• Sunset in Repose...
  • June 22, 2015 | Author: James W. Walker
  • Law Firm: Vandeventer Black LLP - Richmond Office
  • Who doesn’t enjoy a beautiful sunset, right? Signals the end of another day gone forever. But what if the sun never sets?

    Statutory Sunsets. Statutes of limitation and repose are legal “sunsets” marking the time after which construction and design professionals can no longer be sued for deficiencies in their work. Most design and construction professionals know that Virginia has a five year statute of limitations applicable to lawsuits for breach of contract and a five year statute of repose applicable to lawsuits for personal injuries, wrongful death and damage to someone’s property. One might reasonably conclude that the “sunset” on any exposure to liability on a construction project occurs five years and a day after the project is completed. Indeed, many firms plan their file retention policies accordingly. However, Virginia law leaves open a significant hole in the “sunset” provided by the statutes of limitations and repose.

    Consider this scenario: Schiff-TEE Enterprises, a mining company, hired Casey Jones Engineering to design a coal slurry impoundment adjacent to a mountaintop mine, and Damwright Construction to construct the impoundment. Schiff-TEE enters into standard AIA contracts with both - a 1997 A201 with Damwright and a 1997 B141 with Casey Jones. The project is completed in April 2003. In May 2009, the impoundment failed, sending millions of gallons of slurry into the small mining town in the valley below. Many homes and businesses were damaged and streams were fouled for miles.

    Shortly after the incident and eager to avoid a publicity nightmare, Schiff-TEE agreed to pay hastily negotiated fines to state and federal government agencies and settle claims for damage to homes and businesses. Schiff-TEE made all payments in July 2010. In June 2015, long after the incident has faded from the headlines, Schiff-TEE filed suit against Casey Jones and Damwright seeking to be reimbursed the money it paid to settle government fines and property damage claims. Schiff-TEE alleges that the dam failed because of shoddy construction by Damwright and poor design by Casey Jones.

    Legal: Under Virginia’s five year statute of repose, potential exposure of Damwright and Casey Jones to townspeople ended in April 2008 -- five years after the project was completed - even though the dam had not yet failed. Similarly, Schiff-TEE’s right to sue Damwright and Casey Jones for traditional breach of contract claims expired at the same time. However, both contracts had provisions by which Damwright and Casey Jones agreed to “indemnify” or reimburse Schiff-TEE for amounts Schiff-Tee paid to others on account of their negligence.

    The problem: First, the statute of limitations to bring a claim seeking indemnity generally does not start to run until the party seeking reimbursement (Schiff-TEE) has paid the injured party (government and town people). So even though Damwright and Casey Jones had completed their work in 2003 and the dam failed 2009, the clock did not start to run against Schiff-TEE’s indemnity claim until July 2010 when it paid out settlements. Under this scenario the suit Schiff-TEE filed against Damwright and Casey Jones for indemnity is timely. Second, court decisions in Virginia and North Carolina have called into question whether the statutes of repose “trump” a written contractual indemnity provision that has either a longer lifespan or an indefinite one.1 In our scenario, even though statutes of repose precludes town people from suing Damwright or Casey Jones directly, the statutes may not preclude Schiff-TEE from demanding reimbursement for its payments to town people.

    Damwright and Casey Jones may well have many excellent defenses to Schiff-TEE’s claims of negligence, but winning on those defenses would likely involve extensive discovery, dozens of depositions, hiring multiple experts, and countless staff time devoted to supporting the lawyers’ efforts in defense. In the end, it could come down to a jury trial and a group of average citizens deciding highly complex and technical issues. This is both risky and expensive. If only there was a solution ....

    The solution: The standard AIA contract documents published in 2007 (the newer versions of contracts at issue in this scenario) includes this provision:

    The Owner and Architect shall commence all claims and causes of action, whether in contract, tort, or otherwise, against the other arising out of or related to this Agreement in accordance with the requirements of the method of binding dispute resolution selected in this Agreement within the period specified by applicable law, but in any case not more than 10 years after the date of Substantial Completion of the Work. The Owner and Contractor waive all claims and causes of action not commenced in accordance with this section.2

    This is a contractual “sunset” provision. In our scenario, if Damwright and Casey Jones included this sunset provision, they would been able to bring Schiff-TEE’s lawsuit to an early and inexpensive end.

    Practice Pointers. Even if you choose not to use AIA contract documents, there is no reason why you can borrow this important protection or create something similar. Also, there is no magic to the ten year “sunset.” The drafters of the AIA documents selected a ten year “sunset” as its balance of the Owner’s desire to have a reasonable time for latent deficiencies to cause a problem and the Contractor/Architect’s desire for a time certain beyond which he will not be exposed to claims from completed work. Since Virginia has adopted five years as the statutory “sunset” for repose, five years would seem to be a reasonable and logical time for a contractual sunset provision for Virginia projects. For North Carolina projects, a six year contractual repose would match the state’s six year statute. In any event, the date for sunset is negotiable, and having at least some agreed date when the sun will set is better no sunset at all.

    1 See, e.g., Jordan v. Sandwell, Inc., 189 F. Supp. 2d 406 (2002); Christie v. Hartley Construction, Inc., 367 N.C. 534766 S.E.2d 283 (2014).

    2 This is the §8.1.1 of the B101. Section 13.7 of the new A201 is identical except the term Architect is changed to Contractor.