Maryland Federal Court Rules that Statute of Limitations Bars Construction Defect Claim Involving "Green" Building

Last month, the U.S. District Court for the District of Maryland held that Maryland’s three-year statute of limitations barred causes of action for breach of contract, contribution, indemnity, and negligence in a lawsuit involving the design and construction of a “green” building in Annapolis, Maryland. In The Chesapeake Bay Foundation, Inc. v. Weyerhaeuser Co., 2012 WL 987600 (D. Md. Mar. 23, 2012), the Chesapeake Bay Foundation retained two contractors to construct an environmental center. Consistent with the Foundation’s missions to save the Chesapeake Bay, the center’s construction incorporated the use of recycled and environmentally-friendly materials. These materials included glue-laminated wood members, some of which were exposed to the elements.

Although construction of the center completed successfully in December 2000, the center began experiencing water leaks shortly thereafter. In 2001 and 2002, the Foundation retained two experts to survey the leak problem. In 2001, the first expert reported that the wood members had not been properly treated, which created the potential of increased water penetration and deterioration of the exposed wood elements. In 2002, the second expert reported that the treatment system had failed to adequately protect the wood members and that the members now contained voids, splits, and cracking at the joints. Although certain remediation efforts were taken after the 2002 report, it was not until 2009 that the Foundation determined that certain wood members would have to be removed and replaced due to wood rotting. Following the replacement efforts, in 2011, the Foundation and the two general contractors filed suit against the supplier of the wood members under theories of breach of contract, contribution, indemnification, and negligence. The supplier moved for summary judgment on the grounds that Maryland’s three-year statute of limitations barred all of these claims, arguing that the plaintiffs’ causes of action accrued after the first report in 2001.

In its analysis of the supplier’s motion, the Court began by discussing the discovery rule, which holds that “the cause of action accrues when the claimant knew or reasonably should have known of the wrong.”  A “wrong” for the purposes of the discovery rule need not be absolute for the cause of action to accrue; it need only potential or probable. A party has “knowledge” of the wrong when the party has knowledge of circumstances which ought to have put a reasonable person of ordinary prudence on inquiry to investigate the wrong. After discussing the discovery rule, the court then examined whether the 2001 and 2002 reports had apprised the plaintiffs of the damage to the wood members a decade before their suit was filed.

In examining the undisputed facts of the case, the Court found that several factors would have placed a reasonable person on inquiry to investigate and pursue claims for the damage to the wood members no later than 2002. The close temporal proximity between the completion of the center and the leaks suggested that the wood member may have been defective. In addition, the 2001 report apprised the plaintiffs of the problems with the coating system and the risk of deterioration. Finally, the 2002 report affirmatively stated that the coating systems had failed to protect the wood members and that actual damage (voids, splits and cracking) had resulted to the wood members. In light of these facts, the plaintiffs must have known that the supplier had provided a defective product or process, and further investigation would have uncovered the probable cause and general nature of the damage to the wood members.  The Court rejected the plaintiffs’ argument that the discovery of wood rot in 2009 was the point of accrual of the cause of action, finding that wood rot was the “ultimate manifestation of this constellation of injuries.” Therefore, the Court found that Maryland’s three-year statute of limitations barred this lawsuit, which was filed a decade after the plaintiffs first discovered the injury.

As the court noted, the application of a statute of limitations is not merely a technical bar to a claim. In a case such as this in which over a decade separates the construction of the building from the lawsuit, evidence is lost, memories have faded, and witnesses have disappeared. Since the statute of limitations is an absolute bar to a claim, and, many times, construction defects may remain hidden for many years, owners should take care to proactively respond to any potential defect, or risk losing completely valid and substantial claims.