In a unanimous decision, the Washington Supreme Court has approved of contractual clauses broadly defining the scope of how and when causes of action may be asserted. The case, Washington State Major League Baseball Stadium Public Facility District v. The Baseball Club of Seattle, L.P., --- P.3d ---, 2013 WL 363453 (Jan. 31, 2013), emphasizes the importance for owners, contractors and design professionals to closely review all contractual obligations located in both prime contracts and subcontracts, which provide how and when a claim may asserted.
The case arose out of the Washington State Major League Baseball Stadium Public Facilities District’s (“PFD”) contract with Huber, Hunt & Nichols-Kiewit Construction Company (“Kiewit”) for construction of Safeco Field. Several years after completion of the project, PFD noticed widespread defects on the face of the structural steel for the project. The project owner brought a breach of contract action against Kiewit, alleging that the work was defective. Kiewit then brought third party claims against its subcontractors and moved for summary judgment, claiming that PFD’s action was barred by the statute of repose.
In construction defect cases, the statute of repose defines the period of time in which a claim must arise or “accrue” against the defendant. The default rules state that all claims or causes of action arising from a construction defect must accrue within six years of substantial completion. Thus, an owner must discover the construction defect within six years in order to retain a valid cause of action. If a claim arises after that six-year period, the plaintiff is barred from bringing a claim.
In this case, the Supreme Court found valid a contract provision, which stated that any alleged causes of action automatically accrue at substantial completion. The Court thus approved of a clause that rendered the statute of repose inoperative by requiring all claims to accrue at substantial completion, regardless of whether they had been discovered yet. Because the plaintiff in this case was a political subdivision of the state, no statute of limitations was applicable, allowing PFD to bring a claim at any point after accrual. The case therefore largely expands the ability of parties to contractually define the time period in which claims must be brought, and allows parties to negotiate contract provisions that alter statutory time limits for when construction claims accrue and have them enforced by the courts.
The Court also found that contractual clauses defining the accrual of causes of actions between the project owner and its contractor may be applied to subcontractors as well. In this case, the Court found that the clause setting accrual at the time of substantial completion also applied to the subcontractor, despite the subcontractor not being a party to the prime contract. As a result, where a subcontract incorporates by reference a prime contract, that contract becomes part of the subcontract. “Flow-down” provisions in subcontracts will therefore subject the subcontractor to the same scope of liability as the parties to the prime contract.
Previously, subcontractors were subject only to specific incorporated provisions of the prime contract. However, the Court here has found that if an incorporation clause in a subcontract is general and unlimited, the procedural provisions of the prime contract will be incorporated by reference.
This case should remind parties to a construction contract to closely review all provisions, which provide a different statute of limitations or statute of repose for causes of action arising out of the contract. Parties should also be mindful of any external contracts that are incorporated into a subcontract through a “flow-down provision.” Such external contracts may impose additional procedural requirements upon a subcontractor, and could define how and when a party may be subject to liability.