My colleagues Stacey Martinson and Christi Taylor posted an excellent summary on our From the Ground Up blog of a new Oregon Supreme Court decision—Shell v. Schollander Companies, Inc., 350 Or 552 (2016)—on when Oregon’s ten-year statute of ultimate repose begins to run in a case involving a construction contract, but also negligence claims for defective construction. (The statute of ultimate repose sets the absolute last date on which a suit can be brought, no matter when the problem was discovered). The factual background of this particular dispute over which of two competing statutes apply is somewhat complicated, so please read their post to get the full story. For our purposes, here’s the important point: if you are suing a contractor with whom you have a written contract because of shoddy work, you have to sue within ten years of when the defective work was done, not ten years from when the contract was complete.
Why does this matter from a coverage perspective? Well, consider the intersection of construction contract law and insurance law. A general liability insurance policy will often be the only asset that a general contractor, developer, or subcontractor will have that can satisfy a claim for money damages. Suing a contractor in a way that does not trigger their insurance company’s coverage obligation is a fool’s errand—there will likely be no pot of money at the end of the construction litigation rainbow. And at least in Oregon, a complaint needs to very carefully avoid giving an insurer an excuse to deny a defense, because in Oregon, there is no “downside risk” to denying a defense, as we have written about before.
But general liability insurance policies contain an exclusion for breach of contract claims—the justification is that the policies, which expressly cover property damage or bodily injury, are not performance bonds or a warranty of perfect work. If a contractor is sued merely for breach of contract, and not also for negligence, it is likely (at least in Oregon) that the insurance company will not agree to defend the case, and therefore will offer nothing in settlement—even if the plaintiff alleges that property damage resulted from the contractor’s breach of the contract.
That is why almost all suits filed against developers and contractors in Oregon allege both breach of contract and negligence claims, and allege that not only was the work done not up to snuff according to the contract, but that it was deficient as measured by a negligence standard, and resulted in property damage (typically, what is alleged is rain getting through the exterior envelope to structural portions of the building).
But the new decision in Shell says that in exactly those situations, the statute of repose is much shorter than many had assumed—ten years from when the defective work was done, not from when the contract is complete. (And also no later than six years from when the problem was discovered, if the “discovery rule” applies). That raises the possibility that every Oregon construction defect case (or at least every one that seeks to trigger coverage) must be filed within that shorter time horizon.