Indiana Court of Appeals Clarifies

Statutes of Limitation Applicable in Construction Matters

On December 30, 2009, the Indiana Court of Appeals issued an opinion that clarifies some of the statutes of limitation applicable in construction matters. In Powers & Sons Construction Company, Inc. v. Healthy East Chicago, the owner entered into a contract with a construction manager at risk for the construction of a health service facility. The contract was signed in 1997. In December 1998, after the completion of construction, the owner noticed cracks in the floors, walls, and ceilings of the building. The owner contacted the construction manager regarding the defects, and the construction manager responded to the owner in a letter dated March 20, 2000. Additional inspections were undertaken over the course of the next few years. On February 15, 2007, the owner filed a lawsuit against the construction manager, more than eight years after the construction manager had completed construction.

The construction manager argued that the owner's claim was barred as untimely by the applicable statute of limitations. There were three statutes of limitations considered by the court in Powers & Sons:

· Indiana Code § 34-11-2-4 which states that an action for injury to personal property must be commenced within two years after the cause of action accrues.

· Indiana Code § 34-11-2-7(3) which states actions for injuries to property other than personal property must be commenced within six years after the cause of action accrues.

· Indiana Code § 34-11-2-4(2) which states an action upon contracts in writing other than those for the payment of money must be commenced within 10 years after the cause of action accrues.

Indiana courts apply the "discovery rule" to each of these statutes of limitation, meaning a cause of action does not "accrue" under the above statutes until the actual injury is discovered or when the injury should have reasonably been discovered.

The construction manager argued the two year statute of limitations regarding injury to personal property applied. The court rejected this argument as it determined that the action was for damage to real property rendering the personal property statute of limitations inapplicable. The court then discussed whether the six year statute of limitations for damage to "property other than personal property" (i.e. real property) or the 10 year statute of limitations for actions upon written contracts applied. The construction manager argued he was a professional, and therefore any action against it sounds in negligence meaning the six year statute applies. The court rejected this argument, holding that the lawsuit seeks to recover damages for the construction manager's failure to perform according to the contract; "that is, to hire and supervise subcontractors and construct a building conforming to the plans and specifications suitable for [owner's] need." Therefore, the court applied the 10 year statute of limitations for actions upon written contracts and allowed the owner's suit to proceed.

There are a number of lessons to be learned from Powers & Sons. With regard to owners, when defects arise owners should not slumber on their rights. While owners may have up to 10 years to bring a lawsuit against a construction manager at risk or general contractors (provided the contract does not shorten the applicable statute of limitations), it is still unclear whether the 10 year statute of limitations for actions upon written contracts applies to architects, structural engineers, agency construction managers, inspectors and other entities that may be considered "professionals" who will argue that the two year or six year statute of limitations applies because actions against them sound in negligence. Waiting to bring a lawsuit also presents numerous practical problems - memories fade, critical documents are destroyed and insurance coverage may change.

Further, there is also an Indiana statute of repose applicable to construction projects that states an action to recover damages, whether based upon contract, tort, nuisance, or another legal remedy, for a deficiency or an alleged deficiency in the design, planning, supervision, or construction of an improvement to real property may not be brought unless the action is commenced within 10 years after the date of substantial completion of the improvement. So, even if the 10 year statute of limitations applies and is not triggered until sometime after substantial completion based on the discovery rule, the owner must bring its lawsuit within 10 years after substantial completion or else it will be barred by the statute of repose.

With regard to contractors, Powers & Sons illustrates that contractors can potentially be haled into court for construction defects up to a decade after substantial completion. To limit this exposure contractors should consider negotiating a shorter statute of limitation in their contracts with owners. As long as the limitations time period is reasonable then it will likely be enforced by an Indiana court if the contract is for the construction of a commercial project. For residential projects the time periods that statute of limitations may be shortened to are prescribed by statute, and it is likely any attempt to shorten these statutes of limitation beyond the statutory requirements will be rendered unenforceable.

Additionally, disputes often arise regarding when statutes of limitation accrue under the discovery rule. A complicated factual analysis must be performed in order to determine when the injury should have been reasonably discovered. In order to circumvent the discovery rule, the contractor can advocate for a provision in the contract stating all applicable statutes of limitation shall commence to run not later than the date of substantial completion or the date of some other clearly defined event.

Statutes of limitations are a double edged sword. Sometimes they help you, and sometimes they hurt you. One thing is certain – often litigation regarding statutes of limitation arises because an owner takes too long to make a decision regarding whether they want to pursue an action based on a defect or because the parties are unclear regarding what statute of limitation applies or when it accrued. These procedural issues can, at a minimum, be mitigated by diligent action both before the contract is signed – by discussing and memorializing the parties' expectations regarding statutes of limitation - and after the defect arises – by assimilating information and making claims as soon as prudently possible.

For more information regarding this article, please contact Gary Dankert or Nate Uhl.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.