Nevada’s Common Law Meaning of the Term “Substantial Completion” in the Statute of Repose

William Doerler | The Subrogation Strategist

Statutes of repose establish a legislature’s determination of when defendants should be free from liability. As set forth in Nevada Revised Statute (NRS) 11.202, the statute of repose for construction improvements in Nevada is six years after “substantial completion.” In Somersett Owners Ass’n v. Somersett Dev. Co., 492 P.3d 534 (Nev. 2021), the Supreme Court of Nevada (Supreme Court) discussed when a construction improvement is substantially complete, as defined by the common law, for purposes of NRS 11.202. Because the plaintiff did not establish that its suit was filed within six years of when the rockery walls at issue were substantially complete, the Supreme Court affirmed the decision of the court below.

In this case, Q & D Construction, Inc. (Q & D) graded the property in 2006 and Parsons Bros Rockeries, Inc. (Parsons) then constructed rockery walls to support terraced lots. This phase of the construction ceased in December of 2006, and Stantec Consulting Services, Inc. (Stantec) issued letters to Somersett Development Company, Ltd. (Somersett) indicating that the work was inspected and approved. Although the expected lifespan of the rockery walls was 50 years, some began failing in 2011. In 2017, the Somerset Owners Association (SOA) brought suit against Somersett, Parsons, Q&D and Stantec (collectively Respondents) to recover for the damage associated with the failing rockery walls. The Respondents, relying on NRS 11.202, filed a motion for summary judgment, which the lower court granted, and this appeal followed.

NRS 11.202 prohibits the commencement of actions more than six years after substantial completion of the improvement to the real property in question. NRS 11.2055 defines the term “substantial completion,” and states that a property shall be deemed substantially complete on the date on which, among other things, a certificate of occupancy is issued for the improvement. Where, however, none of the applicable events (such as issuing a certificate of occupancy) occur, the date of substantial completion is determined by the rules of the common law. NRS 11.2055(2). Addressing a question of first impression, the Supreme Court discussed when an improvement is substantially complete under the common law. Adopting the definition of the term “substantial completion” offered by the American Institute of Architects (AIA), the court held that an improvement is substantially complete pursuant to the common law at “the stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use.”

As noted by the Supreme Court, the question of when an improvement is substantially complete is a fact-intensive inquiry, based on the circumstances of each case. In this matter, because the letters stating that the rockery walls were substantially complete in 2006 were buttressed by the fact that Parsons ceased construction around the same time, the walls were substantially complete in December of 2006 at the latest. Thus, the court held that the SOA’s suit was barred by the statute of repose. In holding that the SOA’s suit was time-barred, the court rejected the opinions of the SOA’s experts that the walls were not substantially complete until they were fit to be utilized, which had not yet occurred. As noted by the court, accepting this twist on the AIA’s definition would, as a practical matter, defeat the statute of repose. Moreover, the deviations in construction standards noted related to the quality of construction, not whether the construction was substantially complete.

The Supreme Court also rejected the plaintiff’s argument that the statute of repose should be tolled to prevent unfairness because Somerset controlled the board of the homeowner’s association until 2013. As noted by the court, most status of repose cannot be tolled. Although the court did not resolve the issue of whether a tolling exception applied, it held that because there was no evidence of intentional fraud, the repose period was not subject to equitable tolling.

This case serves as a reminder that statutes of repose are more final than statutes of limitations and, generally, cannot be tolled. When faced with a statute of repose, subrogation practitioners should review the applicable jurisdiction’s statutory language and where, as here, the repose period runs from “substantial completion,” determine the meaning of that term.

Statute of Repose-Is It Applicable to Contract Claims and Post-Construction Services?

James J. McLaughlin | Smith Currie & Hancock

Contractors and design professionals face a unique level of exposure for lawsuits over their work compared to other professionals. With the growing complexity of construction projects, the longevity of buildings, and the increasing inclination for plaintiffs to file lawsuits over construction defects years down the road, one might ask when exposure for a completed project really ends. Many states have addressed this problem by enacting statutes of repose specifically dealing with claims arising from the construction or design of real property.

