Michigan Supreme Court Clarifies The Applicable Limitations Period For Breach Of Contract Actions Against Engineers, Architects, And Contractors

Michigan Supreme Court Clarifies The Applicable Limitations Period For Breach Of Contract Actions Against Engineers, Architects, And Contractors And Finds That The Statute Of Repose Applicable To Tort Actions Against Engineers, Architects, And Contractors Does Not Apply To Contract Claims

For more than 20 years, there has been a split of authority over the applicable statute of limitations for a breach of contract action arising from faulty construction work that did not result in "injury to property" or "bodily injury." One line of authority held that the statute of limitations begins to run from "the time of occupancy of the completed improvement, use, or acceptance of the improvement." MCL 600.5839(1) (the special statute of repose for claims arising from improvements to property). The competing authority held that the statute of limitations is triggered on the date the "claim first accrued," MCL 600.5807(8) (the general statute of limitation for contract actions). Although the applicable limitations period in both statutes is six years, there has been much confusion regarding when that six-year period commenced.

The Michigan Supreme Court recently clarified the matter in Miller- Davis Co v Ahrens Construction, Inc, ___ Mich ___ (Docket No. 139666, July 11, 2011), holding that the statute of repose contained in MCL 600.5839(1) is "limited to tort actions" alleging "injury to property" or "bodily injury or wrongful death," and that the general statute of limitations for contract actions, MCL 600.5807(8), applies to a breach of contract claim for a defect in a building improvement. The significance of this decision lies in the difference between a statute of limitations and a statute of repose and the Court's apparent unwillingness to interfere with contractually allocated risks and obligations. Engineers, architects and contractors are now at greater risk for lawsuits as a result of the decision.

A statute of limitations simply sets forth the time within which an accrued cause of action must be asserted in court. In contrast, a statute of repose is a statute of duration, and provides a date upon which the action no longer exists, whether it accrued by that date or not. Thus, for instance, a building improvement may have a latent defect which the owner does not discover for over six years after occupying the building. Construction defects often may be covered or hidden and the true nature of the problem cannot be determined without resort to invasive testing or partial destruction of the improvement. Application of MCL 600.5839(1) would bar any claim arising...