A few weeks ago, the New Jersey Supreme Court issued a decision that could have a profound effect on members of New Jersey’s construction community.  In Town of Kearny v. Louis F. Brandt, the Court issued two major holdings: (i) under New Jersey’s Statute of Repose, an architect with construction administration responsibilities cannot be sued for defective work more than ten years after the first temporary certificate of occupancy (TCO) is issued; and (ii) if a party is dismissed because more than ten years has elapsed since its work, the jury may still consider the dismissed party’s contribution to any damages for the purpose of determining liability for the remaining parties to the litigation.

What Is a Statute of Repose and Why Does It Matter?

For those who possessed the courage to continue reading beyond that “legal mumbo jumbo,” a Statute of Repose is a law that protects design professionals and contractors from indefinite liability.  In New Jersey, the Statute of Repose bars all litigation arising out of construction defects discovered more than ten years after the performance of the work.  For instance, a structural engineer need not worry about being sued for a latent design defect that surfaces twenty years after it performed the design work.

In Town of Kearny, construction of a public safety facility started in 1994, and the Town sued the architect, soils engineer, and structural engineer for latent structural defects on April 7, 2006.  The Court decided that for professionals like the architect whose responsibilities continue through construction, the ten-year Statute of Repose begins to run when the project reaches substantial completion.  In this case, the Court decided that substantial completion occurred on April 9, 1996 when the first TCO was issued giving the owner until April 9, 2006 to sue the architect.

For the soils and structural engineers who were hired to perform more finite and limited services, the ten-year period began to run at the conclusion of their specific tasks.  Since the soils and structural engineers completed their work more than ten years before the owner filed suit, they were dismissed from the case, leaving only the architect subject to liability.

What Happens to the Architect Now That Other Potentially Responsible Parties Have Been Dismissed?

In cases with multiple defendants who may have collectively contributed to the damages plaintiff suffered, the jury is asked to determine – on a percentage basis – each party’s responsibility.  For instance, if a jury awards a verdict of one million dollars and finds two defendants each fifty percent responsible, respectively, then each defendant is liable to the plaintiff for $500,000.00.

But what happens in situations like Kearny where two of the parties who may have been responsible for the Town of Kearny’s damages were dismissed on a statutory technicality?  The Court decided that even though the soils and structural engineers are immune from judgment by way of the Statute of Repose, the jury should nonetheless consider their contribution to the Town’s damages because the purpose for the rule requiring juries to determine each party’s contribution to the damages is so that each party pays for the damages it actually caused.  In other words, if the architect is responsible for less than 100% of the town’s damages, it would not be fair for the architect to pay 100% simply because the other defendants were dismissed by way of the Statute of Repose.

The Lesson

While the discovery of latent construction defects can be outside of the owner’s control, owners should nonetheless be mindful that New Jersey’s Statute of Repose does not treat all contractors and professionals equally.  For those with limited responsibilities that began and end prior to the project’s overall completion, the clock to file a lawsuit begins ticking once the specific work is completed.  For those with construction management or administrative responsibilities, the clock begins to run when the project is substantially complete.

Without agreement among the parties as to substantial completion, Town of Kearny tells us that a court will likely utilize the issue date for the first TCO.  Owners can guard against the “ticking clock” by keeping a close watch on the various completion dates for each trade.  Meanwhile, designers and builders can ensure that the clock is ticking by being vigilant with the submission and approval of critical project documents such as certificates of substantial completion.

Jonathan A. Cass is a the Chair of the Insurance Coverage & Risk Management Group at Cohen Seglias Pallas Greenhall & Furman PC. He has extensive experience representing insureds and insurers in insurance coverage disputes.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law.