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In Broom v. Morgan Stanley DW Inc., the Washington Supreme Court ruled recently that state statutes of limitations didn’t apply to a contract’s arbitration clause. The court found that because the Legislature didn’t intend the term “action” in the statutes of limitations to include arbitration, the arbitrators weren’t authorized to apply the Washington statutes of limitations to the plaintiffs’ claims. Construction and design contracts often specify arbitration as the place for disputes, so the Broom decision could affect many construction-related disputes in Washington.

The Broom case is a good reminder of the importance of a statute of limitations, which is the time in which a lawsuit can be filed. The clock on a statute of limitations starts ticking in different ways: for instance, when you discover – or should have discovered – damage.

Claims also have a “statute of repose,” which is the final, drop-dead deadline for a claim. So, for example, a claim that must be brought within two years of discovering an injury (a statute of limitations) may have to be brought within five years of the event causing the injury (a statute of repose), regardless of when or if discovery has occurred. Sometimes, the statutes of limitations and repose are the same day. Either way, failing to file a lawsuit within the time allowed usually kills your case.

Oregon has many statutes of limitations and repose for construction-related disputes. For example, claims against contractors for breach of contract for large commercial structures must be brought within six years of the breach.  But sometimes an owner can also bring a negligence claim against a contractor, and this claim must likely be brought within two years of when the claimant discovered or should have discovered the injury, the cause of the injury and who was responsible for the injury.

And other statutes of limitations could apply, such as those for design professional, products liability, unlawful trade practice, Uniform Commercial Code or Construction Contractors Board claims. It’s common, then, for more than one statute of limitations to apply to a claim, and unraveling these can be tricky.

Statutes of limitations should be considered when negotiating contracts. For example, the Broom case shows that if you want a statute of limitations to apply to your arbitration clause, then your intent should be made clear.

Also, beware of the fine print in contracts, as it commonly contains terms that artificially shrink the time an owner has to bring claims. Contracts sometimes start the statute of limitations clock against an architect or engineer when the project is finished, so the clock is running even before the owner may discover the damage.

These limits are sometimes buried deep inside contracts, and they don’t necessarily use the term “statute of limitations.” When negotiating contracts, be sure that your preferred statute of limitations or contractual limitations period is expressed clearly in the final written product.

If an owner thinks it may bring a claim against a designer or contractor, one of the first things the owner should do is figure out when the statutes of limitations and repose begin and end. The answer often is not clear, and in these situations it’s best to be conservative.

For example, for breach of contract claims it is a good practice to estimate the statute of limitations from when the contractor’s work begins. That avoids an argument over when the contractor breached the contract. Once you’ve corralled the statutes of limitations and repose, these dates should be entered into a reminder system or highlighted on your schedule so you don’t miss them.

A good way to avoid the uncertainty of statutes of limitations and repose is to sign a tolling agreement. Under this, the owner and contractor/designer agree to “toll” or “freeze” the statutes of limitations and repose, but any party can opt out of the agreement by giving the other party notice. This gives the parties the opportunity to work out the issues without the pressure of a statute of limitations deadline looming. It’s a relatively fair and painless way to preserve claims while enhancing settlement opportunities.

Pursuing claims is tough enough without having to worry about whether it’s too late to file a lawsuit. If you’re prepared, however, the risks of missing a statute of limitations or repose can be greatly reduced.

Stephen Kelly is a member of the construction and design practice group at Stoel Rives LLP. Contact him at 503-294-9448 or [email protected].