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GUEST ARTICLE
Virginia’s Statute Of Repose: “Safe Harbor” Or “Desert Mirage”?
November 2006

Virginia’s Statute Of Repose: “Safe Harbor” Or “Desert Mirage”?
How Contractual Indemnification Affects the Answer

By James K. Lowe, Jr., P.E., Esq.

On an otherwise typical and uneventful day at the office, you happen upon a letter in your in-box from an attorney purporting to represent a former client of your firm and who demands on behalf of his client reimbursement of funds his client has recently paid to a third party as damages for personal injuries. The attorney contends that this payment was made necessary as the direct result of an act of professional negligence on the part of your firm in connection with a project your firm ostensibly completed for his client. Should your firm refuse to comply with this demand, the attorney indicates that he will immediately file suit against your firm on behalf of his client. You search your mind in a vain effort to call forth even the slightest memory of either the project or the supposed client to which the attorney refers. With some effort, you are finally able to identify the project, as well as confirming the identity of the client, from information contained within your firm’s project database. Based on that information, you deduce that the project was completed more than five years ago.

Armed with your firm’s project number, you undertake a diligent search of your firm’s “dead files” in an effort to locate the project records. Unfortunately, given the passage of time – and intervening office relocation – you soon discover that only a few small boxes of project records remain. How is your firm going to be able to defend itself against the client’s claim with so few available records? Even so, while ever mindful of the disruptive and potentially costly nature of professional liability claims, you are not unduly alarmed because you are confident that regardless of the ultimate facts in this matter, given the passage of time since completion of your firm’s services for this client, surely your firm must be shielded from any potential liability.

Fortunately, one of the files you are able to locate is the firm’s contract file. Retrieving this file and its contents from storage, you return to your desk. As you skim through the file, you find a copy of the Engineers Joint Contract Documents Committee’s Standard Form of Agreement Between Owner and Engineer for Professional Services, EJCDC 1910-1, 1992 Edition. A quick look at this document reveals that it is an original copy of the contract executed by and between your firm and the client. As you continue to scan portions of the document, you notice paragraph 8.4, Controlling Law, which reads as follows:

This Agreement is to be governed by the law of the principal place of business of ENGINEER.

Given that your firm’s corporate headquarters are located within the Commonwealth of Virginia, you rightfully conclude that any claims arising out of your firm’s performance of this contract will be governed by Virginia law. Knowing that Virginia was ranked favorably in the latest survey of state liability systems conducted annually by the U.S. Chamber of Commerce, you are encouraged by this discovery. You are even more confident now that your firm most likely has little or nothing to worry about in connection with the client’s current demand.

How justified is that confidence?

Because the project was completed more than five years ago, you are certain that the statute of limitations applicable to claims arising out of a written contract for engineering services must bar the client’s claim. And, in fact, Virginia Code § 8.01-246(2) establishes a five-year statute of limitations for an action on a written contract signed by the party to be charged thereby (or by his agent). Accordingly, a claim based upon your firm’s breach of any contractually assumed duty would have to have been brought by the client within five years after your firm’s completion of its services under the contract, at the latest. For that reason, any claim based on allegations of breach of contract is time-barred.

You breathe a sigh of relief, thinking, “With so much time having passed, I just knew we had to be protected against any claims by the statute of limitations.”

But wait. Isn’t there also something called a statute of repose and might not your firm then also have a statute of repose defense?

You’ve heard the terms “statute of limitations” and “statute of repose,” and, if for no other reason than the fact that each exists, you have a vague understanding that they are “similar,” yet somehow different. But just how they might be different is something that you’ve never had the time – nor the need (well, at least not until now, anyway) – to investigate. So, just how does a statute of limitation differ from a statute of repose, and vice versa?

The Supreme Court of Virginia distinguished a statute of repose from a statute of limitation in Cooper Industries, Inc., et al. v. Andres Melendez, 260 Va. 578, 537 S.E.2d 580 (2000), stating, “A statute of repose differs from a statute of limitations in that the time limitation in a statute of repose commences to run from the occurrence of an event unrelated to the accrual of a cause of action. The limitation period in a statute of limitations generally begins to run when the cause of action accrues.” 260 Va. at 598, 537 S.E.2d at 588.

Virginia’s status of repose for damages arising out of a defective or an unsafe condition of improvements to real property is located at § 8.01-250 of the Code of Virginia. Section 8.01-250 provides, in pertinent part, as follows:

No action to recover for any injury to property, real or personal, or for bodily injury or wrongful death, arising out of the defective and unsafe condition of an improvement to real property, nor any action for contribution or indemnity for damages sustained as a result of such injury, shall be brought against any person performing or furnishing the design, planning, surveying, supervision of construction, or construction of such improvement to real property more than five years after the performance or furnishing of such services and construction.

Consequently, since the project was completed more than five years ago, you breathe another sigh of relief. “We’re home free,” you say to yourself. “With both the statute of limitations and statute of repose as shields against the client’s claim, no one can force us to reimburse the client for money paid to some third party, even if we were somehow at fault.”

