The Design Professional's Statute of Repose: Stumbling Blocks to the Defense of Torts and Contractual Indemnity Claims

What Is a Statute of Repose?

In the area of construction liability analysis, most statutes of repose will provide protection to a given class of people. That protected class is generally composed of entities whose only relationship to a given project is that of designer, surveyor, planner, or constructor. The statutes of repose provide that these entities will only be exposed to liability arising from a project for a given period of time. That period of time varies from state to state. Once the statute of repose has run, there is no liability for the protected class, assuming all conditions of the statute of repose are otherwise satisfied.

The statute of repose is different than the statute of limitations. A statute of limitations says that once someone has been damaged, that person has a set period of time within which to initiate a claim to recover for those damages. A statute of repose is not concerned with when someone is damaged. A statute of repose looks to when a member of the protected class ended his or her relationship with the project. A time frame is generally triggered by the termination of the person's relationship with the project. Once the time period set out in the statute of repose has lapsed, no claim can be brought for damages arising out the project at issue.

Factual History and Claims

The claims arose out of personal injury to a worker at a paper mill. The incident that resulted led to two separate lawsuits. For our purposes, we are referring to both as the Jordan v Sandwell, et al. lawsuit. Though there are two parties sued, Sandwell Engineering and U.S. Filter, we will focus only on Sandwell Engineering.

The Court's Holding on Mr. Jordan's Claim

The court had no problem finding that Sandwell was sued for personal injuries in its capacity as the designer of the project and that the project constituted an improvement to real estate. The court struggled somewhat more with an additional argument made by Mr. Jordan. That argument was that Sandwell was involved in the project much later than 1991. Mr. Jordan claimed that Sandwell's involvement with the project was as late as 1995. The court took note that if this claim was true, then the lawsuit by Mr. Jordan was timely filed.

Mr. Jordan was able to muster some evidence to support his claim of Sandwell's involvement into the mid-1990s. He demonstrated that in 1995 Sandwell had a contract with Westvaco to "evaluate anchors, guides, and supports" on the system on which plaintiff was injured. Mr. Jordan also presented evidence that Sandwell worked on "pipe bridges" related to the system.

The court described the evidence of additional work as "very limited," and found the work to be of a completely different nature than the work completed in 1991. The court considered evidence that the 1995 Sandwell work did not involve any work that "caused or contributed to" Mr. Jordan's injury. The court concluded:

... [T]his court holds that when there is no nexus of causation between the subsequent work and the system that causes the accident—when, as here, the subsequent work involves repairs that do not implicate the defects that allegedly caused injury to the plaintiff—then the original work is completed [in accord with the statute of repose]. Repair to the struts that hold up the pipes in the Westvaco Mill had nothing to do with the reasons that the [system] spewed superheated water onto Mr. Jordan. Thus, the repose period began when Sandwell completed the initial work, a date no later than December 1992.

The Court's Holding on Westvaco's Claim

Sandwell had a more difficult challenge in trying to convince the court by way of a motion that the court should enter a judgment in its favor on the claim of Westvaco. Westvaco's lawsuit alleged that Sandwell agreed in its contracts with Westvaco to indemnify Westvaco, and that the indemnity agreement included indemnifying Westvaco for the payments it made to Mr. Jordan in settlement of Mr. Jordan's claim.

The contract Sandwell entered with Westvaco contained some fairly common language. The contract read that Sandwell was obligated to indemnify, defend, and hold harmless Westvaco against any and all losses, costs, fines, penalties, or expenses resulting from any and all claims, actions, judgments, or demands arising out of injuries to any person caused by the negligent acts or omissions of Sandwell.

Sandwell again relied on the Virginia statute of limitations. Sandwell argued to the court that the claim of Westvaco for indemnity for the $1 million Westvaco paid in settlement to Mr. Jordan is barred for all of the same reasons that the direct claim of Mr. Jordan against Sandwell is barred. Westvaco argued that the statute of repose that Sandwell raised did not even apply to its claim for indemnity.

