• Washington Court of Appeals Applies "Discovery Rule" to Extend the Six-Year Statute of Limitations for Breach of Contract
  • June 27, 2003 | Author: Bruce A. Cohen
  • Law Firm: Short Cressman & Burgess PLLC - Seattle Office
  • In a recent opinion, the Washington Court of Appeals, Division 1, held that the "discovery rule" is applicable to breach of contract claims. Because the ruling has the potential to significantly expand the length of the time contractors may be held liable for contractual breaches, contractors and their insurers should be aware of the decision's importance and should follow with interest the contractor's attempt to have the decision reviewed and overturned by the Washington Supreme Court.

    The discovery rule is a judicially-created method of calculating when the statute of limitations begins to run. Typically, the statute of limitations begins to run from the date when the offending act or breach occurs. However, in certain circumstances, such as with latent construction defects, the claimant may not be aware of the defect until years after the defective construction was performed and perhaps even after the statute of limitations has expired. To lessen the injustices which may result from a claimant's lack of discovery of its own claim, some courts will apply the discovery rule to delay the running of the statute of limitations until the time the claimant discovered or should have discovered its claim.

    In Architechtonics Construction Management, Inc. v. Khorram, 111 Wn. App. 725 (2002), the Khorrams contracted with Kensington Homes to build their home. The work was substantially completed in June 1993. In late 1998, the Khorrams noticed bubbling and peeling paint on the side of their house and garage and ultimately contracted with Architectonics Construction Management ("ACM") to have remedial work performed. ACM discovered dry rot in the walls which insurance investigators concluded had been ongoing since the residence was constructed in 1992. In the lien suit brought by ACM, the Khorrams, in the summer of 2000, filed third-party claims against Kensington alleging breach of contract. Kensington moved for summary judgment arguing that the homeowners' claims were barred by the six-year statute of limitations for breach of written contract and the construction statute of repose.

    The statute of repose in Washington acts to limit the length of time for which contractors and design professionals remain liable for construction-related activities. The Washington statute requires that any cause of action relating to the construction of real property "accrue" within six years after substantial completion. So long as a cause of action accrues within the six-year period, the subsequent legal action must be instituted within the applicable statute of limitations.

    In this case, the homeowners argued that by virtue of the discovery rule, their breach of contract claim against the builder did not accrue until the breach was discovered in 1998, rather than the date the defective construction was installed in 1993. According to the homeowners, the statute of limitations on their breach of contract action did not expire until 2004, 11 years after substantial completion.

    Citing the widespread applicability of the discovery rule in tort cases, and the rationale behind the rule to protect "blamelessly uninformed" plaintiffs, the Washington Court of Appeals, in a departure from previous rulings, held that the discovery rule should also apply to breach of contract actions. Given the interplay of the statute of limitations and the statue of repose, the Architechtonics' decision potentially subjects contractors and their insurers to liability for breach of contract actions filed as late as 12 years after substantial completion of construction.

    In today's insurance market, contractors can little afford the expansion of liability resulting from the Architechtonics' decision. Kensington Homes filed a Petition for Discretionary Review with the Washington Supreme Court on June 12, and it is anticipated that contractor trade organizations will be filing amicus briefs to encourage the Court to reconsider and overturn the Court of Appeals' decision.