If forcing a defendant to defend a stale claim is unfair, so is shutting out a plaintiff who couldn’t sue within three years of the breach because he or she didn’t have a fair opportunity to discover it―for example, when a latent construction defect first surfaces after three years. In that case the three-year clock will start ticking only when the breach is or reasonably should have been discovered. Naturally enough, lawyers call this the “discovery rule.”
You can see the tension between these twin fairness concerns. Theoretically, the discovery rule could allow a lawsuit to be brought decades after a breach, making defense an iffy proposition. But in the construction setting, the Legislature has restruck the balance by enacting an eight year statute of “repose” – a deadline after which breaching parties can rest easy even if their breach has not yet been discovered. RSA 508:4-b states:
“Except as otherwise provided in this section, all actions to recover damages for injury to property, injury to the person, wrongful death or economic loss arising out of any deficiency in the creation of an improvement to real property, including without limitation the design, labor, materials, engineering, planning, surveying, construction, observation, supervision or inspection of that improvement, shall be brought within 8 years from the date of substantial completion of the improvement, and not thereafter.”
There are some exceptions in the statute, but in general a claim is extinguished eight years after substantial completion regardless of whether the breach has yet been discovered. In practical effect, the statute of repose is simply a cap on a plaintiff’s invocation of the discovery rule. If the plaintiff knew or should have known of the breach within five years of substantial completion, the statute of repose isn’t really needed, because the statute of limitations will shut the plaintiff out anyway after eight years. But if the breach is first discovered (or reasonably should have been discovered) more than five years after substantial completion, the repose clock will run out before the limitations clock does. The plaintiff’s usual three-year post-discovery deadline is shortened by one day for each day beyond five years from the date of substantial completion that discovery occurred.
Note that neither the discovery rule nor the three year period applies to contracts for the sale of goods. Unless the seller has warranted future performance of the goods for some longer period of time, the limitations period is four years from the date of sale, even if a problem with the goods is not discovered or reasonably discoverable until after those four years have expired. (This can sometimes put a contractor in a pinch. If you inadvertently build a building with defective goods, and the defect is first discovered by the owner more than four years after you bought those goods, the discovery rule may allow the owner to sue you, but you will have no recourse against the supplier!)
Whatever the statutory deadlines are, contracting parties are free to alter them by agreement, both as to length and as to triggering event – and many of them do. The popular AIA form contract A201-2007, for example, overrides the discovery rule: “As to acts or failures to act occurring prior to the relevant date of Substantial Completion, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of Substantial Completion.” It is obviously smart to check your contract language at the first sign of trouble. If you don’t, you may discover that SOL stands for something other than “statute of limitations!”