The court relied upon the holding of the U.S. Court of Appeals for the Fourth Circuit to resolve the issue between Westvaco and Sandwell. The court did acknowledge the language of the statute that clearly encompasses actions for "contribution or indemnity for damages sustained." The court quoted with approval the language from the Court of Appeals for the Fourth Circuit that it would use for guidance to decide the issue between Westvaco and Sandwell. The court quoted:

It will be observed that the statute, by its express terms, is restricted in its application to what are in effect tort actions to recover for 'injury' to property and persons, and not to actions in contract. That such is the proper construction of the statute was recognized in President and Directors, etc. v Madden, [citation omitted], where the district court held that a District of Columbia statute, similar in language to [the Virginia statute of repose], did not extend to 'causes of action sounding in contract.' On appeal we implicitly accepted this construction of the statute. [citation omitted] Accordingly, since this action is not one sounding in tort but is one arising out of a specific written contract of indemnity, it is outside the scope of [the Virginia statute of repose].

Sandwell argued that there is a strong factual distinction between the case on which the court had decided to rely and the dispute between Sandwell and Westvaco. Sandwell pointed out that the case on which the court was relying dealt with the question of whether the statute of repose barred a claim against the bonded contractor by a surety for indemnity for payments to the owner under the bond. The court in the case on which this court is relying was not dealing with an underlying claim of personal injury but, rather, one of a contractual obligation. In other words, Sandwell's argument is that there is a strong factual distinction between indemnity claims arising from the indemnitee's tort liability (Westvaco) and indemnity claims arising from the indemnitee's contract liability (the surety in the underlying case).

The court was not persuaded by Sandwell's argument. The court held that the "relevant" distinction is not the one pointed out by Sandwell, but rather the nature of the indemnator's obligation to the indemnitee, not the nature of the indemnitee's obligation to the injured party. In other words, the "relevant" distinction is the nature of Sandwell's obligation to Westvaco, not the nature of Westvaco's obligation to Mr. Jordan.

Sandwell also argued that the statute specifically refers to contribution between the joint tortfeasors that have injured the claimant, and that this is an implied contract. Sandwell argued that if the implied contract action of contribution is included within the purview of the statute, clearly contract actions are covered. The court quickly dismissed this argument by holding that just because one type of "pseudo-contract" is encompassed by the statute, it does not follow that all contracts are subject to the statute of repose. The court went on that "formal contracts of indemnity" are an entirely different creature than contribution.

Conclusion

Please do not walk away from this short note with the impression that this reasoning will always apply. However, the case does point out problems design professionals often face when attempting to rely on the statute of repose.

The first is illustrated by the direct claim of Mr. Jordan against Sandwell. That problem is the ongoing services for a client and how it affects the statute of repose. Design professionals cannot exist in a bubble to escape liability. Sandwell was successful in its arguments in this case. It convinced the court that the work it continued to perform for its client was unrelated to the injuries that the claimant suffered. The danger lies, of course, where this is not the case. Had the return trips by the design professional been to help remedy or to correct ongoing problems with the system on which the claimant was injured, I believe we can anticipate a significantly different result from almost any court. That result would be to delay the triggering of the statute of repose.

If you are continually called back because of problem or a malfunction, you may need to exercise some professional judgment about when you have to let go and walk away. If not, you may simply extend your involvement in perpetuity. You might want to consider writing your client a letter and stating, "I am finished." At least, you would have a definitive cut-off point.

The other problem illustrated by Westvaco's indemnity claim is the mixing of contract obligations, tort duties, statutes, and case law. Without commenting on the logic or correctness of the court's holding, the case does illustrate that you may want to think about including a time limitation in the contract for your own benefit. How would the court have ruled if the indemnity provision only obligated Sandwell for 5 years after final payment, or 10 years after the last provision of services? We all know that we cannot absolutely avoid liability; however, we can take some steps to manage it. Since the indemnity claim was a creature of contract, why not agree with your client as to how long the obligation will last?