“Slow and Steady Doesn’t Always Win the Race” – Applicability of a Statute of Repose on Indemnity/Contribution Claims in New Hampshire

Rahul Gogineni | White and Williams | September 3, 2019

In Rankin v. South Street Downtown Holdings, Inc.2019 N.H. LEXIS 165, the Supreme Court of New Hampshire considered, pursuant to a question transferred by the trial court, whether RSA 508:4-b, the statute of repose for improvements to real property, applies to indemnity and contribution claims. The court concluded that based upon the plain reading of the statute, it applies to indemnity and contribution claims. As noted by the court, a holding to the contrary would violate the intent of a statute of repose, which is to establish a time limit for when a party is exposed to liability.

In Rankin, after falling and injuring himself while leaving a building, John Rankin and his wife brought an action against the property owner, South Street Downtown Holding, Inc. (South Street) in 2017. South Street subsequently filed a third-party complaint against multiple parties including an architectural company, Wagner Hodgson, Inc. (Wagner), who was involved in a renovation project at the property. The project was substantially complete in 2009. Wagner responded by moving to dismiss the action, arguing that South Street’s indemnification and contribution claims were barred by the applicable statute of repose.

RSA 508:4-b specifically states,

Except as otherwise provided in this section, all actions to recover damages for injury to property, injury to the person, wrongful death or economic loss arising out of any deficiency in the creation of an improvement to real property, including without limitation 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. (Emphasis added).

After reviewing the basis of South Street’s claims against Wagner, the court concluded that South Street’s indemnification and contribution claims specifically fell within the statute of repose. In so doing, the court reaffirmed its prior holdings that indemnity and contribution actions are actions to recover economic loss. It then concluded that because there was no exception in the section for indemnity and contribution actions, they both fell squarely within the meaning of the phrase “all actions.” Having found that the statute of repose was applicable to South Street’s claims, the court answered the transferred question in the affirmative.

This case serves as a good reminder that contribution and/or indemnification claims may be governed not only by a different subset of laws within respective jurisdictions but also by the terms of any applicable time limitation statutes. As such, practitioners should be aware that merely because an indemnity or contribution statute does not discuss either a statute of limitation or a statute of repose, such limitations may still apply to their claims. Moreover, just because a statute of limitations and/or repose does not specifically mention indemnity or contribution claims, does not mean they are exempt from the statute.

A Milestone Construction-Defect Case at New Hampshire Supreme Court

Boston Real Estate Times | August 16, 2019

Morrison Mahoney LLP, one of the northeast region’s leading litigation firms, announced that William A. Staar, a Partner in the firm’s Construction Litigation Practice, prevailed in a case before the New Hampshire Supreme Court (NHSC) on behalf of landscape architect, Wagner Hodgson, Inc.

At issue was whether New Hampshire’s eight-year statute of repose, which protects building professionals from direct claims, also protects those professionals from contribution and indemnity claims. Staar argued that the statute does offer that additional protection. The NHSC agreed, and this landmark decision will provide additional protection for building professionals operating within the state of New Hampshire.

Background

John C. Rankin & A. v. South Street Downtown Holdings, Inc.

South Street Downtown Holdings, Inc. v. Truexcullins and Partners Architects, et al.

The plaintiff is an older man who allegedly fell on a short set of exterior stairs and ramp that are part of a commercial property in Hanover, New Hampshire.  As a result, he purportedly suffered severe facial injuries.  The plaintiff sued the property owner, i.e., South Street, arguing that a defective design plagued the stairs and ramp and that such design caused him to fall.  South Street filed contribution and indemnity claims against several building professionals, including Wagner Hodgson, Inc., that allegedly designed and/or constructed the stairs and ramp approximately a decade before the subject accident.

Legal Argument

The Morrison Mahoney legal team, including Staar and firm associate Nicholas D. Meunier, moved to dismiss, arguing the following:

  1. A New Hampshire statute of repose, i.e., RSA 508:4-b (1990), bars all claims against building professionals “arising out of” allegedly defective construction that are over eight years post the date of substantial completion of a project, and
  2. South Street brought its third-party claims against Wagner Hodgson 8.5 years after the Town of Hanover issued a certificate of substantial completion.

