Recent Construction Cases Lengthen Time to Sue

by James R. Keller

This article appeared in St. Louis Lawyer, p. 9, February 4, 2004.

In three important decisions since 1999, Missouri's appellate courts have expanded the time for filing construction lawsuits against contractors, engineers and architects even though the plaintiff owners in each were aware early on of certain construction problems. The cases set a clear direction in how courts will examine statute of limitations defenses and the circumstances when a lawsuit can be maintained more than five years after first learning of some type of construction defect or failure.

This Article will examine these three cases.

Business Men's Assurance Co. of America v. Graham

The first case is Business Men's Assurance Co. of America v. Graham, 984 S.W.2d 501 (Mo. 1999). The Missouri Supreme Court decided that architects and engineers can be responsible for defects 39 years after construction. The decision cost the architects/engineers $5,287,991 in jury-awarded damages.

In 1960, Business Men's Assurance (BMA) contracted with an architectural and engineering firm (Skidmore, Owings & Merrill) to design the BMA office tower in Kansas City, Missouri. Construction started in 1961 and ended in 1963.

The building's exterior contained more than 4.000 panels of marble that were each 1" thick and covered all four sides of the building's vertical columns. Metal anchors attached the marble panels to the building.

The contract provided that Skidmore would use its "best efforts" to supervise and protect the owner against defects but Skidmore did not guarantee the contractor's performance.

In 1985, one marble column panel fell from the penthouse to the tower. A month later, two horizontal panels fell seven stories to the ground.

BMA hired Black & Veatch to investigate. Black & Veatch discovered significant design problems, including a finding that at least 25 percent of the anchors were either missing or were of an incorrect type and that all of them were 1/16" thick instead of the specified 1/8".

Black & Veatch further found that the marble failed to meet industry standards for the early 1960's. Over the years, the marble warped, cracked and lost strength.

In 1986, the owners sued Skidmore and others for negligence and breach of contract, which prompted a settlement from everyone except Skidmore. During the litigation, Skidmore argued that the owner waited too long to sue, pursuant to Missouri's statute of limitations, 516.100 R.S.Mo., a statute long disputed as to its meaning and reach.

Section 516.100 provides in part that "the cause of action shall not be deemed to accrue when the wrong is done or the technical breach of contract or duty occurs, but when the damage resulting therefrom is sustained and is capable of ascertainment, and, if more than one item of damage, then the last item, so that all resulting damage may be recovered, and full and complete relief obtained."

A claim for breach of contract under Missouri statutory law must be brought within five years. 516.120. The question is within five years of "what." No Missouri case has ever clearly or precisely defined what "sustained and capable of ascertainment" means or how it is to be applied, despite hundreds of cases that have involved this phrase. See Business Men's at 139.

At trial, Skidmore introduced evidence that the owner knew of early problems with the marble. Apparently, the marble pieces chipped off and had to be reattached. One panel was replaced and in 1975 the entire exterior of the building was recaulked.

The Missouri Supreme Court decided that these early problems were not significant enough, legally speaking, to alert BMA that the system as a whole was defective. Such knowledge did not occur until 1985, when the panels began to fall. The Court separated damages involving less important elements of construction from later damages that involved more serious and expensive repairs.

Allen v. Kuehnle and Kuehnle Bros. Constr. Co.

The next case is Allen v. Kuehnle and Kuehnle Bros. Constr. Co., 92 S.W.3d 135 (Mo. App. E.D. 2002). The Eastern District Court of Appeals decided that a homeowner could sue her contractor seven years after moving into the house. Minor punch-list items immediately after construction were not enough to trigger an earlier date.

The Court decided that Missouri's five-year statute of limitations for breach of contract did not start until the homeowner knew of serious structural defects. This case lengthens the potential exposure and liability of contractors.

The contractor was to build a new house that would occupy a quarter of the "footprint" of ground excavated by the contractor during removal of the prior house. After moving into the completed home in May 1993, the homeowner noticed various problems, prompting a punch list dated August 24, 1993.

The punch list contained 26 items including hairline cracks in the drywall, drywall tape pulling away from walls in certain places, two sections of the sidewalk that sloped, and some loose shingles. The contractor repaired or attempted to repair most of the items on the punch list.

