Insight

When You Can’t Sue – Limits on Contractor Liability

Published on: January 25, 2017

Louisiana law protects building contractors from liability for past projects that otherwise could extend for an indefinite period of time. La. R.S. 9:2772 prohibits any lawsuit against a contractor for damages arising from a construction project five years after: (1) the date project acceptance was filed into the public records; or, if no acceptance was filed, (2) the date of occupancy. This five-year period is referred to as the "peremptive" period.

This law is broad enough to bar untimely claims of breach of contract and negligence, as well as failure to warn of dangerous conditions. It also covers all conceivable building activities: design, construction, consultation, planning, evaluation, construction administration, and land surveying. It applies both to residential and commercial construction. It also covers claims of property damage, personal injury, and wrongful death brought by any person. The only noted exception is where a contractor’s fraud caused the damages.

The law is meant to establish a specific date to cut off the contractor’s liability. Under the law, nothing can interfere with the running of a peremptive period. After it expires, the claim no longer exists.

Construction litigation in this area often focuses on commencement of the peremptive period. For instance, in Celebration Church, Inc. v. Church Mutual Insurance Company, 16-245 (La.App. 5 Cir. 12/14/16), the owner of a shopping center sued its property insurer for roof damage related to Hurricane Isaac. The insurer prevailed in defending the claim based on defective roof repairs made following Hurricane Katrina. The owner then filed suit against the roofer who made the repairs after Hurricane Katrina. To avoid the peremptive defense, the owner argued that peremption did not begin to run until substantial completion of the entire shopping center. The court rejected this argument and held that the law is specific in defining the date of commencement of the peremptive period. It began to run when the tenants first occupied the space. By the time suit was filed, the owner’s claim no longer existed.

Because construction defects may not surface for years, a claim may be barred before the owner even discovers the problem.

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Keogh Cox & Wilson, Ltd. provides this blog as a public service for general information only. The materials contained herein may not reflect the most current legal developments or even express the opinion of all or even most of Keogh Cox attorneys. Such material does not constitute legal advice or form any attorney-client relationship. Keogh Cox and all contributing author(s) expressly disclaim all liability to any person with respect to the contents of this Web site and Blog and expect that no reliance will be made upon the information provided.

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Insight

Fourth Circuit Brings Clarity to Peremption Statute in Suit Against Design Professional

The question addressed in MR Pittman Group, LLC versus Plaquemines Parish Government, 2015-0396 (La.App. 4 Cir. 12/2/15) was whether the five-year peremptive period set by La. R.S. 9:5607 displaces Louisiana’s general one-year prescriptive period set by La. C.C. art. 3492, when applied to tort claims against design professionals. Finding a contractor’s claim against the project engineers prescribed, the MR Pittman court held that the one-year prescriptive period governs tort claims against design professionals.

La. R.S. 9:5607 explicitly provides a peremptive period that extinguishes all claims against architects, engineers and other design professionals five years after the project is completed, thus limiting design professional liability associated with the project. The MR Pittman plaintiff/contractor argued that the statute also eliminates the one-year prescriptive period and instead creates a special five-year prescriptive period, which allowed the contractor up to five years to bring its claim against the engineers to recover for delay and other extra costs allegedly resulting from deficiencies in the construction plans. This interpretation effectively expands tort liability by increasing the time period for bringing a tort claim from one to five years. In rejecting this argument, the MR Pittman court clarified that under the statute any claimant has no more than five years after project completion to bring suit against the design professional for any cause. However, a tort claimant still has only one year to file suit from the date he “knew or should have known” of damage caused by the alleged wrongful actions of the design professional.

A secondary question addressed in MR Pittman was the date of commencement of the one-year prescriptive period, which under La. C.C. 3492 commences to run from the day damage is sustained. The defendant/engineers argued that prescription commenced when the contractor first became aware of the alleged design deficiencies early in construction, as evidenced by the contractor’s notice to the owner of the deficiencies. The contractor argued that it could not fully appreciate its damages until the change orders were resolved later in the project. Citing Louisiana Supreme Court precedent holding that the quantum of damages need not be certain or fully incurred to trigger commencement of prescription, Harvey v. Dixie Graphics, Inc., 593 So.2d 351, 354 (La. 1992), the court agreed with the engineers’ position and dismissed the claims.

Insight

Subcontractor’s Status as Plaintiff’s “Two-Contract” Statutory Employer Establishes Owner’s Immunity

In Louisiana, a “statutory employer” is entitled to protection from tort suit. With limited exceptions, the defense must be supported by a contractual provision declaring the defendant to be a statutory employer in a manner consistent with La. RS 23:1061. In Spears v. Exxon Mobil Corporation & Turner Industries Group, LLC, 2019-0309, 291 So. 3d 1087 (La. App. 1^st Cir. 2019), the defendant-premises owner successfully asserted the defense, notwithstanding multiple issues with respect to the nature and terms of the agreement and an alleged lack of privity with the plaintiff’s immediate employer.

