The following article describes the difference between a Statute of Repose and a Statute of Limitations and the distinct treatment of claims by Project Owners versus Third Parties (Occupants, Visitors and Adjacent Property Owners).
New York State stands out from virtually all of the other 49 states for some laudatory reasons. It is home to Wall Street, the Metropolitan Museum of Art, the Broadway theaters, and many elite institutions of higher education. It is home to the New York Yankees. Unfortunately, for the design community, including professional engineers and architects, New York also stands out as one of only two states (the other is Vermont) with no true Statute of Repose for claims alleging faulty design.
The absence of a Statute of Repose gives rise to the possibility that design professionals may be held responsible for personal injury, death and property damage arising decades after they have completed their work on a project. NYSSPE, AIA and others in the design community continue to advocate for adoption of a ten-year Statute of Repose in New York, but relentlessly face the strong opposition from plaintiff trial lawyers. The purpose of this article is to clarify the nature of the additional risk in New York arising from the absence of a Statute of Repose versus virtually every other state, and also reiterate the availability of proactive alternatives to mitigate this additional risk.
It is important to recognize that in all design liability cases New York does have a Statute of Limitations (to be distinguished from a Statute of Repose) which offers protection against claims for design defects, particularly those property damage claims asserted by a project owner who has hired the licensee to provide design services. In short, an owner, contracting for design services for a building or other project, is generally subject to a three-year statute of limitations when asserting a claim against a PE or RA for such services*. The three-year Statute of Limitations period runs from when a project is completed. Essentially this class of cases include claims by a project’s owner for property damage to the building or other structure which was constructed based upon the licensee’s design.
(*The three-year Statute of Limitations can be extended to six years in a very narrow class of cases where the design professional assumes a duty above and beyond the standard of care otherwise applicable to professional design service contracts.)
Notwithstanding the foregoing, the absence of a Statute of Repose in New York creates potential significant liabilities for claims by third-parties, including building occupants, visitors and adjacent property owners. While the three-year Statute of Limitations also applies to these third-party claims, the limitation period, in this class of cases, does not begin to run until the third-party is injured or killed or the third-party’s property is damaged or destroyed. The commencement of this clock, (i.e. the date of the injury, death or damage or destruction of property belonging to third party), is dramatically different from the trigger that applies to the project owner who contracted for the delivery of the project design. As stated above, the Statute of Limitations’ clock, in the case of a project owner, starts to run upon completion of the project. Accordingly, it is the third-party class of cases which creates the most significant additional risk for projects located in New York.
In order to guard against claims long after services are rendered engineers can purchase tail coverage from their design liability insurance carrier upon their retirement. Tail coverage may be particularly useful in cases where an engineering firm is being dissolved. Unfortunately, tail coverage is usually limited to three years. In most cases where the firm continues, including cases of merger or acquisition, insurance coverage can continue and be extended to retired licensees indefinitely. In cases of merger or acquisition, retiring licensees should be careful to expressly include favorable indemnification language and insurance coverage provisions in the merger or acquisition agreement. However, in all cases, with proper planning, licensees can also protect their assets through the use of a trust, without loss of control over the assets placed in trust by the licensee.
Please feel free to direct any questions regarding the use of a trust, or any other issues raised in this article, to NYSSPE counsel Mark Kriss who can be reached at mkriss@krisslaw.com or calling 518-449-2037 extension 207.
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