In 1998, the homeowner began to notice "numerous new, more dramatic problems with her home," such as cracks in the foundation and exterior brick walls, a huge L-shaped crack in the family room, and drywall tape that was pulling away from the walls in nearly every room.

The homeowner decided to have her home pierced, per an engineer's advice. This process generated considerable dust and debris. While cleaning the dust, the homeowner developed a sore on her foot that became infected, resulting in a hospital stay and medical costs of $3,667.

Allen sued in November 1999, claiming breach of contract and negligence and sought a rescission of the contract. The contractor defended, to a considerable degree, on the grounds that Allen had waited too long to sue.

The issue was whether the punch list created in 1993 and the homeowner's knowledge about problems before 1995 were enough to provide notice to the homeowner of the structural problems. There was contradictory evidence on this point.

The contractor had argued that the homeowner knew of structural problems more than five years before she filed the lawsuit. The trial judge agreed and granted summary judgment for the contractor.

The appellate court relied heavily on the decision in Business Men's Assurance Co. of America v. Graham.The court concluded that material facts were still in dispute as to when structural problems were ascertainable; thus, the trial judge erred by granting the motion for summary judgment.

In distinguishing other cases, the appellate court found the compelling difference to be that the homeowner's problems before 1998 were not problems related to settlement or faulty soil compaction. Rather, the prior problems were typical, common issues experienced during the construction of a new home.

Loeffler v. City of O'Fallon

The third case is Loeffler v. City of O'Fallon, 71 S.W.3d 638 (Mo. App. E.D. 2002). The Eastern District decided that an owner could sue the City of O'Fallon more than five years after completion of a project and after first noticing construction defects. The result should prompt contractors to reconsider whether they will extend open-ended offers and agreements to remedy construction defects after completion.

Loeffler, the homeowner, had sued the City of O'Fallon for breach of contract. While the record is not precisely clear, it appears that the City was doing some construction work and needed a temporary construction easement for access to the homeowner's property.

The contract included handwritten "special conditions" that provided the City would be responsible for and promptly correct any water backup or other problems due to construction. The City's responsibilities did not expire upon completion of the project.

The City completed the project in May 1992 and thereafter the homeowner noticed grading changes and poor drainage from the fall of 1992 through the spring of 1993. In 1993, she notified the City that her yard was sinking. This was more than five years before she eventually sued.

During the next two years, Loeffler's property sustained damage due to poor drainage including wall fractures and moisture intrusion into the basement. In March 1994, she obtained and sent to the City a bid from a grading contractor to correct the drainage problem.

In August 1994, the City's insurance company sent Loeffler a response denying liability but adding that it would re-evaluate if Loeffler produced documents to support her claim. Loeffler filed her lawsuit in June 1999. This was more than five years after obtaining the bid for corrective work but less than five years from first hearing that the City through its insurance company denied liability.

The City convinced the trial court that Loeffler had waited too long to sue since Loeffler's property clearly had damage that she knew about in 1993. In reversing the trial court, the appellate court decided that the City had contractually agreed to fix any defects after construction and had not limited the period of time to do so.

Loeffler was required to offer the City an opportunity to correct any defects before filing the lawsuit. Thus, the appellate court concluded that the statute of limitations did not begin to run until the City first refused to be responsible for problems resulting from its work.

In reaching this result, the appellate court recognized a "line of cases which stand for the proposition that, in certain instances, a plaintiff need not give a defendant an opportunity to correct defects." Id. at 643. The court did not believe it had to follow them because they contained contract provisions different from the one between the City and Loeffler.

About the Author

James R. Keller is a partner at Herzog, Crebs & McGhee, LLP, where he concentrates his practice on complex business litigation, construction law and ADR. He is the Co-Chair of BAMSL's Construction Law Committee, Chair of the Construction Advisory Committee of the American Arbitration Association (AAA), St. Louis Region, and Vice-Chair of the ADR Committee of the Missouri Bar. He also is the legal writer for the St. Louis Construction News & Review, an arbitrator with AAA and a mediator in lawsuits in federal and state courts.