Statutes of repose are generally meant to be absolutes, providing clarity to potential defendants such as contractors. However, in limited scenarios, some states have allowed for exceptions to the defense. For instance, fraud is one potential exception that has been recognized in several jurisdictions and is often raised by parties on the basis of public policy. In Puget Sound Energy, Inc. v. Pilchuck Contractors, Inc., No. 80162-7-1, 2020 Wash. App. LEXIS 2862 (unpublished), the Court of Appeals of Washington determined whether it would allow a fraud exception to its statute of repose for construction activity. The court upheld the trial court's holding that the statute of repose barred the appellant's claims, declining to entertain a fraud exception.
In this case, Puget Sound Energy, Inc. (PSE), a public utility company, hired Pilchuck Contractors, Inc. (Pilchuck) to perform work in Seattle, Washington in 2004. The work consisted of disconnecting, purging and sealing the existing gas lines, then cutting, capping and removing the deactivated lines. The work was finished in September of 2004. On March 9, 2016, there was an explosion that destroyed several businesses at the same location. The Washington Utilities Transportation Commission ultimately determined that the service line worked on by Pilchuck had not been properly cut and capped and that the explosion would not have occurred but for that error.
In 2018, PSE filed suit against Pilchuck, alleging breach of both contract and warranties under its contractual agreement for the 2004 work and fraud. Pilchuck moved for summary judgment based on the state's six-year statute of repose for improvements to real property. The lower court granted summary judgment and PSE subsequently appealed.
Initially, the court determined that the project was within the purview of the applicable statute of repose and the work at issue fell within the six-year period. The court then considered PSE's argument that while Pilchuck's actions terminated in September of 2004, because they did not properly carry out the construction work as they should have, there was no substantial completion date as required by the statute. Thus, they said their claims were not barred. Pilchuck countered that the work was complete because PSE began providing its new gas lines to customers and treated the ones Pilchuck worked on as obsolete. The court held in Pilchuck's favor, stating that the determination of substantial completion is not based upon any standard of care, but on the line that was worked on being in place for its intended use, which in this case, was disuse.
The appellate court then considered PSE's contention that Pilchuck's fraudulent actions should prelude protection from the statute of repose. PSE argued that because Pilchuck documented that it cut and capped the lines in a manner it had not, this amounted to fraudulent concealment. Because of this fraudulent action, PSE argued that it was unable to know of the latent defect from Pilchuck's work until the action accrued, after the statute of repose had lapsed. Since Pilchuck's own actions resulted in PSE being barred from pursuing litigation, the appellant argued this provided Pilchuck with an unjust windfall.
The court first noted that there was no Washington case law to support the application of a fraud exception to the statue of repose. Although PSE cited several cases from other jurisdictions, the Court of Appeals primarily looked to the intent of the legislature in analyzing the statute. In doing so, the court found that the intent of the statute was to broadly apply to all claims of any kind and found nothing to restrict its application for latent defects. Thus, it upheld the lower court's ruling on this basis.
Unlike many states' statutes of limitations, for which the discovery rule can toll its effect, statutes of repose are more rigid. Some jurisdictions allow for limited exceptions such as fraud and others provide small extensions when claims accrue near the end of the repose timeframe. However, many others still have firm end dates. This is something all subrogation professionals should be aware of when investigating new matters. Besides looking for the end date for the statute of limitation, it is crucial to know when any applicable statute of repose may run. The first step in doing so should be determining when the work at issue was substantially complete. Although you may be lucky enough to litigate in a state with an exception- that is not something you can always count on.
Originally Published by White & Williams, December 2020
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