Chapter VI Construction Defect Claims and Damages

Chapter VI Construction Defect Claims and Damages

Defect claims arise when one party (typically the owner) discovers that construction work deviates in some manner from the plans and specifications, contract requirements, and/or industry standards. For construction practitioners, discovery of a construction defect gives rise to the following questions:

• How much time is left, if any, to file suit (under the statute of repose and statute of limitations)?
• Who is the real party in interest?
• Who are the potentially responsible parties?
• What causes of action can be asserted against them?
• Are there any conditions precedent to filing a construction defect suit?
• What remedies are available?
• What are the available sources for recovery?

Counsel on the receiving end of a construction defect claim or suit will want to review these issues and consider available affirmative defenses, counterclaims, third-party claims, and claims for indemnity and/or contribution. This chapter is intended to provide a framework for addressing these and related issues concerning construction defect claims and damages in South Carolina.

A. Applicable Deadlines for Construction Defect Claims

Construction defect claims in South Carolina are subject to both statutes of repose and limitation. While these statutes may have similar preclusive effects in certain cases, they are based on different legal theories and have different commencement dates and durations (note: despite their differences, these statutes can run concurrently). The statute of repose creates a substantive right in those protected to be free from liability after a legislatively determined period of time.¹It establishes an absolute time limit beyond which liability no longer exists and cannot be tolled for any reason because to do so would upset the economic balance struck by the legislative body.² South Carolina's statute of limitations, on the other hand, is a procedural device that operates as a defense to limit the remedy available from an existing cause of action.³ "A statute of repose differs from a statute of limitations. ... [T]he expiration of the time extinguishes not only the legal remedy but also all causes of action, including those which may later accrue, as well as those already accrued."⁴

1. Statute of Repose - S.C. Code Ann. § 15-3-640

In South Carolina, the repose period is eight years for projects that were certified for occupancy or final completion by a local building official after July 1, 2005, and 13 years for projects completed prior to that date.⁵ As a general matter, the period of repose set forth in Section 15-3-640 begins running on the date upon which an improvement to real property, or a specified portion thereof, is substantially complete as determined by a local building official's issuance of a certificate of occupancy/completion or written agreement of the parties. The repose period provides an outside limit for bringing an action to recover damages based upon or arising out of the defective or unsafe condition of an improvement to real property. While the statute of repose establishes a cutoff date for most construction defect claims, it does not ensure plaintiffs a right of action for this full period of time. As described below, South Carolina's three-year statute of limitations runs from the date of discovery and thus, in the case of a defect discovered soon after completion, can expire well before the statute of repose.

a. Running as to Specific Areas/Portions of a Project

Although the period of repose set forth in Section 15-3-640 is commonly thought to run from substantial completion of "an improvement to real property," Ocean Winds Corp. of Johns Island v. Lane⁶ stands for the proposition that the statute of repose may begin to run as discrete portions of the work are finished. Ocean Winds involved a condominium association's claims against a window manufacturer. The window installation was held to have occurred no later than December 2, 1986; certificates of occupancy were issued for the various units between June of 1987 and May of 1991; and the case against the window manufacturer was commenced in February 2000. The South Carolina Supreme Court held that the 13-year period of repose began running as to the windows upon completion of the window installation and ruled that the suit against the manufacturer was untimely. In reaching its holding, the South Carolina Court noted that S.C. Code Ann. § 15-3-630 defined substantial completion as "that degree of completion of a project, improvement, or a specified area or portion thereof . . . upon attainment of which the owner can use the same for the purpose for which it was intended . . . ."⁷ The Court, therefore, found that the windows were a "specified area or portion of the project" which was completed more than 13 years prior to commencement of the suit.⁸ The Court found that its decision was consistent with the legislature's stated intent to address instances where persons involved in construction would otherwise be subject to the "economic and emotional burdens of litigation and liability for an indefinite period of time."

b. Exceptions and Exclusions

Statutory exceptions to the statute of repose exist in cases of concealment, latency, or egregious behavior (i.e., fraud, gross negligence, or recklessness). Specifically, S.C. Code Ann. § 15-3-670 provides that the statute of repose may not be asserted in the following circumstances:

(a) as a defense by any person in actual possession or control, as owner, tenant, or otherwise, of the improvement at the time the defective of unsafe condition constitutes the proximate cause of the injury or death for which it is proposed to bring an action in the event such person in actual possession or control knows, or reasonably should have known, of the defective or unsafe condition;

(b) as a defense to any person guilty of fraud, gross negligence, or recklessness in providing components in furnishing materials, in developing real property, in performing or furnishing the design, plans, specifications, surveying, planning, supervision, testing, or observation of construction, construction of, or land surveying, in connection with such an improvement;

(c) as a defense to any person who conceals any such cause of action;

(d) as a defense to any action for personal injury or property damage which is (i) by its nature not discoverable in the exercise of reasonable diligence at the time of its occurrence and (ii) the result of ingestion of or exposure to some toxic or harmful or injury producing substance, element, or particle, including radiation, over a period of time as opposed to resulting from a sudden and fortuitous trauma.

Although it can also be argued that the statute of repose may not be raised unless specific notice provisions are contained in the original building permit. S.C. Code Ann. § 15-3-640⁹ the U.S. District Court for South Carolina held that as the defendant builder and architect did not issue the building permit, Plaintiff's argument the statute of repose did not apply was without merit.¹⁰

Pursuant to S.C. Code Ann. § 15-3-670(A) the statute of repose is not a defense to gross negligence, which is commonly alleged in construction defect suits by plaintiffs. It is further provided that "the violation of a building code of a jurisdiction or political subdivision does not constitute per se fraud, gross negligence, or recklessness, but this type of violation may be admissible as evidence of fraud, negligence, gross negligence, or recklessness."¹¹ Plaintifs will point to experts' (both their own and defendants' experts) testimony identifying building code violations to defeat motions for summary judgment as the existence of the violations create a genuine dispute of material fact as to whether gross negligence exists.¹² Courts have granted the dismissal of all other claims pursuant to the statute of repose while permitting the claims of gross negligence to be pursued.¹³

c. As Applied to Actions for Contribution

It should be noted that the statute of repose takes precedence over the time period set forth in South Carolina's Uniform Contribution Among Tortfeasors Act. S.C. Code Ann. § 15-38-40(D) allows a settling tortfeasor one year from the date of payment to commence an action for contribution. However, in Capco of Summerville, Inc. v. J.H. Gayle Constr. Co., the Supreme Court held that in order to be timely, a contribution action must also be brought within the period of repose.¹⁴In so holding, the Court effectively held that the statute of repose barred actions for contribution bought more than 13 years after the completion of an improvement to real property.

2. Statute of Limitations - S.C. Code Ann. § 15-3-530

South Carolina Code Ann. § 15-3-530 provides that "any action under contract, or any action for trespass upon or damage to real property accruing on or after April 5, 1988 must be brought within three years after the accrual of the claim."¹⁵ A cause of action generally accrues when the plaintiff has a claim to enforce, and the legal right to sue upon the claim.¹⁶ For a claim to accrue, the plaintif must not only know that he has been injured, but also know who or what caused the injury.¹⁷

a. The "Discovery Rule"

The "discovery rule" governs the moment from which the statute of limitations will begin to run. Under the "discovery rule," the limitations period begins to run when the plaintif knew or should have known, through the exercise of reasonable diligence, that a cause of action might exist.¹⁸ If there is conflicting evidence as to whether a claimant knew or should have known about the existence of a cause of action, the question is one for the jury.¹⁹ Many of the causes of actions frequently asserted in...