In a recent decision styled Brisbane Lodging, L.P. v. Webcor Builders, Inc., the California Court of Appeals found that a contract clause providing that all causes of action relating to the contract work would accrue from the date of substantial completion of the project abrogated the delayed discovery rule, which would otherwise delay accrual of a cause of action for latent construction defects until the defects were, or could have been, discovered.

In July 1999, Brisbane and Webcor entered into a contract for the design and construction of a Radisson hotel. The construction contract at issue was the 1997 American Institute of Architects (AIA) A201 General Conditions, which included the (formerly) standard AIA clause:

“As to acts or failures to act 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.”

Construction of the hotel was substantially complete in 2000. In 2005, the owner/developer (Brisbane) discovered defects in the hotel’s below-grade pipe system and immediately notified Webcor. After the parties could not resolve the issue, Brisbane sued Webcor in 2008.

Although the suit was timely under California’s 10-year statute of repose for latent construction defects, the court found that the “discovery rule” did not apply. California has a four (4) year statute of limitations for claims based on construction defects. The effect of the court’s ruling was that Brisbane’s claim was time-barred before it even discovered the defect.

The opinion notes that several states outside of California have similarly concluded that the 1997 A201 standard contract accrual waiver was valid and enforceable such that it alters the normal discovery rule. Those states include Kentucky, Maryland, Massachusetts, New York, and Pennsylvania.

The take away is that courts take very seriously a party’s freedom to contract. Owners and contractors should be aware of, and carefully review with counsel, any provisions that could ultimately impact liability. To review the full opinion, please click here.