In an important and somewhat surprising decision, the Massachusetts Supreme Judicial Court (SJC) has held that the strict statutory time limits for bringing construction defect claims to court do not apply when the claim is asserted under a contractual indemnification provision.
The case involved the design and construction of an artificial turf sports field on top of a parking garage at Boston University. After the field was installed, BU discovered a defect in the design – a failure to account for seasonal expansion of the garage joists under the field. BU brought suit against its designer Clough, Harbour & Associates LLP to recover the cost of remediating the design defect, but it did so more than six years after the field was completed and opened to use. This implicated the statute of repose.
The Statute of Repose
Massachusetts, like many states, has a special statute placing time limits on construction and design defect claims. The statute sets a “limitation” period of three years running from the date the claim “accrued” (when the claimant knew or should have known of the defect). It also sets a “repose” period of six years running from the project’s substantial completion or opening for use, whichever is earlier.
Unlike a statute of limitations, a statute of repose is an absolute bar that cannot be “tolled” for any reason. While a statute of limitations begins to run only after the claimant discovers or should reasonably have discovered the issue giving rise to the claim, the statute of repose runs from the date of completion or opening, regardless of when the defect was or could have been discovered. In fact, the statute of repose is not tolled even if the contractor or designer intentionally and fraudulently conceals the defect for the purpose of “running out the clock” on a potential claim.
While the statute of repose leads to harsh and inequitable results for those who have been harmed by construction defects, the Massachusetts courts have consistently upheld the statute against challenges. The courts have reasoned that the repose period serves the important purpose of placing an outer limit on liability for construction contractors and design professionals. As the Supreme Judicial Court observed in an early case challenging the statute:
“There comes a time when [a construction defendant] ought to be secure in his reasonable expectation that the slate has been wiped clean of ancient obligations, and he ought not to be called on to resist a claim when evidence has been lost, memories have faded, and witnesses have disappeared.”
The “gist of the action”
Given the harsh results of the statute of repose, it is not surprising that claimants have tried many strategies to avoid it. Most often, this involves attempting to re-cast the defect claim as a contract claim rather than a tort claim, because the statute by its own terms applies only to “actions of tort” arising out of a construction or design defect.
It is typical in construction defect cases for the plaintiff to assert both contract claims and tort (negligence) claims arising out of the same facts. This is because a contractor or designer has a legal duty to perform up to the “standard of care” set by tort law (the level of care normally exercised in that profession), and the contract typically also requires performance according to that same standard. A breach of the standard of care is therefore both a tort and a breach of contractual warranties.
Characterizing a defect claim as a breach of contract or warranty rather than a tort would seem at first blush to be a winning strategy, but for decades the Massachusetts courts have largely foreclosed that avenue. The SJC stated early on that a claimant cannot “escape the consequences of a statute of repose … merely by labelling the claim as contractual. The court must look to the ‘gist of the action.’”
If a supposed contract or warranty claim essentially alleges the same elements as a tort claim, then the courts will hold that the action fundamentally “sounds in tort” and will be subject to the tort statute of repose. Crucially, if the contract claim is based on the same standard of care applicable in tort law, then the statute of repose will apply.
Since implied contractual warranties involve the tort standard of care, the courts have repeatedly held that implied warranty claims are essentially tort claims subject to the statute of repose. The same goes for express warranties that simply re-state the tort standard of care. If the contractor or designer has made an express warranty agreeing to perform to a higher standard – for example, promising a particular result – this could be considered a “true” contract claim falling outside the statute of repose. But this is an extraordinarily narrow exception, because in practice contractors and especially design professionals almost never agree to achieve a particular result.
The indemnification claim
In the Boston University case, BU had discarded its negligence and implied warranty claims arising from the field defects. It asserted only a “contract” claim for breach of the standard, broad-form indemnification provision in the design contract. That clause provided that CHA would indemnify BU against all claims and expenses (including attorney’s fees) “to the extent caused by [CHA’s] failure to meet its obligations under this Agreement or by the negligence of [CHA].” Indemnification provisions of this type are quite common in construction and design contracts.
There was no allegation that CHA’s obligations under the contract involved any heightened standard of care, or any promise by CHA to achieve a particular result. Therefore, to prevail on its defect claim, BU would need to prove a breach of the regular tort standard of care.
Under the principles discussed above, it seems clear that the courts would view BU’s claim as essentially a tort claim subject to the statute of repose, despite its attempt to characterize it as a contractual indemnification claim. And indeed, the Appeals Court had recently (in 2023) come to exactly that conclusion in a nearly identical case. The Appeals court held that a plaintiff alleging construction and design defects “may not escape the consequences of the statute of repose by recasting its negligence claims as indemnification claims.” See UMBA v. Adams Plumbing & Heating, 2023 Mass. App. Unpub. Lexis 28 (2023).
The trial court in Boston University relied on this Appeals Court decision and held that BU’s claim was barred by the statute of repose. It distinguished a prior SJC decision that had declined to apply the statute to a third-party contractual indemnification claim, on the basis that the indemnification clause in that case was broader and was not limited to negligent work.
The SJC opinion
The SJC took a simpler view. It conceded that the underlying claim was a claim for negligence, but nevertheless held that “CHA’s duty to indemnify the university for CHA’s negligence is not one imposed by [tort] law,” but rather by contract. “Indeed, while the parties chose to incorporate the negligence standard of care into the indemnification provision, the elements of the university’s contractual indemnification claim differ from a claim for negligence.” Accordingly, the claim “is contractual in nature, and the tort statute of repose does not bar it.”
Practical implications
In the immediate aftermath of the Boston University decision, project owners will need to re-evaluate potential defect claims that they might have assumed were barred by the statute of repose. If the construction or design contract included an indemnification provision, the claim might not be barred after all. In the longer term, it seems likely that contractors and design professionals will be less willing to agree to contractual indemnification provisions, which up to now have been a fairly common way to allocate risk among the parties. At the very least, they may insist on explicit contractual time limits on liability under an indemnification clause.