A statute of repose is a law that fixes an absolute deadline for bringing a lawsuit running from the date of a particular event, regardless of when a legal injury accrues. In many states, the time period to bring a claim arising from the construction or design of real property ranges somewhere from five years to 15 years with the clock to file a lawsuit beginning to run from the date of substantial completion of the project, the time of completion, the time of occupancy or some other fixed event. The statute of repose can insulate contractors and design professionals from claims that have become stale through the passage of time. Courts, however, have struggled in their application of the statute of repose to particular claims, including those involving design or construction of real property.

For example, courts in Ohio and Georgia have recently considered whether their statute of repose applies to breach of contract claims. On July 17, 2019, the Ohio Supreme Court in New Riegel Local School District Board of Education v. Buehrer Group Architecture & Engineering, Inc. interpreted Ohio’s statute of repose in the context of a defective design claim. Ohio’s statute of repose states that it applies to “cause[s] of action to recover damages for bodily injury, an injury to real or personal property, or wrongful death that arise[ ] out of a defective and unsafe condition of an improvement to real property.” The Ohio Supreme Court interpreted this language and held that Ohio’s statute of repose was not limited to tort claims and also applied to breach of contract claims.

It had appeared that Georgia was going to follow Ohio’s lead until a recent turn of events. The Georgia Court of Appeals in Southern States Chemical, Inc. v. Tampa Tank & Welding, Inc. on October 31, 2019, held that Georgia’s statute of repose, like Ohio’s, applied to breach of contract claims. More recently, however, on July 1, 2020, the Georgia legislature amended Georgia’s statute of repose to specifically exclude breach of contract claims. As of today, Georgia’s statute of repose no longer applies to breach of contract claims.

Some other states have recently addressed a different interpretation issue regarding their statute of repose–whether their statute of repose applies to certain categories of construction services. For example, on May 10, 2019, Florida’s Fifth District Court of Appeal in Manney v. MBV Engineering, Inc. interpreted Florida’s statute of repose, which states that it applies to actions “founded on the design, planning, or construction of an improvement to real property.” Florida’s Fifth District held that the language “founded on” meant that Florida’s statute of repose does not apply to claims arising from post-construction services.

As these recent decisions in Florida, Georgia, and Ohio illustrate, while the statute of repose can provide a barrier for contractors and design professionals from stale lawsuits over construction projects that were completed a long time ago, it is not a given that the statute of repose applies to every type of construction claim. If you are involved in a lawsuit over a project completed a long time ago, you should carefully compare the claims and allegations asserted in the complaint to the language of the applicable statute of repose and the case law interpreting the statute of repose to determine whether the statute of repose applies to your claim.

New York Considering Legislation That Would Create Statute of Repose For Construction

Richard W. Brown and Anna M. Perry | Saxe Doernberger & Vita

New York is considering legislation, which, if enacted, would create a statute of repose limiting the number of years after completion of a construction project that legal action may be asserted against a contractor. New York currently remains the only state without a statute of repose for construction. Earlier this year, however, the New York State Legislature introduced Bills S04127 and A01706 (the “Bill”) , which would impose a 10-year period of repose in which an injured party may bring suit against a design professional and/or a contractor for bodily injury or property damage resulting from a construction defect.

Currently, contractors and design professionals have exposure to bodily injury and property damage claims resulting from construction defects for an unlimited number of years after completion of a project. If enacted, the Bill would limit the period of repose to 10 years after the project is completed, which is deemed to occur upon substantial completion or acceptance by the owner. An additional 1-year grace period is provided for an injured party to file suit where bodily injury or property damage occurs in the tenth year after completion. The Bill notably limits the applicability of the 10-year statute of repose to third-party actions and thereby preserves the existing 3-year and 6-year statutes of limitation applicable to actions asserted by an owner or client for professional malpractice and breach of contract, respectively.

The New York Legislature cited the continued rise in the cost of insurance in New York as a primary driver of the proposed Bill. The Bill is also intended to bring further certainty to the scope of post-operational risk that design professionals and contractors are exposed to, and in turn, reduce the high cost of insurance for construction projects in New York. Although there is clear support in the New York Assembly and Senate for the enactment of such legislation, the Bill was only recently referred to Committee for further review and remains in the early stages of the legislative process.