In Spears, the plaintiff was injured when he slipped and fell on the production floor at the Exxon plastics plant. Spears filed suit against multiple parties, including Exxon, alleging it failed to provide a safe premises. The plaintiff worked for Poly Trucking who operated at Exxon under a contract with Polly-America. Poly-America, LP and Exxon, in turn, were signatories to an agreement entitled "STANDARD PURCHASE ORDER" which stated that Polly-America was to:

"… provide pickup/delivery service… For all containers of Polyethylene scrap as well as Polyethylene's scrap recovery vacuum service for a quoted amount of one dollar.”

The "STANDARD PURCHASE ORDER" also contained a section expressly recognizing Exxon:

“… as the statutory employer of employees of Poly America and subcontractors while such employees are engaged in the contracted work.”

Exxon filed a motion for summary judgment based upon its status as Spears’ statutory employer. The Trial Court granted the motion and dismissed Exxon with prejudice. On appeal, Spears argued that the contract between Exxon and Poly-America presented multiple issues of fact and law which necessitated a reversal of the summary judgment. The issues identified by the plaintiff included the following:

The agreement upon which Exxon relied was a “Contract of Sale,” not a “Contract for Services;”
The agreement specified that the signatory contractor (Poly America) was an "Independent Contractor;"
The plaintiff’s immediate employer (Poly Trucking) was neither a signatory to, nor specifically identified anywhere in the agreement; and,
Although the agreement designated Exxon as the statutory employer of the “employees of Poly America,” Exxon is not specifically designated as the statutory employer of the employees of Poly Trucking, the plaintiff’s immediate employer.

The First Circuit Court of Appeal expressly rejected each of the plaintiff's arguments.

First, the Court pointed out that the law does not mandate that the contract containing the statutory employment language be of any particular type. As such, whether the contract was considered a contract of sale or for services was irrelevant.

Secondly, the Court rejected the claim that contractual language describing Exxon as an “independent contractor” required a rejection of the statutory defense. The Spears Court reasoned that nothing in La. RS 23:1061 prevents an independent contractor from entering into a written agreement whereby the principal to that contract is recognized as the statutory employer of the employees of the contractor and its subcontractors.

Finally, the Court rejected the claim the defense should be rejected because the plaintiff’s immediate employer was not a party to the contract. As discussed in Spears, the law provides that the contract establishing statutory employment can be with either the plaintiff’s immediate employer or the plaintiff’s statutory employer, and Poly America qualified as the plaintiff’s statutory employer under the “two contract” theory because the work that Poly America subcontracted to the plaintiff’s immediate employer (Poly Trucking) was included within Poly America’s “STANDARD PURCHASE ORDER” contract with Exxon.

The Spears opinion highlights that the statutory defense should be maintained, even under unusual facts, when the requirements of La. RS 23:1061 are satisfied.

Insight

The New Home Warranty Act: How Does It Work?

Whether you are building a new home, buying a new home, or a residential construction contractor, there is one Louisiana law that you should know: The New Home Warranty Act (“NHWA”).The NHWA provides the exclusive remedies, warranties, and peremptive periods between a builder and owner relative to home construction. The NHWA provides a warranty for new home purchases and defines the responsibilities of the builder during the warranty periods.What warranties are provided?

1 year: For one year following the warranty commencement date, the builder warrants that the home will be free from defects due to noncompliance with the building standards or other defects not regulated by building standards;

2 years: For two years after the warranty commences, the builder warrants the plumbing, electrical, heating, cooling, and ventilation systems or other defects not regulated by building standards; and,

5 years: For five years following the warranty commencement, the builder warrants that the home will be free from major structural defects, including foundation systems, or other defects not regulated by building standards.

However, the builder’s warranty will exclude certain items, including, but not limited to: fencing, landscaping, insect damage, bodily injury, and mold damage.The homeowner is also required under the NHWA to give written notice to the builder by registered or certified mail within one year of knowledge of the defect. Failure to give this required notice may forfeit any claims the homeowner may possess against the builder.Once notice is given to the builder, if the builder fails to perform as required by the warranties, the owner may bring a claim against the builder for damages, including a claim for attorney fees. This cause of action must be brought within 30 days of the expiration of the applicable warranty period. The damages available to a homeowner cannot exceed the reasonable cost of the repair of the defect, and cannot exceed the original purchase price of the home.While the NHWA provides certain “bright-line” rules and clarifies the rights and remedies available when a problem arises with new construction, litigation of these claims and the defenses provided to builders can present difficult issues. When an issue arises, you should consult an attorney experienced in this area of practice.