Suddenly, though, you see paragraph 8.7, Allocation of Risks–Indemnification, on the next page of the executed owner/engineer agreement, EJCDC No. 1910-1 (1992). Paragraph 8.7.1 reads, in pertinent part, as follows:

To the fullest extent permitted by law, ENGINEER shall indemnify and hold harmless OWNER, OWNER’s officers, directors, partners, employees and agents from and against any and all claims, costs, losses, and damages (including but not limited to all fees and charges of engineers, architects, attorneys, and other professionals, and all court or arbitration or other dispute resolution costs) caused solely by the negligent acts or omissions of ENGINEER or ENGINEER’s officers, directors, partners, employees, agents and ENGINEER’s Consultants in the performance and furnishing of ENGINEER’s services under this Agreement. . . .

Your initial thought is that since this provision appears in a standard form contract prepared by the Engineers Joint Contract Documents Committee, which includes representatives from the American Council of Engineering Companies (ACEC), the American Society of Civil Engineers (ASCE), and the National Society of Professional Engineers (NSPE), nothing will change – your firm will still be protected by both the statute of limitations and the statute of repose. You also note that your firm’s obligation to indemnify the client is limited to your firm’s sole negligence, which you know from risk management training is language preferred by your firm’s professional liability insurance carrier. But, still, you cannot help but wonder whether the fact that the contract between your firm and the client contains an indemnity provision changes anything. And, if so, how?

Actions for indemnification based upon an indemnification provision in a written contract are governed by Virginia Code § 8.01-246(2) and must be commenced within five years after the accrual of the cause of action. Pursuant to Virginia Code § 8.01-249(5), actions for indemnification do not accrue until after the indemnitee has paid or discharged the obligation. Thus, a party to a written contract seeking indemnification (i.e., the “indemnitee”) from another party to the contract (i.e., the “indemnitor”) pursuant to an indemnity provision within the contract has five years from the date such party (the “indemnitee”) pays or otherwise discharges its obligation to the claimant in which to seek to enforce the contract’s indemnity provision against the other party (the “indemnitor”).

First in Fidelity & Deposit Company of Maryland, et al. v. Bristol Steel & Iron Works, Inc., 722 F.2d 1160 (4th Cir. 1983), and later in Delon Hampton & Associates, Chartered, et al. v. Washington Metropolitan Area Transit Authority, 943 F.2d 355 (4th Cir. 1991), the United State Court of Appeals for the Fourth Circuit declared Virginia’s statute of repose applies only to claims arising out of tort, and thus does not apply to claims arising out of contract. This interpretation of Virginia’s statute of repose was recognized by the Virginia Supreme Court in dicta in School Board of Norfolk v. United States Gypsum, 234 Va. 32, 38 (1987), and adopted by the Circuit Court of Fairfax County in Tycon Tower I Investment Limited Partnership v. Glen Construction Co., Inc., et al., 1995 Va. Cir. LEXIS 1454 (1995).

What were once feelings of relief have unexpectedly turned into a sick feeling in the pit of your stomach. You suddenly realize that despite the fact that it has been more than five years since completion of your firm’s services for the client, because
(a)the executed contract between your firm and the client contains a promise to indemnify the client,
(b)Virginia’s statute of repose does not apply to claims arising out of contract,
(c)in Virginia, actions for indemnification do not accrue until after the indemnitee has paid or discharged the obligation to the claimant, and
(d)the client’s claim has been asserted within five years after the date that the client has satisfied its obligation to the claimant,
your firm is obligated to reimburse the client (and its officers, directors, partners, employees and agents) for all “costs, losses, and damages (including but not limited to all fees and charges of engineers, architects, attorneys, and other professionals, and all court or arbitration or other dispute resolution costs)” caused by your firm’s negligent acts or omissions in the performance or furnishing of its services for the client.

In a state of shock and disbelief, you slowly rise from your desk and, with the client’s letter and the executed contract in hand, begin walking towards the CEO’s office to break the news.

Without a change to the current statutory language, Virginia’s statute of repose is not the “safe harbor” that many Virginia architects, professional engineers, and other design professionals may think it to be. Rather, whenever a contract between a design professional and a client contains an express promise by the design professional to indemnify the client, the statute of repose is transformed into little more than a “desert mirage.”

AUTHOR’S END NOTES

This article is designed to provide informative information in regard to the subject matter covered. It is provided with the understanding that neither the author nor Hayes, Seay, Mattern & Mattern, Inc. is engaged in rendering legal or other professional services or advice. If legal or other professional services or advice is required, the services of a competent professional person should be sought. The style and content of this article has been greatly improved by comments and suggestions offered by Mr. D. Stan Barnhill, Esq., with Woods Rogers PLC, Roanoke, Virginia, and Mr. Bruce E. Titus, Esq., with Reese, Broome & Diaz, P.C., Vienna, Virginia. However, the author is solely responsible for any errors or other deficiencies contained in this article, as well as for any opinions expressed herein. ##

About the Author

James K. Lowe, Jr. is Senior Vice President and Counsel for the Roanoke, VA-based architectural/engineering/planning firm of Hayes, Seay, Mattern & Mattern, Inc. Jim was awarded a Bachelor of Science in Civil Engineering from Virginia Polytechnic Institute & State University, a Masters of Engineering Administration from The George Washington University, and a Juris Doctors from George Mason University School of Law. He is a licensed attorney and professional engineer in the Commonwealth of Virginia, and a former member of the Virginia Board for Architects, Professional Engineers, Land Surveyors, Certified Interior Designers and Landscape Architects, the Virginia Design-Build/Construction Management Review Board, and the Virginia State Bar’s Construction and Public Contracts Law Section Board of Governors.


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