcontractors. The builder was held responsible because the defects at issue were so conspicuous that they should have been obvious to a competent contractor.

The work fails to comply with regulations and codes.

Work that fails to comply with applicable regulations, ordinances or building codes may violate a statute’s requirement that the work be lawful. A federal court recently held that a Pennsylvania contractor could not invoke the statute of repose as a defense because the work did not comply with local ordinances or building codes, rendering it not lawful. This is a particularly dangerous exception, as many defect cases involve an allegation that the work did not comply with applicable statutes, ordinances or building codes. Codes are designed to apply in many different situations and the language they use often leaves ample room for interpretation. Thus, a creative plaintiff easily could allege the existence of a code violation and bring a lawsuit long after the statue of repose has expired.

The subcontractor does not have a license to perform work in a jurisdiction.

If a builder’s subcontractor does not have the proper licenses to perform work in a particular jurisdiction, it could be argued that the work was not performed lawfully. Thus, the poor workmanship of an unlicensed subcontractor may expose the builder to liability without the protection of the statute or repose. As always, it is important to fully vet any subcontractors being used on a particular project.

Because these statutes vary from state to state, every case must be analyzed on an individual basis. All contractors should consult with an experienced construction lawyer licensed in their jurisdiction and familiar with its laws.

A general knowledge of their state’s statute of repose, however, and the potential exceptions to these statutes can guide contractors in effectively managing risks that may arise after work has been completed.

Chad Michaelson and Brandon Rothey focus their legal practice at Pittsburgh-based Meyer, Unkovic & Scott on construction law. Chad may be reached at cim@muslaw.com and Brandon at bbr@muslaw.com.

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