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It’s Not Always Just a Matter of Time, Plaintiff’s Attorneys are Finding Ways Around the Statute of Repose, but There is Hope for the Defense – Article in The CLM’s Claims College Magazine, Fall 2018

October 1, 2018

It’s Not Always Just a Matter of Time, Plaintiff’s Attorneys are Finding Ways Around the Statute of Repose, but There is Hope for the Defense – Recent Article in The CLM’s Construction Claims Magazine, Fall 2018 edition. – Co-Authored by Laura Paton, Ed Anglin and Andy Yoho.

Within nearly every answer filed in a South Carolina construction defect claim, the defense of “Statute of Repose” will inevitably be found.

South Carolina’s Statute of Repose, codified as S.C. Code Ann. Section 15-3-640, acts as a bar to claims brought a designated amount of time after substantial completion of an improvement of real property. This bars claims even if they are discovered after the given time period expires. Essentially, as noted in Holly Woods Ass’n of Residence Owners v. Hiller, the statute provides a substantive right to those involved in the improvement of real property to be free from liability after a certain time period.

However, plaintiffs throughout the state are, more often than not, successful in prosecuting construction defect claims involving structures that fall outside the statute-of-repose period. This reality presents unique challenges for those defending contractors, subcontractors, and design professionals as the age of a project not only may manifest in a greater degree of damage, but also often results in the unavailability of records and witnesses necessary to defend the claim. Moreover, the current construct presents the risk of unending potential exposure for construction professionals and their insurers.

South Carolina statute states, “No actions to recover damages based upon or arising out of the defective or unsafe condition of an improvement to real property may be brought more than eight years after substantial completion of the improvement.” But, under the statute, defendants who are “guilty” of fraud, gross negligence, or recklessness in the provision of materials, development of property, or in performing or furnishing designs, plans, specifications, or supervision of construction are barred from pleading the Statute of Repose as a defense.

In practical terms, this provision has handcuffed defendants seeking dismissal under the Statute of Repose—just as the statute forms a part of every defendant’s answer, it is rare to find a construction defect complaint that does not allege some form of fraud, gross negligence, or recklessness. While a bald assertion of gross negligence should not survive summary judgment, under South Carolina’s statute, the violation of a building code may be admissible as evidence of fraud, gross negligence, or recklessness. Accordingly, when faced with a dispositive motion, plaintiffs more often than not survive a challenge under the Statute of Repose.

Pursuant to Rule 56 of the South Carolina Rules of Civil Procedure, summary judgment is inappropriate where a question of fact is present. Therefore, under South Carolina law, a plaintiff may file suit on a project more than eight years after substantial completion if gross negligence is alleged and a question of fact can be generated through the presentation of at least a scintilla of evidence of a code violation. To put it plainly, obtaining dismissal in South Carolina under the Statute of Repose can be a high hurdle to clear.

As if it was not difficult enough to obtain dismissal of a stale claim under the statute, plaintiffs have yet another arrow in their quiver to defeat this defense. Under South Carolina’s version of the statute, a defendant is barred from pleading the Statute of Repose if a claim of property damage is not discovered in the exercise of reasonable diligence at the time of its occurrence, and is the result of exposure to some toxic or harmful or injury producing substance, element, or particle—including radiation—over a period of time as opposed to resulting from a sudden and fortuitous trauma.

Many South Carolina plaintiff’s lawyers (and their experts) have fashioned a clever argument that, when dealing with improvements to real property, water is a hazardous substance, latent in nature, and not discoverable at the time of the occurrence. Accordingly, in cases where exposure to water intrusion over time has led to water damage, rot, and microbial growth, plaintiff’s lawyers have successfully argued the Statute of Limitations is inapplicable, thus paving the way for bringing and recovering damages on what should be a time-barred claim.

Of course, there are exceptions. In a recent ruling by United States District Court Judge Richard Gergel, the court granted summary judgment as to all claims filed by the plaintiff against the defendant general contractor except for the claim of gross negligence. The court, in Hampton Hall LLC v. Chapman Coyle Chapman & Assoc. Architects, AIA, Inc. and Choate Construction Co, determined that the Statute of Repose defeated all claims excluding gross negligence because the property was substantially completed in 2007 and the claim was not filed until May 12, 2017, well after the eight-year Statute of Repose had expired.

The plaintiff moved for the court to reconsider its decision, arguing that the properties at issue were never “substantially completed” because the defendants violated the building code. The court dismissed that argument, noting that the South Carolina code specifically provides that violations of the building code do not constitute “gross negligence” for the purpose of the exception to the Statute of Repose.

Likewise, the court quickly disposed of the plaintiff’s argument that the contract language should trump the certificate of occupancy as the deciding factor for determining the date of substantial completion. Most importantly, the court addressed the plaintiff’s argument that potential intentional concealment of causes of action or fraud should trump the Statute of Repose as to claims other than gross negligence.

First, the court determined that if the plaintiff could prove the existence of gross negligence, the plaintiff would still be able to fully recover on that claim. Further, the court agreed with the plaintiff that if the defense had intentionally concealed simple negligence (not gross negligence), then the defense would not be able to assert the Statute of Repose. However, the court ruled that such an argument is factual; not legal. Moreover, the court ruled that an argument of concealment was absolutely incompatible with the established facts and the plaintiff never argued that such concealment occurred in opposition to the defendants’ motion for partial summary judgment.

Judge Gergel’s orders in Hampton Hall provide a roadmap for savvy defense attorneys seeking to minimize their clients’ exposures. While some might question the utility of partial summary judgment, a brief review of the elements and allowable damages of the claims is instructive. Attorneys left defending only a gross negligence claim—rather than breach of contract, breach of warranties, or violation of the South Carolina Unfair Trade Practices Act (which carries the potential for treble damages and attorney’s fees)—are much better positioned to mediate or try a case.

Claims professionals and their clients should take a pragmatic approach to litigation in South Carolina. Despite the best efforts of the construction defects defense bar, plaintiff’s attorneys are forever inventing new arguments to circumvent valid Statute-of-Repose arguments. Further, years of litigation regarding the exceptions to the Statute of Repose have left the courts with confusing case law to muddle through. However, with careful planning, a smart defense attorney may utilize the statute to substantially limit a client’s exposure and, ultimately, extricate her client from South Carolina’s perpetual liability trap

 

For more information on The CLM or their Construction Claims Magazine, please click here.

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