Court Of Appeals Expands Application Of Construction Statute Of Repose

Jonathan Schirmer | Ahlers Cressman & Sleight

A recent decision by Division I of the Washington Court of Appeals in Puget Sound Energy, Inc v. Pilchuck Contractors, Inc.[1] demonstrates the broad application of the construction statute of repose to work performed by contractors.

The construction statute of repose[2] bars certain legal claims based on construction activity if the alleged harm caused by the activity does not occur within a specific timeframe. The claims covered by the construction statute of repose include:

all claims or causes of action of any kind against any person, arising from such person having constructed, altered, or repaired any improvement upon real property, or having performed or furnished any design, planning, surveying, architectural or construction or engineering services, or supervision or observation of construction, or administration of construction contracts for any construction, alteration or repair of any improvement upon real property.[3]

The statute of repose bars any cause of action based on the above which has not accrued within six years after substantial completion of construction.[4]

Puget Sound Energy, Inc. (PSE) is a public utility that provides electricity and natural gas service to the Puget Sound region. In 2001, PSE and Pilchuck Contractors (Pilchuck) entered into a services agreement under which Pilchuck agreed to perform construction, operations, and maintenance projects for PSE. The contract contained an indemnity clause requiring Pilchuck to indemnify and hold harmless PSE from any and all claims or losses arising from Pilchuck’s conduct as PSE’s contractor.

In 2004, PSE contracted with Pilchuck to perform work to install new gas lines in Greenwood, Seattle and to cut and cap the existing lines Pilchuck submitted a work notification card to PSE which indicated the existing gas lines had been retired. This notification was then entered into PSE’s master map of gas service lines to indicate the service line no longer existed. Pilchuck then finished its work and was paid in full.

Fast forward to March 2016, when gas leaked from the line and ignited, causing an explosion that destroyed several businesses. The Washington Utilities and Transportation Commission (WUTC) performed an investigation and determined the gas leak was caused by physical damage to the gas service line. The WUTC determined that the service line had not been cut and capped as documented by PSE’s contractor, and that the explosion would not have occurred but for PSE’s improper abandonment of the service line in 2004.

In 2018, PSE filed suit against Pilchuck alleging Pilchuck was required to indemnify PSE for its costs stemming from the explosion. Pilchuck moved for summary judgment arguing that PSE’s claims were barred by Washington’s construction statute of repose which bars claims arising from construction of any improvement on real property that have not accrued within six years after substantial completion of construction.[5] The trial court agreed and granted summary judgement for Pilchuck.

PSE appealed on several grounds. The Court of Appeals rejected every argument set forth by PSE and upheld the application of the statute of repose to bar PSE’s indemnity claim against Pilchuck.

First, PSE argued that because Pilchuck had not actually completed its work of deactivating the gas line, it had not performed an “improvement on real property” and thus could not avail itself of the statute of repose to bar PSE’s claim against Pilchuck.

The Court of Appeals disagreed, stating “The fact that Pilchuck did not complete that work does not change the status of gas service lines as an ‘improvement upon real property’ for purposes of the statute of repose.” The Court of Appeals relied on the intent of the legislature to broadly apply the statute of repose to protect contractors such as Pilchuck. The Court held that because PSE contracted with Pilchuck to perform work which constituted an improvement on real property, the statute of repose applied, despite the fact that the work was not performed.

Second, PSE argued that Pilchuck’s act of submitting a work report which indicated the work had been performed did not fall within the construction statute of repose since this constituted reporting activity and not ‘improvements to real property’. The Court of Appeals again disagreed, finding that because the reporting activities arose from the construction activities Pilchuck was hired to perform and were required by the services agreement between PSE and Pilchuck, the reporting activity was covered by the statute of repose.

Third, PSE argued that the statute of repose did not apply because Pilchuck did not deactivate the gas lines and thus never substantially completed its work on the gas service line necessary to trigger the running of the six-year period in the statute of repose. The Court again disagreed, relying on the statue’s definition of substantial completion as “the state of completion reached when an improvement upon real property may be used or occupied for its intended use.”[6] Based on this definition, the Court found that Pilchuck had substantially completed its work on the gas lines since the gas lines were no longer being used to provide gas and PSE treated the gas lines as retired, even though Pilchuck had not actually completed the work to retire the lines.

