SJC Expands Contractual Exception to the Massachusetts Statute of Repose

The holding could have a profound impact on the Massachusetts construction industry, as developers, architects, engineers, builders, and contractors may have believed their prior work could no longer be subjected to such claims.

Background

A statute of repose differs from a statute of limitations, in that, after a specified period of time, it completely eliminates certain causes of action, regardless of when an injury has occurred or when the underlying negligence has been discovered.[1] For example, under the statute of repose, a person injured, due to the negligent design of a sports field, which has been in operation for over six years, cannot bring a negligence claim against the company that designed the field. The statute is meant to protect contractors and architects from claims arising long after the completion of their work. However, the statute only applies to tort claims and explicitly excludes contract claims. A key tension is whether the statute of repose should preclude contract claims that arise from the negligent actions of a contracting party.

In 2012, Clough, Harbour & Associates LLP (CHA) designed a new athletic field for Boston University (BU). Shortly after the field was put into use, design defects were discovered that made the field inoperable and required BU to expend funds to repair the field. Pursuant to an indemnification provision in the parties’ contract, BU demanded that CHA indemnify BU for the repair costs, but CHA refused. Six years after the opening of the field, BU sued CHA for breach of the indemnification provision. A superior court later granted CHA’s motion for summary judgment, holding that BU’s claim, although asserted as a contractual claim, was based on CHA’s negligence and therefore was barred by the statute of repose.

The SJC Reverses the Order for Summary Judgement

On appeal to the SJC, CHA’s position was supported by an amicus brief from the American Council of Engineering Companies of Massachusetts, which argued that adopting BU’s position would “circumvent the purpose and intent of the statute of repose, and undermine the contractual risk allocation terms of the agreement between the Owner and the Architect.” The SJC however, ultimately agreed with BU, explaining that the “gist” of BU’s action was the enforcement of its contractual rights. Although the indemnification agreement limited CHA’s liability to damage cause by CHA’s “negligence,” CHA’s refusal to indemnify BU for the costs of repairing the sports field was not an act of negligence.

In rejecting CHA’s various arguments, the SJC also clarified that contractual exceptions to the statute of repose are not limited to, (1) claims for breach of an express warranty, (2) instances where a contract provides indemnification for “any act” of the indemnifying party, or (3) instances where something or someone, other than the negligently designed/constructed improvement is damaged or injured. Consequently, the decision substantially expands the types of contractual claims that are no longer subject to the statute of repose.

This holding may have a significant impact on the Massachusetts construction industry. Developers, architects, engineers, builders, and contractors should review prior indemnity agreements to see if their potential liability for completed projects can now extend past six years. Parties entering new construction related contracts should also consider whether indemnification provisions need to have explicit time limitations. Investors and insurers should also reevaluate their long-term risk assumptions when evaluating new projects.

If you have questions about how the SJC decision may affect your business, please reach out to members of the firm’s Real Estate practice group.