Construction Claims: A Race Against Time?
Contractors pride themselves on building projects that will stand the test of time. Unfortunately, however, claims often arise after final completion of a project. In these instances it is important to know that the Idaho Legislature has enacted statutory limitation periods which set a maximum period of time in which a contractor is liable for these claims.
A statute of limitations sets the maximum period for which a claim may be brought after a cause of action has accrued. A cause of action generally accrues when the person knows, or reasonably should know, that he or she has a claim against another party. A statute of repose, on the other hand, bars any claim brought after a specified period of time, regardless of the when the action accrued.
Claims against contractors arising after final completion of the project generally fall into two categories: (1) breach of contract actions by a party to the contract seeking economic damages; and (2) negligence actions by third parties seeking damages for personal injury or injury to property. The application of Idaho’s statute of limitations and statute of repose differ depending on which cause of action is sought by the claimant.
The majority of claims against contractors are founded on breach of contract. Generally, the rights and obligations of parties to construction contracts are memorialized by executing a written contract. Any action for breach of contract which is founded upon an instrument in writing must be brought within five years of the time of accrual. The statute of repose provides, however, that a contract action arising out of supervision or construction of improvements to real property accrues at the time of final completion of the project. As a result, claims founded on breach of a written construction contract are generally barred if not asserted within five years from the project’s final completion date.
The Idaho Supreme Court has even upheld this statute of repose where a contractor discouraged an owner from filing suit until the limitation period had lapsed. The contractor and owner unsuccessfully attempted to remedy the defects throughout the five year limitation period. Eventually, the owner remedied the construction defects for $3.4 million and brought suit against the contractor for breach of contract. The Court barred the owner’s claim for breach of contract because it was brought five years and four months after the parties executed the acceptance certificate for the project.
The Idaho statute of limitations for negligence claims accrues at the time the act or omission complained of occurs, and runs for a period of two years. Idaho courts distinguish between latent defects and patent defects when determining the time of accrual for negligence claims.
Patent defects are project defects that are apparent to a normally observant person upon its final completion. A negligence cause of action based on a patent defect accrues at the final completion of the project because it should have been discovered at that time. Therefore, the statute of repose for a negligence claim based on a patent defect is two years from the project’s final completion date.
Latent defects, on the other hand, are project imperfections that are not discoverable by reasonable inspection at final completion. A negligence cause of action based on a latent defect generally accrues when the party bringing the claim discovers the defect. Under Idaho’s statute of repose, however, any negligence cause of action against a contractor for damages resulting from latent defects in an improvement to real property accrues six years from final completion of the project if it has not previously accrued. Consequently, a negligence claim arising out of construction of improvements to real property must be brought within two years of discovery and in no event later than eight years following project completion. This eight year statute of repose is generally the longest period of time for which a contractor may be held liable for claims based on construction of a project under Idaho statute.
The Idaho statute of repose is helpful to contractors in two ways. First, it defines the minimum time period for which a contractor should preserve evidence related to a project. This can be vital for a contractor’s defense in the event a claim arises for either breach of contract or negligence. It also allows contractors to focus on current and future obligations without the threat of incurring liability from projects that have been complete for a reasonable period of time. Although these are the general principles related to the time in which a lawsuit can be filed against a contractor, an attorney should be consulted for particular circumstances.
(Published in the Idaho Business Review, August 2007)