Negligence, professional liability, warranties and limitation periods

Construction liability does not end when the contract is complete. A roof that leaks after five years, a parking garage slab that spalls after ten, an engineer's error that causes a collapse, a subcontractor's faulty work discovered by a buyer who never had a contract with it: all raise questions of liability outside or after the contract. This lesson covers the law of negligence as it applies to builders and designers, the liability of design professionals, the owner's warranty of the design it furnishes, express and implied warranties, indemnities, and the time limits within which claims must be brought.

Negligence

Negligence is the main tort in construction. A person is liable in negligence if they owed the claimant a duty of care, breached the standard of care, and caused damage that is not too remote. Negligence claims matter in construction because they can be brought by people who have no contract with the defendant: an owner against a subcontractor, a later purchaser against the original builder, a contractor against the owner's engineer, or an injured member of the public against everyone involved.

The modern law of negligence descends from cases such as MacPherson v. Buick Motor Co. (1916) in New York and the English case Donoghue v. Stevenson (1932), which extended a manufacturer's duty of care to the ultimate user of its product. Each state decides the scope of duty under its own case law, usually considering foreseeability of harm, the relationship between the parties and policy factors.

The standard of care is that of a reasonable person in the defendant's position. For contractors, it is the care a reasonably competent contractor would exercise; for professionals, the care of a reasonably competent member of the profession. Compliance with the building code is evidence of reasonable care but not conclusive, and breach of the code is evidence of negligence.

Pure economic loss

The difficult cases in construction involve pure economic loss: financial loss that is not the result of physical injury to a person or damage to other property. The cost of repairing a defective wall, or the profit lost because a building opened late, is pure economic loss. Courts are cautious about allowing such losses in negligence, because contracts are the normal way to allocate them.

Most states apply an economic loss rule, which bars recovery in tort for purely economic losses between parties who could have allocated those losses by contract, leaving them to their contract remedies. States differ widely on how far the rule reaches: some apply it strictly to bar homeowners' negligence claims against builders for defects, others allow such claims or allow claims against design professionals by contractors who relied on their work. Some states recognize an exception for defects that pose a risk of physical harm, and most allow claims for damage to other property.

Liability of design professionals

Architects and engineers owe duties in contract to their clients, and in tort to those who foreseeably rely on their work. Their standard of care is that of a reasonably competent professional practicing at the time; they do not guarantee perfect designs, but they must design in accordance with accepted practice and the applicable codes, review shop drawings with reasonable care, and administer the contract fairly when acting as payment certifier or interpreter.

Many states allow contractors to sue design professionals in negligence or negligent misrepresentation for economic losses caused by defective plans on which they relied, while others bar such claims under the economic loss rule and leave contractors to claim against the owner. On federal and many state projects, the contractor's main remedy for design defects is against the owner, under the Spearin doctrine.

The owner, in turn, has a contract claim against its designers. Design professionals usually carry professional liability insurance, and their contracts often limit liability to their fee or to the insurance limits; some states restrict such limitations. State licensing boards can also discipline architects and engineers.

The Spearin doctrine

In United States v. Spearin (1918), the government's specifications required a contractor to relocate a sewer, which later burst because of a dam the plans did not show. The Supreme Court held that when the owner furnishes detailed plans and specifications, it impliedly warrants that a contractor following them will produce a satisfactory result, and the contractor is not responsible for consequences of defects in them. Spearin is followed in federal contracting and most states. It applies to design (detailed) specifications, not to performance specifications that leave the method to the contractor. Contractors still have a duty to notice and report patent defects, and contract clauses can limit Spearin in some states.

Warranties and correction periods

Construction contracts contain express warranties that the work will conform to the contract documents and be free from defects. They usually add a correction period, commonly one year from substantial completion, during which the contractor must return and correct defects that appear.

A201-2017 § 3.5 contains the contractor's warranty that materials and equipment are new and of good quality and the work conforms to the contract documents. § 12.2.2 sets a one-year correction period from substantial completion during which the contractor must correct nonconforming work after notice. The correction period is not a limit on the contractor's liability; the owner can still sue within the statute of limitations. Implied warranties also apply: the warranty of workmanlike construction and, in most states, an implied warranty of habitability for new homes sold by builders.

Indemnities

An indemnity is a promise to compensate another party for losses, usually third-party claims, arising from specified events. Construction contracts are full of indemnities: the contractor indemnifies the owner against claims arising from its work, subcontractors indemnify the contractor. Broad-form indemnities that require a party to indemnify another even for the other's own negligence are controversial.

Most states have anti-indemnity statutes that void clauses requiring a party to indemnify another for the other's sole negligence, and some void indemnity for the other's partial negligence. Courts interpret indemnities strictly and require clear words to cover the indemnitee's own negligence.

Limitation periods

Claims must be started within time limits set by statute. Missing the limitation period ends the claim, regardless of its merit.

Each state sets statutes of limitation for contract and tort claims, typically three to six years for written contracts and two to three years for negligence, often running from discovery of the defect. States also have statutes of repose for construction, which bar claims a fixed number of years after substantial completion, whether or not the defect has been discovered. California, for example, sets 10 years for latent defects; Texas generally 10 years; Florida reduced its period to 7 years in 2023. Lien and bond claims have their own much shorter periods.

Insurance and defect claims

Defect claims are usually paid, if at all, by insurance. Contractors carry commercial general liability insurance, which generally covers property damage and bodily injury caused by an occurrence, but not the cost of repairing the contractor's own defective work. Whether damage to other parts of a project caused by a subcontractor's faulty work is covered depends on the policy wording and on court decisions that differ between jurisdictions. Design professionals carry professional liability insurance written on a claims-made basis, which covers claims made while the policy is in force. Owners often require project-specific policies, such as wrap-up liability or builder's risk insurance, to simplify claims. CON-350 covers insurance and bonding in detail.

For the construction manager, the practical points are to report potential claims to insurers promptly, because late notice can defeat coverage; to keep the records needed to show what caused damage and when; and to read the insurance requirements in the contract before signing, because they decide who carries which risks long after the project is finished.

Practical protection against long-tail claims

Because defect claims can arrive many years after completion, contractors and designers should keep project records, including as-built drawings, inspection and test reports, submittals, photographs and correspondence, for at least as long as the longest limitation or repose period that could apply. Records that seem routine at closeout, such as a field report showing that a membrane was inspected before it was covered, can decide a claim a decade later. Companies should also track which entity performed each project, because claims follow the legal entity, not the brand, and corporate reorganizations can complicate who is responsible.