RMB partner Kevin Clonts has written a piece featured in the August edition of Oregon Real Estate and Land Use Digest. The article discusses a recent Oregon Supreme Court decision concerning construction claims and differing statutes of limitation.
Oregon Construction Claims Now Subject to Differing Statutes of Limitation
On June 16, 2016, the Oregon Supreme Court issued an opinion that has the potential to have broad effects on construction defect litigation in Oregon. For many years, courts and attorneys assumed that all construction claims were subject to a six-year statute of limitations, though there was a split among courts whether the statute of limitations was subject to a discovery rule. In Goodwin v. Kingsmen Plastering, Inc., the Oregon Supreme Court clarified that a two-year statute of limitations applies to negligent construction defect claims, subject to a discovery rule. Negligent construction defect claims must therefore be brought within two years of when the plaintiff knew or should have known of the defect, and, per the statute of repose, no later than ten years after construction was completed.
In Goodwin, plaintiff homeowners filed a construction defect suit against a stucco contractor nearly ten years after construction was completed and, according to the defendant, more than two years after the alleged defects were discovered. The homeowners argued that the six-year statutory period applicable to actions “for interference with or injury to any interest of another in real property” controlled. The contractor argued that the two-year statute generally applicable to tort claims controlled, because that statute applies to “any injury to the person or rights of another, not arising on contract, and not especially enumerated in this chapter.” In support of its argument, it relied on a 2011 Oregon Supreme Court decision, which stated in dictum that the two-year statute applied.
The Oregon Supreme Court conducted an extensive analysis of the competing statutes of limitations, their constructions, and their histories, and concluded that the catch-all two-year tort statute controlled. In deciding that the two-year statutory period governed, the Oregon Supreme Court overturned a 2014 Court of Appeals case that held that the six-year statutory period applied to construction defect claims. Further, in deciding that the two-year statutory period was subject to a discovery rule, the court extended and clarified its prior decision applying a discovery rule to actions subject to the generally applicable two-year statute.
Attorneys in pending and future construction defect cases should carefully assess when plaintiffs first knew or should have known of alleged defects. For claims based on negligence, the lawsuit must be filed within two years of discovery of the defective conditions or when a reasonable person should have discovered the conditions. For claims based on contract, the six-year statute of limitations for breach of contract claims continues to control, and that statutory period starts to run when the contract is breached — that is, when the defective construction was performed. This decision could have significant effects on whether claims against construction professionals are covered under insurance. The standard commercial general liability policy provides coverage for damages resulting from negligent behavior, but does not cover the insured’s breach of contract. Therefore, if a plaintiff can only maintain a construction claim based on breach of contract, because the negligence claim is time barred, the question becomes whether the construction professional’s insurance carriers must provide a defense and remain liable for indemnity coverage.