South Street conceded that the third-party claims were late, but argued that the statute of repose (1) only barred direct claims against building professionals and (2) did not bar indemnity nor contribution claims.  It principally relied on the fact that the pre-1990 version of the statute did specifically bar indemnity and contribution claims and that the current version of the statute does not.  The trial court did not rule on the motion and, instead, passed the issue to the NHSC.

NHSC Ruling

The NHSC found that the current version of the statute bars both indemnity and contribution claims.  Its principal reasons were as follows:

  1. Although the current version of the statute does not explicitly bar indemnity and contribution claims as the prior one did, it contains broader language that does encompass such claims.  Specifically, the current statute bars “all actions” older than eight years against building professionals “to recover damages for . . . economic loss arising out of any deficiency in the creation of an improvement to real property.”  The Court found that a successful claim by the plaintiff against South Street would constitute an “economic loss” that “arose out of” such an alleged deficiency; and
  2. Excepting contribution and indemnity claims from the statute fundamentally would frustrate the central purpose of the statute, i.e., to allow building professionals to be free and clear from lawsuits pertaining to their work on a particular project eight years after the completion of such work.  As made clear by the legislative record for the statute, the goal of the statute was to protect such professionals from all claims arising out of their work.  The genesis of the statute was that, prior to its enactment, many building professionals operating in New Hampshire suffered severe financial strain by having to maintain liability insurance for their work sometimes decades after they had completed such work, including well into retirement.

The case was argued in the chamber of the New Hampshire House of Representatives on Tuesday, June 4, 2019, in celebration of the bicentennial anniversary of the state house, and the Court decision was released on August 6, 2019. The Court videotaped both oral argument and the Q&A, which is available here.

Developer is not Indemnified for its own Conduct Without an Express Agreement in the Indemnification Clause

Sunu M. Pilai | Construction Industry Counselor | August 22, 2019

In a case where the jury found both the Architect and the Developer separately responsible for Plaintiff’s damages, an Appellate Division of the New Jersey Superior Court recently held that the Developer is not entitled to be indemnified by the Architect.  See Grandview at Riverwalk Port Imperial Condo. Ass’n, Inc. v. K. Hovnanian at Port Imperial Urban Renewal II, LLC, No. A-2308-17T2, 2019 WL 3798427 (N.J. Super. Ct. App. Div. Aug. 13, 2019)(unpublished decision). The appellate court agreed with the Developer’s argument that the Developer’s breach of warranty would not have occurred but-for the Architect’s negligence. However, the appellate court denied the Developer’ demand for indemnification because the indemnification clause in the Developer-Architect contract did not unequivocally express an intention for the Architect to indemnify the Developer against losses resulting from the Developer’s own negligence.

This case involved a residential project containing 132 units, categorized as a Type 2B building that required fire-retardant-treated wood. By the time the Architect realized that the plans called for untreated plywood in floor assemblies and therefore did not meet Type-2B requirements, more than half the plywood was installed and Developer was not willing to consider solutions that would disrupt the schedule.  Following discussions, the Architect drafted plans to revise the building classification to Type 3A that would allow the untreated wood to remain. However, the Town never approved the revised plans, and the Developer never ensured that the revised plans were approved for a Type 3A Building.  The jury determined that the Developer breached its warranty to buyers of the residential units because it never disclosed to the buyers that the building’s classification was never approved, and, according to Plaintiff’s expert, the building would not meet Type 3A requirements either.  The jury found the Architect to be negligent in the design, and that the Developer breached an express promise that the Building’s common elements would be fit for their intended purpose.  The jury assessed damages of $1 Million against the Architects for its negligence and $3 Million against the Developer for its breach of an express warranty, which was trebled to $9 Million due to a finding of consumer fraud.

In the appeal, the Developer argued that the Architect was contractually obligated to indemnify it for the damages because the damages arose out of the Architect’s negligence in designing a building contrary to code requirements. The appellate court noted that, though public policy does not preclude such indemnification, a contract will not be construed to provide indemnification for losses resulting from a party’s own negligence unless such an intention is expressed in unequivocal terms.  The appellate court found that the indemnification clause only provides that the Architect will indemnify the Developer for Architect’s own negligence, and hence the clause cannot be construed to indemnify the Developer for its own conduct (when it breached its express warranty to residential buyers).

The decision, though non-precedential, highlights the importance of careful and effective drafting of indemnification clauses.