Finally, PSE sought to have the Court create a fraud exception to the statute of repose that would bar application of the statute where evidence of fraud existed. Citing the legislature’s intent to broadly apply the statute of repose, the Court of Appeals declined to create a fraud exception to the statute of repose and deferred to the legislature for the possible creation of such an exception.  

Comment: With this decision, the Court of Appeals further expanded the application of the construction statute of repose by finding that even where work is not performed as claimed by the contractor, the statute of repose will bar claims against the contractor as long as the work at issue was at least contracted for. The Court of Appeals also signaled that it will strictly adhere to the language of the Statute of Repose and refuse to create any exceptions to the application of the doctrine absent action from the state legislature.

[1] 2020 WL 6395578.

[2] The statute of repose differs from a statute of limitations. A statute of limitations sets a deadline to file suit based on when a party suffered an alleged injury or harm. A statute of repose creates an absolute bar on claims after the passage of a set amount of time.

[3] RCW 4.16.300.

[4] RCW 4.16.310.

[5] RCW 4.16.300.; RCW 4.16.310.

[6] RCW 4.16.310.

Massachusetts Clarifies When the Statute of Repose is Triggered For a Multi-Phase or Multi-Building Project

Jeffrey J. Vita and Anna M. Perry | SDV Insights

Lennar Hingham Holdings, LLC (“Lennar”) built a twenty-eight-building, 150-unit condominium project containing twenty-four discrete phases over a seven-year span. The condominium association subsequently brought an action against Lennar and others alleging design and construction defects to four main components of the common elements: “decks and columns,” “roofing/flashing,” “exterior walls/flashing/building envelope,” and “irrigation system.” In response, the defendants argued that the plaintiff’s claims with respect to six of the twenty- eight buildings were barred by Massachusetts’s six-year statute of repose, G. L. c. 206 § 2B.

The United States District Court for the District of Massachusetts previously held that all twenty-eight of the condominium’s buildings should be treated as a single improvement for purposes of application of the statute of repose. Subsequently, the court certified the following question to the Massachusetts Supreme Judicial Court: Where the factual record supports the conclusion that a builder or developer was engaged in the continuous construction of a single condominium development comprising multiple buildings or phases, when does the six-year period for an action of tort relating to the construction of the condominium’s common or limited common elements start running?

The plaintiff association argued that the meaning of the term “improvement,” as used in the statute, was crucial to determining when the six-year statute of repose is triggered. Plaintiff claimed the entire condominium project was a single “improvement” based on factors such as the terms of the master deed, which created a single legal entity, the pace and continuity of the construction, and the fact that the defendants were involved in the project from beginning to end. Thus, adopting the plaintiff’s view, the entire project would be considered a single “improvement” as opposed to 28 separate improvements. Opposing this argument, the defendants argued that the statute of repose was triggered as each building in the project was opened for use based on the various certificates of occupancy issued by the town.

The Massachusetts Supreme Court disagreed with the plaintiff’s arguments and found each building constituted a separate improvement for purposes of the statute of repose. As each building was issued its certificate of occupancy, the Court found “improvement” to mean each individual building. Additionally, the Court found that “where a particular improvement is integral to and intended to serve multiple buildings within a single phase, or buildings across multiple phases, or even the condominium development as a whole, the statute of repose begins to run when that discrete improvement is substantially complete and open to its intended use.” The Court reasoned that the legislature’s intent, when enacting the statute, was to strike a reasonable balance between the right to a remedy for owners such as the plaintiff and the need to have an outer limit on the tort liability of those involved in the construction process.

This case is a win for contractors, owners, developers, and architects as their potential liability is further limited under Massachusetts’s statute of repose for multi-phase or multi-building projects. Despite this ruling, contractors of all tiers will still want to ensure they have adequate insurance coverage during the entirety of the applicable statute of repose period for any and all work they complete. As a result, it is critical to review your products-completed operations coverage within your commercial general liability policy to ensure it will cover you for the entirety of the statute of repose applicable in the jurisdiction in which you perform the construction activities.