Top Construction Law Developments of 2019
Kegler Brown Construction Law Newsletter December 5, 2019
There have been a number of important Ohio construction law developments over the past year or so, including some key Supreme Court rulings.
1. Statute of Repose Applies to Tort & Contract Claims
There are two ways in Ohio that a claim for building defects is barred by time: the statute of limitations and the statute of repose. The statute of limitations is the period of time for a party suffering harm to file a lawsuit. In Ohio, the contract statute of limitations on construction claims was 15 years, but was changed to 8 years back in 2012.
The statute of repose is the period of time after occurrence of project completion that a defect claim must arise or be barred by time. The statute of repose in Ohio is 10 years from the project’s completion (R.C. §2305.131).
The Ohio Supreme Court recently decided a case where a School District was arguing that only the 15-year statute of limitations applied to a leaky roof claim arising from work 13 years back, and that the 10-year statute of repose did not apply to contract claims (only tort claims).
While the Third District Court of Appeals agreed and allowed the defect case to proceed, the Ohio Supreme Court recently reversed and threw out the 13-year-old claim, holding that the 10-year statute of repose also applies to contract claims.
This decision means that claims against contractors and bonding companies more than 10 years from the project’s completion may be barred by time. Some legal relief for the contracting community when more than a decade has passed from the completion of the project (New Riegel Local School Dist. Bd. Of Edn. v. Buehrer Group Architecture & Eng., Inc., Slip Opinion No. 2019-Ohio-2851).
2. Construction Defects are not an Insurable Occurrence
The Ohio Supreme Court has again ruled that owners, contractors and subcontractors in Ohio have little protection from construction defects. The construction industry has long relied upon Commercial General Liability (“CGL”) policies to protect against personal injury or property damage losses, including those flowing from construction defects. Large premiums are paid every year to the insurance industry to attempt to insure against this risk.
But the Ohio Supreme Court, in Ohio N. Univ. v. Charles Constr. Servs., Inc., 2018-Ohio-4057, ruled that a subcontractor’s faulty workmanship is not “fortuitous” and therefore not an “occurrence” under a CGL policy. Therefore, a subcontractor’s faulty work is not covered as an insured risk under a typical CGL policy.
This case means that those relying upon a CGL policy to provide protection from faulty workmanship may have only illusory protection and be operating uninsured.
The Ohio Supreme Court stated that if this decision is a problem for the industry and the citizens of this state, the legislature could change the law and state that a CGL policy in Ohio shall define “occurrence” to include “property damage resulting from faulty workmanship.” Until it does so, all players in the construction process run the risk that construction defects are uninsured.
3. Owner can Recover More than Once from Multiple Parties
In this school construction defect case, the 4th District Court of Appeals reversed a summary judgment for contractors at the trial court level who had argued that the school district had already recovered settlement sums in excess of its damages.
The Court of Appeals applied a “substantial factor” test to multiple contractor defendants in a construction defect case and found the school district could recover damages under each contract, so long as “the defendant’s breach was a substantial factor in causing injury.”
The net result was that the school district was allowed to recover a sum in excess of the cost to repair damages that it originally sought, and was more than “made whole” (Waverly City School Dist. Bd. Of Edn. v. Triad AR, Inc., 2018-Ohio-4748).
4. State Law Invalidating Local Bidding Preferences Upheld as Constitutional
Cleveland passed a “Fannie Lewis law” ensuring that public construction contracts utilize city residents for at least 20% of the construction labor hours on the project. The State of Ohio General Assembly responded by passing R.C. §9.75, which prohibited such a requirement or a bonus/preference to bidders who use local labor.
While the trial court and 8th District Court of Appeals declared the state law unconstitutional, the Ohio Supreme Court explained that the state law trumps local law when it comes to laws regulating labor, a minimum wage, and protecting the health, safety and general welfare of employees. Therefore, the Ohio Supreme Court found the state law constitutional and Cleveland’s local hiring initiative was sidelined.