Contracting Around the Discovery Rule: The Oregon Court of Appeals Enforces a Clause in a Construction Contract That Defined the Date of Accrual

Parties to construction contracts often include provisions that set forth time frames to file actions arising out of the contract that are different than the applicable statute of limitations. In the absence of any statutory prohibition, contract provisions limiting the time to file an action to less than the applicable statute of limitations are generally enforceable provided the time frame is reasonable. Although perhaps less common, some construction contracts include provisions that attempt to define when the applicable limitations period begins to run (i.e. when causes of action arising out of the contract accrue). Such provisions are essentially an effort to contract around the discovery rule, which operates to by postpone the accrual of a cause of action where a party is unaware either that he or she has been injured or that the injury was due to the fault or neglect of an identifiable person. See, e.g., Evesham Twp. Bd. of Educ. v. Vitetta Group. In its recent decision in Wood Park Terrace Apartments, Ltd. P’ship v. Tri-Vest, LLC, the Court of Appeals of Oregon considered whether to enforce such a provision against an owner asserting negligence claims against the general contract on a construction project.

The case involved claims regarding the construction of an apartment complex by the defendant general contractor for the plaintiff owner. The project achieved substantial completion on April 3, 2000. When the owner discovered significant problems with the building envelope in 2008, it filed an action against the general contractor alleging negligence. The defendant moved to dismiss on the basis that the action was untimely because Oregon had a six (6) year statute of limitation for such claims. See ORS § 12.080. Although the owner may not have discovered building envelope problems until 2008, the general contractor relied upon a clause in its contract with the owner that provided that: “As to acts or failures occurring prior to the relevant date of Substantial Completion, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of Substantial Completion.” The trial court found in favor of the general contract and dismissed the action, and the Court of Appeals affirmed. The court found that the clause applied to “any” alleged action and, as a result, covered the owner’s claims for negligence. In enforcing the clause, the court also relied upon “long-held understanding that parties are free to contractually modify extra-contractual claims and the timeframes in which to bring them.”

The Wood Park Terrace case highlights the important role that contract drafting can have in resolving construction disputes that subsequently arise. Including provisions in construction contracts that reasonably limit the time in which to bring an action or define when causes of action accrue can, if held to be enforceable, result in the dismissal of a litigation that in the absence of such provisions would have gone forward. While such provisions are generally enforceable, parties should consult the law in their jurisdiction to determine any particular restrictions on the use of such provisions.

Damian V. Santomauro is a Director in the Gibbons Business & Commercial Litigation Department.
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