The AIA Claim Accrual Provision Trumps the Discovery Rule - Federal Insurance Co. v. Konstant Architecture Planning, Inc. (1st Dist., Doc. No 1-08-0938)
It’s another great day for the AIA. In this case, Federal Insurance brought a claim against 
Konstant after Federal paid out over $300,000 to its insureds - a couple who had mold damage in their house.
Konstant had a contract with the home owners to design a home in Winnetka, Illinois. The contract (likely the B141-1987 since the work was completed in 1997, and since the B151-1997’s addition of “In no event shall such statutes of limitations commence to run any later than the date when the Architect's services are substantially completed” is not included in the provision contained in the Court’s opinion – but reference to §9.3 of a standard form AIA agreement is) had the following provision:
“Causes of action between the parties to this Agreement pertaining to acts or failures to act shall be deemed to have accrued and the applicable statutes of limitations shall commence to run not later than either the date of Substantial Completion, or the date of issuance of the final Certificate for Payment for acts or failures to act occurring after Substantial Completion.”
The home owners found water and mold damage in their home in November of 2002, well after the 1997 date of substantial completion. Federal paid under the home owners policy and was subrogated to their rights and in turn, brought an action against Konstant for breach of contract in September of 2005.
Konstant’s attorneys moved to dismiss the action claiming it was time-barred under the Illinois four-year statutory limitations period governing the construction of improvements to real property (735 ILCS 5/13-214(a)) which states:
“(a) Actions based upon tort, contract or otherwise against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property shall be commenced within 4 years from the time the person bringing an action, or his or her privity, knew or should reasonably have known of such act or omission. Notwithstanding any other provision of law, contract actions against a surety on a payment or performance bond shall be commenced, if at all, within the same time limitation applicable to the bond principal.”
In the circuit court, the designer’s lawyers argued that the contract provision at issue meant that the four-year statute of limitations period began to run in 1997 thanks to the AIA contract provision. The trial court agreed and dismissed the action. The owners appealed and argued that a different section of the statute of limitations provisions (735 ILCS 5/13-206) – a 10 year limitations period – applied to the instant case. The appellate court agreed with the trial court and made two important findings, one obvious and one not:
1. The construction statute (13-214(a)) applies when a defendant is being sued for its act or omission of one of the statute’s enumerated construction-related activities. i.e. - the design, planning, supervision, observation or management of construction, or construction of an improvement to real property. (obvious)
2. the extended 10-year statute of limitations which runs from the “discovery” of an act or omission under 13-214(b) is superseded by a parties contractual provision – like that of §9.3 – and will be viewed as an agreement between the parties to shorten the statute of limitations period so long as the agreed time-period is not in violation of public policy. (not obvious)
The lesson here is to make sure that as an engineer, architect, contractor or anyone in a contract with the owner, that you get that provision in your contract. There’s no reason to be carrying a ten-year risk when you can shorten it to, at least, 4 years… as an owner, you will want to make this provision a negotiating point that can impact the cost of your project given that you are now giving up something substantial when you agree to such a provision.
The full opinion can be found here.