Introduction To Statutes Of Repose

One legal concept that everyone in the construction industry should be aware of is the application of statutes of repose. Statutes of repose vary from state to state and are unique in their application to construction projects. Statutes of repose are similar to and sometimes confused with statutes of limitation, as they both set limits on when law suits or other legal action can be initiated. There are, however, two key differences between these two types of limiting statutes.

Key Differences Between Statutes Of Repose And Statutes Of Limitations

One key difference between a statute of repose and a statute of limitation is that a statute of repose reflects an absolute time limit that, with some limited exceptions, cannot be tolled or modified. In the context of a construction project, you could imagine both statutes as clocks counting down to the moment when an owner, contractor, or subcontractor can no longer be sued for damages arising out of its performance. The countdown on a statute of limitations can be paused by mutual agreement for any number of reasons, extending the right to sue further into the future. In contrast, a statute of repose generally cannot be tolled or extended and, once it is triggered, sets an absolute bar to any claims being asserted after the term of the statute has expired.

The second key difference between a statute of repose and a statute of limitation relates to when the respective countdowns begin ticking. For purposes of the statute of limitations, many states employ the discovery rule in determining when a party’s right to file a lawsuit accrues. Under the discovery rule, if a party’s actions cause harm or injury to a person or property, the action against that party does not accrue until the harm or injury is actually discovered. Thus, under the discovery rule, if a contractor defectively builds a house with a gas leak, the statute of limitations to sue that contractor would not begin to run until the homeowner discovers the leak. What happens, however, if the leak is not discovered for 20 or 30 years? In those situations, the applicable statute of repose might bar a claim and, in so doing, ensure that contractors and other construction professionals do not live in perpetual fear of their work exposing them to litigation far into the future.

A Brief 50 State Survey Of Statutes Of Repose

It is important to note that among the states and the District of Columbia there are a wide array of statutory frameworks that control when the countdown clock for the statute of repose begins to run. All but two states, New York and Vermont, have some form of a statute of repose. Most state statutes clearly define the parameters of the statute of repose and articulate the manner in which it may, if at all, be extended. All but six states clearly start the clock for the statute of repose for claims involving construction at substantial completion or the abandonment of the work at the earliest, with some setting an even later time for the statute of repose to start (e.g., final completion, occupancy or acceptance of the work).

Three of those six states, Nebraska, Iowa and Kansas, have codified the rule that the statute of repose runs from the “act giving rise to the action.” Illinois’ statute of repose identifies the start date as the “act or omission,” whose discovery would trigger the statute of limitation. New Jersey and Virginia have nearly identical language in their statutes stating that claims related to construction are barred 10 years and 5 years respectively “after the performance or furnishing of such services and construction.” N.J.S.A. § 2A:14-1.1; Va. Code Ann. § 8.01-250. New Jersey courts have clarified the beginning of the statute of repose generally to occur at the moment of substantial performance. As discussed below, Virginia’s statutory framework for statutes of limitation and repose is unique in its application.

Virginia’s View Of The Statute Of Repose
As an initial matter, Virginia courts have rejected the discovery rule with regard to statutes of limitations. As such, by way of example, the five-year statute of limitations for claims arising out of or relating to property damages would begin to run no later than final completion of the contract. Essentially, Virginia adopts the view that any property damage claim has accrued by final completion since the harm to the property has been sustained, whether or not the owner of the property is aware of it.

The fact that Virginia has rejected the discovery rule as to statutes of limitation does not, in and of itself, provide any guidance on the application of statutes of repose. Moreover, the Virginia Supreme Court has not clearly articulated what events amount to “performance or furnishing of such services and construction” for purposes of triggering the running of the statute of repose. Would the statute begin to run upon the acceptance or completion of discrete parts of a contract, acceptance or completion of the entire contract, or simply the performance or furnishing of particular services in question that were required under the contract? A recent ruling from a Virginia Circuit Court ruled in favor of the latter view.

The question of what event triggers the running of the statute of repose was an issue of first impression before the Arlington County Circuit Court in Lexington Insurance Company v. R&R Mechanical Contractors, Inc., No. CL13002849-00 (Arlington County Circuit Court filed November 14, 2013). The issue in that case revolved around whether the contractor and subcontractor could be held liable for the damages allegedly resulting from the installation of an HVAC system.

The plaintiffs alleged that a particular pipe installed under a renovation contract caused their damages. The defendant argued in its plea in bar that the plaintiffs’ claims were barred by the five-year statute of repose, arguing that the HVAC work was completed more than five years before the complaint was filed, even though additional, unrelated work under the prime contract and subcontract was completed within the five-year period preceding the filing of the lawsuit.

In a letter opinion issued on October 23, 2014 and incorporated into an order on November 14, 2014, the Arlington County Circuit Court ruled that the statute of repose begins when the particular work was performed that is alleged to have caused the damages claimed by the plaintiffs. In short, the court ruled that the question of fact relevant to determining when the statute of repose would begin to run was when the particular pipe in question was installed, not when the HVAC portion of the contract was completed, inspected and/or accepted. If installation of the allegedly deficient pipe was “performed or furnished” more than five years before filing of the action, then the statute of repose would act to bar the claims related to that installation.

The court reasoned that the legislature clearly intended the statute of repose to serve as a unique and strict limit to claims related to construction, and that the statute, by its plain language, makes no distinction requiring owner’s acceptance or even substantial completion of that portion of the work in question. For that reason, the court applied the plain language of the statute and ruled that since the plaintiffs’ claims all hinged on the allegation of a faulty installation of a particular pipe, the performance of that pipe’s installation triggered the statute of repose. The court ruled that the question of fact regarding when the particular pipe in question was installed had not yet to be determined and would need to be the subject of further proceedings.

Conclusion

Ultimately, it is important for owners, contractors, and subcontractors to understand how the statute of repose operates in the jurisdiction where their work is being performed. Fortunately, in most jurisdictions, the statutes themselves incorporate the discovery rule and set out unambiguous markers for application of the statute. Parties to construction contracts governed by Virginia law should be aware, however, that the discovery rule will likely not delay the running of the statute of repose. This needs to be taken into account whether filing a complaint seeking to recover damages or defending against a claim for damages. Plaintiffs should be especially wary, and should file suit as soon as possible, if the statute of repose is even potentially an issue.