Lachenmeier, Enloe & Rall - November, 2002 Publication

The Clock Is Ticking
November, 2002

More than the Columbia River separates Oregon from our neighbors to the North. That is nowhere more apparent than in comparing the statutes of limitation and ultimate repose for Oregon and Washington in the area of construction defect litigation, where so many of us seem to be preoccupied in recent years. The purpose of this article is not to provide a detailed comparison of Oregon and Washington law, but instead to provide a general framework for analysis of whether a statute of limitations has run on a construction defect claim arising in either state.

Before we explore the differences between Oregon’s and Washington’s unique treatment of the timelines for filing claims, let us look briefly at the distinction between a statute of repose and a statute of limitations.

Statute of Repose

A statute of repose is an “overall maximum” time limit in which a lawsuit must be filed. Al Disdero Lumber Co. v. Dick W. Ebeling, Inc., 95 Or. App. 671, 674, 770 P.2d 945 (1989). “It starts to run from delivery of a product or completion of work and cannot be extended, regardless of any unfairness to a plaintiff.” Id. Generally, statutes of repose are not concerned with when a plaintiff learns he or she has a claim. Id. In the construction context, the day the statute of repose begins to run is usually the date a certificate of occupancy is issued by the county building official.

Statute of Limitations

In contrast, statutes of limitation are the maximum time a person is allowed to file his or her claim after the claim has “accrued,” limited only by the relevant statutes of repose. A claim generally “accrues” when a person knows that he or she can sue another. Berry v. Branner, 245 Or. 307, 311, 421 P.2d 996 (1966). Unlike statutes of repose, statutes of limitation are not necessarily tied to the date the product was delivered or the work performed. Al Disdero Lumber, 95 Or. App. at 674. As an example, if a house was built and a certificate of occupancy was issued on January 1, 2000, the statute of repose began to run on that date. If the roof began to leak on September 15, 2002, then that is the date on which the claim “accrued,” and the date on which the statute of limitations began to run. Generally, a statute of limitations never extends beyond the outer limit of a statute of repose, but the Washington statute of repose does not follow that model, as explained below.

The Oregon Model

Oregon’s statutes of repose and limitation are relatively straight forward and need little interpretation. The statute of repose governing claims arising out of the construction of improvements on real property is found in ORS 12.135(1). It requires all construction defect claims to be filed with the court within 10 years from the date of substantial completion or abandonment of the construction project, no matter when the claim accrues.

The statute of limitations is determined by the nature of the claim. Oregon recognizes claims for negligent construction. See Newman v. Tualatin Development Co., Inc., 287 Or. 47, 52, 597 P.2d 800 (1979). Claims for negligent damage to property must be filed within 6 years from the date a claim accrues (ORS 12.080(3)), unless the claim is against an architect, landscape architect or engineer, in which case the claim must be brought within 2 years from the date the damage is discovered (ORS 12.135(2)). In negligence claims, Oregon courts have adopted a “discovery rule,” meaning that the claim accrues (and the clock starts to tick) when all the facts necessary to assert a claim become known, or should have become known, to the plaintiff. Accordingly, if a plaintiff discovers a claim, he or she has 6 years in which to file a lawsuit, provided the filing occurs no later than 10 years from the date of substantial completion. As an example, if plaintiff discovers the defect 9 years after substantial completion, he or she will only have 1 year to file a lawsuit because the claim must be filed within the 10-year statute of repose.

Claims arising from breach of a construction contract, whether written or oral, must also be brought within 6 years from the date of the breach, and no later than 10 years from the date of substantial completion. See ORS 12.080(1) and Ass’n of Unit Owners of the Inn at Otter Crest v. Far West Fed. Bank, 120 Or. App. 125, 134, 852 P.2d 218 (1993).

Some states also apply the “discovery rule” to determine when a claim accrues in a breach of contract case. Remember that pursuant to the discovery rule, the statute of limitation is not triggered until the date of discovery (as opposed to the earlier date of the breach). Again, ORS 12.135(2) expressly applies the discovery rules to claims against architects, landscape architects and engineers. ORS 12.080(1), the statute of limitations for all other contract claims has no such language. However, the Courts have implied that the language of ORS 12.010, the statute governing the time for commencing actions, operates as a discovery rule. While no Oregon court has expressly held that the “discovery rule” applies to breach of contract cases, it is likely they would apply the discovery rule if faced with that particular question.