A Second Level of Protection to Indemnitees

Thomas L. Oliver III | Bradley Arant Boulg Cummings | July 31, 2019

Construction and Procurement Law News, Q2 2019

It is not uncommon for indemnitees to attempt to add language to indemnification provisions providing additional liability protections from the indemnitor. And courts and legislators are wary of language in indemnity agreements that create obligations on the indemnitor to indemnify the indemnitee for its own acts or omissions and create restrictions on the indemnitee’s rights to do so. A recent Florida court attempted to strike a balance between an indemnitee’s right to indemnification generally and protecting an indemnitor from indemnifying the indemnitee for its own fault.

In CB Contractors, LLC v. Allens Steel Products, Inc., a general contractor of a condominium project brought a contractual and common law indemnification action against its subcontractors arising out of a construction defect action brought against the contractor by the condominium association.

The subcontract’s indemnity clause stated: “Subcontractor’s indemnity obligations hereunder shall apply regardless of whether or not the claims, damages, losses, and expenses or causes of actions are caused in part by a party indemnified hereunder […].” In essence, the subcontract, on its face, allowed the general contractor to seek indemnity for claims, damages, and losses as a result of its own fault.

Florida Statute § 725.06 (2004), which applies to construction of buildings, states that “[a]ny portion of any agreement […] promis[ing] to indemnify or hold harmless the other party to the agreement […] for damages to persons or property caused in whole or in part by an act, omission, or default of the indemnitee […] shall be void and unenforceable unless the contract contains a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract […].”

Applying this statute, the lower court found that the entire indemnity clause was void and unenforceable. The general contractor appealed the trial court’s decision.

On appeal, the appellate court disagreed and found that the entire indemnity clause was not void and unenforceable, but instead concluded that only the specific portion of the indemnity clause purporting to impose indemnity obligations for the contractor’s own acts or omissions was unenforceable.

This ruling, which reflects the same middle-of-the-road approach followed by many jurisdictions, provides protection to the indemnitor without completely voiding the parties’ indemnification agreement. This decision could have been different under a different state’s stricter law regarding indemnity. Contracting parties should carefully consider the extent of indemnity included in their contracts, especially in light of the relevant jurisdiction’s law regarding those protections.

To Indemnify, Hold Harmless and Defend; Frequently Used and Frequently Misunderstood Contract Terms – Let’s Review

George M. Nicholos | Vandeventer Black LLP | June 4, 2019

Contract terms addressing indemnity and requirements to hold another harmless or responsible for the defense of another are contract terms that appear in virtually all construction contracts. Despite their almost universal incorporation, they are frequently misunderstood!

Everyday business decisions are made, and contracts incorporating these terms are signed, yet these terms are often misunderstood, not fully appreciated, and found confusing by many.

In general terms, an agreement to indemnify another party means that you agree to compensate that party for its damages as outlined in the contract. Where a contract requires a contractor (indemnitor) to indemnify an owner or general contractor (indemnitee) for damages it incurs due to the contractor’s (indemnitor) wrongful conduct, the indemnitor is responsible for paying the indemnitee’s associated damages, such as from a third-party judgment emanating from the wrongful conduct. Essentially, you are agreeing to pay another for damages that another has incurred resulting from your work.

An agreement to hold a party harmless generally entails a release of the indemnitee from specific liabilities outlined in your contract and likewise an assumption of those responsibilities by the indemnitor. Thus, when you agree to hold another party harmless, it means you agree that that party will not be liable for certain losses or damages defined in the contract.

And where a party (promisor) has agreed to defend another party (promisee), when that other party (promisee) is forced to defend against a third-party lawsuit stemming from the promisor’s work, the promisor is responsible for the promisee’s legal costs.

While we have all heard the saying don’t sign anything you don’t understand, it is easy to overlook this simple lesson in practice. But it is critical that parties have a clear and informed understanding about what they are obligating themselves to in relation to the benefits of entering a contract in the first place. If in doubt, parties should seek counsel to clarify exposures and limitations.

To make an informed business decision, it is also important for parties to consult their insurers to be sure of what they are and are not insured against regarding these terms. Otherwise, the indemnitor and/or promisor may be solely responsible for all associated costs. You need to make sure that your policies of insurance do not preclude entering into indemnity agreements and that your insurance covers the indemnitee if you do agree to such terms.