Divided New York High Court Finds 6-Year Statute of Limitations Against Contractors

In most New York subrogation cases, the statute of limitations runs three years from the date of loss (i.e., the date of the fire, water damage, automobile accident, etc.).  This “three years from date of loss” rule governs in product liability cases against the makers and distributors of defective products, for example.

New York courts have traditionally treated lawsuits against contractors and architects differently than product liability cases, for purposes of the statute of limitations. The law has been clear for years that the statute of limitations for suits against contractors/architects starts to run from the date the “work is substantially completed,” not from the date of loss.  In cases involving the construction of houses, several courts have held that the work is deemed “completed” when the municipality issues a Certificate of Occupancy, ostensibly certifying that the house is safe to be occupied.

There was ambiguity in the law, however, as to whether actions against architects and contractors run three years or six years from the date their work is completed.   New York’s highest court recently ruled that actions run six years from the completion of work.  Two judges dissented, however, stating their opinion that such actions should be filed within three years of completion of the work. [1]

Nassau and Suffolk counties in Long Island entered into contracts with construction companies in the 1970s for sewer work to be performed.  The contracts contained “protection clauses” that required the contractors to restore the roadways to their “usual condition” after the sewer work was performed.  The sewers were installed in the 1970s and 1980s.  Thereafter, the sewer lines settled, which damaged the roadways.  Certain towns and villages filed several lawsuits against the contractors seeking reimbursement for the cost to fix their roadways.  These towns and villages were not parties to the original contracts, which were signed by the counties.  The Court cited its 1995 Newburgh case in holding that, regardless of how the Plaintiff characterizes the claim in its complaint, “all liability for defective construction has its genesis in the contractual relationship of the parties.”  In cases against architects or contractors, the clock starts to run upon “completion of performance.”   Here, the towns and villages were “third-party beneficiaries” of the contracts that Nassau and Suffolk counties had signed with the contractors and they alleged that they were injured because the contractors violated the “protection clauses” of those contracts.

The majority of the Court went on to state that Plaintiff’s claims for damages under a “continuing public nuisance” theory were also barred, but that these claims were governed by a shorter three-years statute of limitations. 

In dissent, two judges expressed their opinion that all claims against contractors and architects should be governed by a three-year statute of limitations which begins to run when the work is substantially completed.  The dissenters expressed that the construction contracts “have nothing to do with this case” and that the claims were simple tort negligence claims, which should be governed by a three-year from completion of work statute of limitations.  Since the sewer work was completed in the 1980s, it makes no difference under the facts of this case whether the court applied a three-year or six-year statute of limitations.  However, the dissenters stated their concern that, allowing a six-year statute of limitations against contractors would later prove to be a “boon to future plaintiffs.”

BOTTOM LINE: The result is good news for subrogating insurance carriers.   There had been ambiguity in the past as to whether subrogation suits against contractors or architects had to be brought within three or six years of the date of the completion of work.  New York’s highest court has settled the issue, holding explicitly that such claims may be brought within six (6) years of the completion of work.

[1] Town of Oyster Bay et al. v. Lizza Industries, et al., No. 214-223 2013 N.Y. LEXIS 3477 (December 17, 2013)

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