Published in Granite State Builder.
One question architects, engineers, contractors and others in the construction trade often questions is how long they are exposed to liability for negligence claims arising out of their work on a construction project. Some believe their exposure is limited by a 3-year statute of limitations, while others think that their exposure extends for eight years. Both positions are partially correct, but to determine how long those in the construction trade are exposed on any given project, both New Hampshire’s 3-year statute of limitations and 8-year statute of repose must be considered.
New Hampshire’s 3-Year Statute of Limitations and the Discovery Rule
Most people know generally that a statute of limitations is the time period within which a plaintiff must bring a lawsuit after suffering an injury or some form of damage. New Hampshire; has a 3-year statute of limitations that applies to most actions ranging from personal injury, breach of contract and most disputes arising in the construction industry.
While many in the construction industry are aware of the 3-year statute, many incorrectly believe that means that they cannot be sued more than three years after completing construction. Like most states, however, New Hampshire’s statute of limitations is subject to what is commonly referred to as the “discovery rule.” This means that the 3-year limitation period for bringing a lawsuit does not start running until the time the party suffering an injury or damages discovers its injury or damages and the likely cause of the injury or damages. The premise is based on the obvious unfairness of precluding a party from bringing a lawsuit before it even discovers that it has been damaged.
In the typical construction scenario, the date the damage is discovered often is not the same as the date of the alleged negligence. For example, if the roof structure on a large commercial building was negligently constructed, the damage may not be discovered until stress cracks appear, or when the roof actually fails. Thus, regardless of when the faulty design or construction was completed, the 3-year period does not begin running until the injured party discovers, or reasonably should have discovered, its damages and the likely cause of faulty design or construction. Once the injured party knows, or has a reasonable basis to know, the cause of the damages, that party is in position to commence litigation against the appropriate party, and the 3-year period is triggered.
The problem with the discovery rule in the construction context is that it can allow for potentially long exposure periods well after completion of a particular project. Take for example the construction of a large office building. It may be that an architect’s negligence resulted in a design that allowed for structural instability of the building. But problems due to the defective design may not manifest themselves until fifteen years after the construction of the building, meaning a lawsuit theoretically could still be brought up to eighteen years after the building had been completed.
Potentially unlimited exposure brings a host of problems for engineers, architects and contractors alike. For one, defending against claims of negligence forces those in the construction trade to try to refresh faded memories, retrieve or recover lost evidence and locate perhaps long since gone employees to present witness testimony. Furthermore, it may be unfair to allow claims to be brought against design professionals and contractors after many years when it is more likely that the real cause of any problems is due to lack of proper maintenance and repair rather than any design professional or contractor negligence during the design or construction phase of the project.
The potential for an indefinite period of exposure adds further financial burden on those in the construction industry. It forces businesses to retain project contract documents, including drawings, specifications, correspondence and other documents indefinitely, or otherwise run the risk of being sued and not having the evidence necessary to defend claims. It also requires those in the industry, particularly design professionals, to maintain liability coverage for years after the project, including years after their retirement.
New Hampshire’s 8-Year Statute of Repose
The New Hampshire Legislature enacted a statute, RSA 508:4-b, designed to prevent such unlimited exposure for those in the construction industry. RSA 508:4-b provides that all actions to recover damages arising out of any deficiency in the creation of an improvement to real property, including the design, labor, materials, engineering, planning, surveying, construction, observation, supervision or inspection of that improvement, shall be brought within 8 years from the date of substantial completion of the improvement, and not thereafter. When the Legislature enacted the statute back in 1990, it concluded that it was in the public interest to prevent unlimited exposure of those in the building industry.
This 8-year period is a statute of repose rather than a statute of limitations. The distinction is that whereas a statute of limitations begins to run when a plaintiff discovers its injury or damages, a statute of repose begins to run upon a defined act of the defendant, regardless of when the plaintiff discovers its injury. Once eight years elapses after substantial completion, a plaintiff is barred from bringing a lawsuit against the design professional or contractor, even if the plaintiff does not discover its damages until after 8 years have elapsed.
In the earlier example regarding the negligent design of a large office building, suppose the owner discovers the defective design only after panels on the side of the building start separating ten years after construction of the building. Although the owner had no reason to question the structural integrity of the building prior to the panels separating, the owner would be barred from bringing an action against the architect because the statute of repose had run.
Application of the Statute of Repose and Statute of Limitations
Does the 8-year statute of repose mean that an owner has eight years to bring a lawsuit from the time she discovers her injury? No. Even though a statute of repose acts to bar a lawsuit unless brought within eight years after the date of substantial completion, a plaintiff still has to contend with the 3-year statute of limitations. Once a plaintiff discovers her damages due to an error or omission on a construction project, she must bring an action within three years, even if the 8-year statute of repose will not run until many years later. Thus, architects and builders may be able to use the 3-year statute of limitations as a complete defense to a lawsuit even if the project’s date of substantial completion was not more than eight years prior.
There are certain exceptions to these statues, including when there may be fraudulent concealment of material facts relating to faulty design or construction. Plus, statutes of limitations and repose vary from state to state. Those in the construction industry should consult with their attorney if they have questions regarding the application of applicable statutes of repose or limitations to their particular circumstances.
Jeremy Walker is a director in the Litigation Department of the McLane Law Firm and leader of the firm’s Construction Practice Group. He can be reached at 603-628-1431 or at [email protected]. The McLane Law Firm is one of New England’s premier full-service law firms with offices in Manchester, Concord and Portsmouth, New Hampshire, as well as Woburn, Massachusetts.