MSC: Statute of repose doesn’t apply to a breach of contract claim

The limitations period for breach of contract claims against contractors, architects and/or engineers related to improvements is governed by the breach of contract statute, MCL 600.5807(8), rather than the statute of repose, MCL 600 5839(1), the Michigan Supreme Court ruled in Miller-Davis Co. v. Ahrens Construction, Inc.

In the case, the plaintiff, a general contractor, filed a breach of contract claim against the defendant, a subcontractor hired to rebuild the roof of a YMCA building in Battle Creek. The claim alleged that the defendant’s work didn’t meet specifications, a condition that wasn’t discovered until the roof was removed to repair it. The plaintiff didn’t allege any defective or unsafe condition, only that it wanted indemnification for having to fix the roof itself.

The problem was that the claim was filed more than six years after the YMCA took occupancy. The statute of repose protects contractors from actions “to recover damages for any injury to property, real or personal, or for bodily injury or wrongful death arising out of the defective and unsafe condition of an improvement to real property. …” Under the statute, the limitations period expires six years after occupancy.

Plaintiff said the statute didn’t apply because it was a breach of contract claim, so the statute of repose doesn’t apply.

The two statutes each allow a six year limitation period, so what’s the difference, you ask? It’s when the clock starts ticking. A statute of repose claim accrues on the date of “occupancy of the completed improvement, use or acceptance of the improvement,” while the clock for a breach of contract claim starts on the day the claim accrues.

The Supreme Court agreed with the plaintiff, essentially adopting a 6th U.S. Circuit Court of Appeals decision on the same issue in Garden City Osteopathic Hosp. v. HBE Corp. which used one of its own decisions, Huhtala v. Travelers Ins. Co., to arrive at its conclusion. The Huhtala court said an action founded on a “consensual” duty or breach of “express promise” isn’t a tort action, but a contract action.

We agree that the language of the provision strongly supports the conclusion that MCL 600.5839 does not apply to a breach of contract claim for a defect in a building improvement. We conclude that the Legislature intended the provision to be limited to actions in tort. Thus, it does not apply to a claim against an engineer or contractor for a defect in an improvement when the nature and origin of the claim is the breach of a contract.

The court overruled the Court of Appeals’ 1992 decision in Michigan Millers Mut. Ins. Co. v. West Detroit Bldg Co. which found the opposite in dictum.

By expanding the scope of MCL 600.5839 to contract actions, Michigan Millers blurred the critical distinction between third-party tort claims and contract claims between parties to an express contract. It expanded the applicability of the statute beyond any arguable legislative intent. Furthermore, its holding exceeded that necessary to resolve the issues involved. In sum, the Court of Appeals in this case relied on Michigan Millers for a proposition that is unsubstantiated. We overrule Michigan Millers and Travelers Ins Co. [v. Guardian Alarm, which relied upon Michigan Millers] because they are inconsistent with § 5839.

Applying its interpretation of the statutes, it found the plaintiff’s claim didn’t fall under the statute of repose.

There was no allegation that the roof deck system caused any “injury to property” or “bodily injury or wrongful death.” Nor was there any allegation of a “defective and unsafe condition.” Rather, plaintiff claimed that, because defendant failed to build the roof to the agreed-upon specifications, plaintiff was forced to expend money repairing it. Thus, the damages involved in this case were not to plaintiff’s person or property, but rather to its financial expectations. A claim for damages for deficiencies in an improvement is not an “action to recover damages for any injury to property . . . or for bodily injury or wrongful death . . . .” It is a suit for breach of contract. Here, there was a contract. Plaintiff did not rely on a duty implied in law, but solely on the terms of the contract. Thus, defendant’s obligation to plaintiff arose out of the contract. Because plaintiff claimed that defendant breached the contract that defendant and plaintiff entered into, the six-year period of limitations for contract actions, MCL 600.5807(8), applies in this case.