calendar-660670_960_720Last Thursday, the Oregon Supreme Court issued its opinion in Goodwin v. Kingsmen Plastering, Inc., 359 Or 694 (2016), holding that the deadline to file a negligent construction-defect claim is two years from the time a plaintiff knew or should have known of damage resulting from the defect—not six years, as applied by the lower courts in the same case. This decision has implications for owners of residential and commercial structures because it narrows the window to discover and file a claim for defective work against a contractor. And while the decision appears to be a victory for contractors on first glance, the ensuing insurance implications could deal contractors a heavy blow.

Kingsmen‘s facts are as follows: In 2004, plaintiffs bought a home (constructed in 2001). Defendant was a subcontractor involved in the home’s original construction, responsible for installing the home’s exterior siding. Defendant completed its work on the house in May 2001.

In March 2011, plaintiffs filed a complaint against defendant for negligence and negligence per se and alleging various construction defects. Plaintiffs alleged that they did not learn of the damage caused by the defects until May 2010. Defendant, however, submitted evidence that plaintiffs had obtained reports noting defects in the home’s siding as early as 2004, and that plaintiffs had obtained reports with references to cracks in the siding and resulting water intrusion in 2005, 2007, and 2008.

Defendant argued that plaintiffs’ construction-negligence claims were subject to the two-year statute of limitations contained in ORS 12.110(1), which requires that tort claims for injury to property be brought within two years of the date of discovery of the injury or damage. According to defendant, plaintiffs’ claims were barred by the statute of limitations because plaintiffs filed their complaint more than two years after they discovered, or should have discovered, the alleged siding defects and resulting water damage. Plaintiffs argued that their claim was subject to the six-year statute of limitations set forth under ORS 12.080(3), which applies to actions “for interference with or injury to any interest of another in real property.”

Reversing the Oregon Court of Appeals’ earlier decision in the same case, the Oregon Supreme Court concluded that plaintiffs’ negligence claim was subject to the two-year statute of limitations rather than the six-year statute. The six-year statute, according to the supreme court, “applies to actions for interference with or injury to an ‘interest’ in real property, such as trespass or waste.  It does not apply to actions for damage to property itself, which are subject to [ORS 12.110(1)’s] two-year statute of limitations.” Goodwin, 359 Or at 696 (emphasis added).

Goodwin establishes that a shorter, two-year filing window applies to actions for negligent construction. For owners, this means that suspected defects must be promptly investigated because any lawsuit to recover damages for the defects must be filed within two years from the date that the owner knew or should have known about the defects and any resulting damage.

And while Goodwin would seem like nothing but good news for contractors, the decision may leave contractors without insurance coverage for the typical construction-defect claims that they face. CGL policies typically cover claims asserted against an insured for negligence, but exclude breach of contract claims. After Goodwin, it is more likely that plaintiffs will be forced to bring claims for defective construction based on breach-of-contract only (versus on breach of contract and negligence) because plaintiffs have missed the two-year filing window. And in cases that have already been filed, plaintiffs’ negligence claims may be dismissed for falling outside the two-year statute of limitations, leaving only a breach-of-contract claim for defective construction.  In either case, a contractor, faced with only a breach-of-contract claim, will not receive coverage under its CGL policy to defend against the claim. In light of Goodwin, contractors and their lawyers should pay close attention to the text of their contracts, particularly when it comes to contractually established statutes of limitation and remedies—parties may adjust the statute of limitations applicable to disputes that arise out of a particular contract, and they may limit the remedies available upon a breach of contract.

Read Goodwin v. Kingsmen Plastering, Inc., 359 Or 694 (2016).