The Washington Model

Just when you thought you had a clear understanding of how statutes of repose and limitations compliment one another, welcome to the Evergreen State. The good news is that Washington courts do not recognize claims for negligent construction. Further, it is not yet clear whether Washington courts will recognize claims for equitable indemnity, as the courts have previously determined that these types of claims are based on negligence. While other types of construction-based claims do exist (e.g., breach of warranty, and contractual indemnity), most Washington construction defect cases are essentially breach of contract claims. Whether the contract is oral or written is important in determining which statute of limitations to apply. How many times have you asked your subcontractor insured for a copy of his contract with the general, only to be told “what contract? We did everything on a handshake.” The answer to this question is important because there is a 3-year statute of limitations for oral contracts, and a 6-year statute of limitations for written contracts.

In order to properly apply the statutes of limitation and repose to Washington construction defect claims, a two-step analysis is required. Washington now applies the “discovery rule” to breach of contract claims between building owners and general contractors. Architechtonics Construction Mgmt, Inc. v. Khorram, 111 Wash. App. 725, 727-28, 45 P.3d 1142, 1144 (2002). “The statute of limitation for contract actions begins to run when a party knows or, in the exercise of due diligence should know, of the other party's breach.” Id. at 737. The discovery rule in construction cases is limited, however, by Washington’s construction statute of repose. This is where Washington parts company with Oregon in defining the statute of repose as the “overall maximum” time limit for filing a claim.

Washington’s construction statute of repose, RCW 4.16.310, requires all claims brought on a contract for the construction of a building to have “accrued” within 6 years from the date of substantial completion. The date a claim accrues is the date the defect is discovered. Architectonics, 111 Wash. App. at 737. If a homeowner does not discover a defect within 6 years of substantial completion, he or she is simply out of luck. Substantial completion may be determined by the date a certificate of occupancy is issued (see 1519-1525 Lakeview Blvd. Condo. Ass’n v. Apartment Sales Corp., 101 Wash. App. 923, 932, 6 p.3d 74 (2000)) or the last day a contractor performed work on the job, whichever is later. See Parkridge Assoc. Ltd. v. Ledcor Ind., Inc., et al, No. 48337-4-1, 54 P.3d 225, 2002 WL 31105482, *3 (Wash. App. Div. 1)(see further discussion of Parkridge herein regarding its effect on indemnity claims). In other words, if, according to the certificate of occupancy, a residence is substantially complete on January 1, 2000, then claims against the contractor for breach of a written construction contract must accrue (be “discovered”) on or before January 1, 2006. If the owner does not discover the defect until January 2, 2006, the statute of repose bars the claim forever.

If a homeowner does discover a defect within 6 years following substantial completion (the “repose” period), he or she then has the applicable statute of limitations period in which to bring a claim against the general contractor. This could potentially extend the statute of limitations for filing a claim well beyond the 6-year statute of repose. Again, the statute of limitations on a written contract is 6 years from the date the breach is discovered (RCW 4.16.040(1)) and 3 years from the date of the breach of an oral contract (RCW 4.16.080(3)). Because Washington’s statute of repose provides a 6-year limit on when the claim must “accrue,” the total period of time to bring a claim on a written contract could be as long as 12 years. In other words, if substantial completion of the project is January 1, 2000, and the owner discovers the defect on January 1, 2006, (within the 6 year statute of repose) he or she still has 6 additional years from January 1, 2006, in which to file his or her complaint on the written contract. If the claim arises from an oral contract, the owner has 3 additional years from the date of discovery of the defect to bring a claim, or a total of 9 years.

Similarly, if a defect is discovered early on, within the 6-year statute of repose, the lawsuit must be filed within 6 years (written contract) or 3 years (oral contract) from the date of discovery. For example, if substantial completion of an oral contract occurs on January 1, 2000, and the homeowner discovers the defect on January 1, 2001, he or she must file the suit no later than January 1, 2004, which is less than the 6-year statute of repose. Confusing? Yes. Important to know? Absolutely! If you handle Washington claims, you need to be aware of Washington’s statute of repose and its unique application.

On a related subject, on September 23, 2002, the Washington Court of Appeals threw a new wrench into the mechanism for defending construction defect claims. In the Parkridge case, the court held that the typical contractual indemnity claim between a general contractor and subcontractor must also accrue within the 6-year construction statute of repose. 2002 WL 31105482 at *5-*6. This, in effect, requires a general contractor to sue subcontractors within 6 years following substantial completion (the “statute of repose” window), even though the general contractor may not have become aware of the underlying claim from the homeowner until a few days before the 6-year period of repose expires. In light of the Parkridge decision, general contractors run a very high risk of losing their opportunity to sue subcontractors for contractual indemnity in cases where the general is sued by the homeowner on the eve of the expiration of the statute of repose.

If you have any questions, please feel free to contact the author, Martin M. Rall, by phone at (503) 768-9600, or email at marty@lerlaw.com.