Failure to investigate contractor’s performance may prevent an owner from later recovering damages for latent defects
October 17, 2017
A construction project’s owner sued the general contractor for breach of contract after the four-year limitations period expired. The owner claimed that it had discovered issues with the contractor’s work, including improperly installed interior doors at exterior locations and the use of incorrect flooring materials. The owner argued that the “discovery rule” tolled the limitations period and allowed it to bring the claims as “latent defects.”
The court declined to apply the discovery rule, pointing to evidence suggesting that the owner knew or should have known about each issue. It emphasized that contracting parties must exercise reasonable diligence in ensuring the performance of a contractor complies with the contract documents. Reasonable steps include, for example, asking the contractor for information needed to verify its compliance with the plans, specifications, and other contract documents.
While the underlying facts of every claim will be different, it is important to recognize that a construction “defect” will not necessarily be considered a latent defect just because the owner did not have actual knowledge of the defect. If it is determined that the owner could have discovered the defect through the exercise of reasonable diligence, the defect will not be considered latent. Of course, what constitutes “reasonable diligence” (or the lack thereof) will depend upon the factual circumstances of each project and claim.