In May 2015, Woods Aitken filed a “friend of the court” or amicus brief with the Nebraska Supreme Court in the case of Adams v. Manchester Park L.L.C, 291 Neb. 978 (2015). That case involved an appeal from the Nebraska Court of Appeals. The Nebraska Court of Appeals’ decision raised many concerns with regard to the statute of limitations that would apply in a construction defect case that included the grant of express warranties, as well as a number of other problems. Although that case involved a residential construction dispute, the decision would have reached all aspects of construction if it had been allowed to stand.
In October, the Nebraska Supreme Court reversed and remanded the Nebraska Court of Appeals decision. In its decision, the Nebraska Supreme Court made several things clear with regard to the application of Neb. Rev. Stat. § 25-223, which the Court described as a “special statute of limitations governing actions against builders and contractors for improvements to real property.” Under the statute:
Any action to recover damages based on any alleged breach of warranty on improvements to real property or based on any alleged deficiency in the design, planning, supervision, or observation of construction, or construction of an improvement to real property shall be commenced within four years after any alleged act or omission constituting such breach of warranty or deficiency. If such cause of action is not discovered and could not be reasonably discovered within such four-year period, or within one year preceding the expiration of such four-year period, then the cause of action may be commenced within two years from the date of such discovery or from the date of discovery of facts which would reasonably lead to such discovery, whichever is earlier.
Notably, this statute also includes a statute of repose, which prohibits any action from being brought more than ten years beyond the time of the act giving rise to the cause of action.
Thus, where a party has raised the applicability of the statute of limitations in Neb. Rev. Stat. § 25-223, the initial question is when the alleged act or omission constituting a breach of warranty or deficiency occurred. Nebraska courts have repeatedly held that, in cases involving claims of alleged defective construction, the four-year statute of limitations and the ten-year statute of repose in section 25-223 are deemed to commence at the time construction is substantially complete. That long-standing string of cases was reaffirmed in Adams v. Manchester Park. The concurring opinion written by Justice Connolly makes clear that issuing an express warranty may change that result in certain situations not present in this case.
In this case, the contractor issued the homeowner an express warranty a day after substantial completion of the home occurred. Thus, the express warranty was separate and apart from the parties’ original construction contract. The plaintiffs’ claims of negligence, breach of the implied warranty, and breach of the express warranty, all related to the original construction, which the plaintiffs contended was defective. The Nebraska Supreme Court reaffirmed that alleged acts or omissions regarding problems with a construction project’s original construction accrue at substantial completion. As such, the homeowners in this case were found to have missed the applicable statute of limitations.
However, as Justice Connolly made clear, if the homeowners had alleged and proven that the contractor had “breached its promise to repair” that was contained within the express warranty, then this case may have had a different result. Had such an allegation been made and proven, then the “‘act or omission constituting such breach of warranty’ under § 25-223 is the warrantor’s failure or refusal to make repairs.” In that situation, it is possible that the homeowners may have been able to avoid the passing of the statute of limitations with regard to that claim.
This decision makes clear that contractors need to be very cautious with the use of express warranties. If issued and not properly restricted, it is possible that contractors may inadvertently extend the statute of limitations period applicable to claims against them.
If you have any questions, please contact one of Woods Aitken’s Construction Attorneys. For additional construction news, tips, and updates, we encourage you to view our Construction E-Brief archives.