“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.

Contract Indemnity and Duty to Defend vs. Insurance Duty to Defend

Stan Martin | Commonsense Construction Law LLC | June 10, 2016

A New Hampshire court has issued a thoughtful decision on the duty to defend arising from an indemnity obligation in a design contract. The court distinguished between the duty to defend often invoked for insurance coverage, from a duty to defend expressed in a contractual indemnity. Just the same, the court decided that an engineering firm owed a duty to defend the New Hampshire town that had hired the firm to design a wastewater treatment plant, from claims against the town made by the contractor arising from the design.

The Town of Newport, NH, was under an administrative order issued by the EPA after violating effluent limits in an NPDES permit. It engaged an engineering firm to design a new treatment plant or process. The engineer recommended a disc filter system, to implement a coagulation followed by direct filtration method of processing. The design was prepared, a contractor hired, but the project was never completed as the plant failed to perform as designed. The town never fully paid the contractor, who then sued the town.

In its design contracts (three contracts: for preliminary evaluation, study phase, and complete design), the engineer agreed to indemnify the town, via identical clauses. More specifically –

To the fullest extent permitted by law, the Engineer shall indemnify, exonerate, protect, defend (with counsel acceptable to the Town of Newport), hold harmless and reimburse the Town . . . from and against any and all damages . . . claims (including, without limitation, claims predicated on theories of negligence, fault, breach of warranty, products liability or strict liability), litigation, demands, . . . of any kind or nature whatsoever . . . asserted against, or awarded against the Town of Newport which are in any way related to the Engineer’s performance under this Agreement but only to the extent arising from (i) any negligent act, omission or strict liability of Engineers, . . . (ii) any default by the Engineer under any of the terms of covenants of this Agreement, or (iii) any warranty given by or required to be given by the Engineer relating to the performance of the Engineer under this Agreement.

The town demanded that the engineer indemnify and defend the town from the contractor’s claims, and cited insurance cases in support of its position that the engineer owed a duty to defend from the outset against allegations of the engineer’s negligence or breach. The engineer responded, that its duty to defend would not be established until its negligence or breach had been proven, and that it might then be liable for defense costs in proportion to its liability.

The court noted three factors to distinguish cases concerning insurance policy language from cases concerning contract indemnities. First, insurance policies are entered into to afford insurance coverage, and so any ambiguity is normally construed against the carrier. A contract indemnity clause, however, would be strictly construed by its plain language.

Second, many insurance cases are brought as declaratory judgment actions, and the NH declaratory judgment statute pertaining to insurance states that the insurance carrier bears the burden of proof to demonstrate lack of coverage. In contrast, the burden of proof on a contract indemnity clause would remain with the indemnitee seeking a defense.

Third, insurance policies and associated court cases have long distinguished between the duty to defend and the duty to indemnify, based on the scope of coverage. For a contract indemnity clause, however, normal rules of contract interpretation should apply.

Having distinguished many of the cases cited by the town, in favor of compelling the engineer to provide a defense, the court continued to review the plain terms of the indemnity clause quoted extensively above. It noted that parties are free to draft a duty to defend clause that may be broader than the indemnity, or commensurate with the indemnity, or to be determined only after the scope of the obligation to indemnify has been determined. Looking at the clause in question, the court held that the “language anticipates unproven allegations, meaning the duty to defend would necessarily arise prior to any factual finding as to [the engineer]’s negligence or breach.” It noted that this interpretation was consistent with the parenthetical calling for counsel “acceptable to the Town”.

The engineer’s position, per the court, would recast the indemnity clause to require only reimbursement of defense costs after the fact, and would render portions of the clause meaningless. Relying on long-standing (and almost universal) case law that attempts to give meaning to all clauses in a contract, the court held that the indemnity clause required the engineer to enter a defense of the town against the contractor’s claims. Thus, when the engineer failed to do so, that failure amounted to a breach of the engineer’s agreement, and the town was granted summary judgment against the engineer on the cause of action for a defense.

The lesson? An explicit contractual duty to defend against allegations of negligence or breach by the indemnitor may well be construed to require such a defense from the outset, even when parties are still arguing over ultimate liability. And an indemnitor who has not been in breach of its contract up to that point may yet breach its contract by refusing to defend when required.

The case is Penta Corp. v. Town of Newport, 2016 N.H. Super LEXIS 7 (May 11, 2016).