The Discovery Rule and Tolling Statute of Limitations


In a 2014 unpublished opinion, the SC Court of Appeals discussed the threshold for “notice” as it pertains to statute(s) of limitations in construction defect cases. At the root of this action was a 2003 forensic report obtained by the HOA which was not acted upon until 2009.

As most of you are aware, construction defect litigation is often rooted in negligence, contract, warranty and other causes of action which are subject to three year statutes of limitations. Because defects are often latent, however, it is not uncommon for questions to arise as to when a Plaintiff knew, or should have known that a cause of action existed.

BACKGROUND

3 Chisolm Street Homeowners Association, Inc. (the “HOA”) brought suit in 2009 against several defendants that completed construction work on three condominium buildings in 2002. Genoa Construction Services, Inc., the general contractor, Masterpiece Millwork, Inc., the manufacturer of the windows used in the buildings, and Brock Green Architects and Planners, LLC, were each alleged contributors to defective conditions.

In determining when the statute of limitations began to run, the circuit court applied the “discovery rule,” which provides that the time to file a claim “begins to run when a cause of action reasonably ought to have been discovered.” Dean v. Ruscon Corp., 321 S.C. 360, 363, 468 S.E.2d 645, 647 (1996). The HOA argued that they were not on notice of the defective conditions and, alternatively, if found to be on notice such notice was limited to certain areas of the property but not all.

The HOA asserted that there were material issues of fact as to when the HOA discovered, or should have discovered, that a cause of action existed for original construction defects in all three condominium buildings—the main building, the gym building, and the cottage building.

HOLDING

The lower court ruled that a 2003 forensic report put the Plaintiff HOA on notice of defects in the main building. The appellate ruling upheld that finding and reasoned that the 2003 report also evidence that if the HOA had exercised reasonable diligence and investigated the other buildings in 2003, it would have discovered the defects before the statute of limitations ran. Barr, 330 S.C. at 645-46, 500 S.E.2d at 160 (holding had the plaintiffs “exercised reasonable diligence and investigated the problems noted in the . . . inspection reports, they could have realized the magnitude of the problem and brought suit before the statute of limitations ran”). An inspection report issued in 2007 that concerned the gym and cottage buildings alerted the HOA to defects that existed in 2003 and would have been discoverable. Moreover, according to an architect who inspected the buildings, the deterioration of the wooden windows in the gym building resulted, in part, from condensation buildup on the windows, which would “have been occurring prior to [his] observations” in 2007 because it was caused by installation of single-pane windows. Thus, the defect causing the condensation—the single-pane windows— existed at the time construction was completed in 2002. began to run, the circuit court applied the “discovery rule,” which provides that the time to file a claim “begins to run when a cause of action reasonably ought to have been discovered.” Dean v. Ruscon Corp., 321 S.C. 360, 363, 468 S.E.2d 645, 647 (1996). The HOA argues there are material issues of fact as to when the HOA discovered, or should have discovered, that a cause of action existed for original construction defects in all three condominium buildings—the main building, the gym building, and the cottage building.
As to the main building, we find the circuit court properly determined the statute of limitations began to run in 2003 because the Glick report, issued in April 2003, put the HOA on inquiry notice of defects that would have been discoverable through additional inspections and destructive testing, which both the report and the HOA president recommended. See Republic Contracting Corp. v. S.C. Dep’t of Highways & Pub. Transp., 332 S.C. 197, 207, 503 S.E.2d 761, 766 (Ct. App. 1998) (stating the statute of limitations begins to run “from the date the injury is discoverable by the exercise of reasonable diligence”); 332 S.C. at 208, 503 S.E.2d at 767 (holding the plaintiff “had sufficient information . . . to put it on inquiry notice, which, if developed, would have revealed the defects”). The Glick report also triggered the statute of limitations for claims against all three respondents because the report listed specific defects that put the HOA on inquiry notice to discover whether those defects were attributable to design, construction, or manufacturing errors. See Barr v. City of Rock Hill, 330 S.C. 640, 645, 500 S.E.2d 157, 160 (Ct. App. 1998) (stating a party has notice of claims when the facts and circumstances “would put a person of common knowledge and experience on notice that . . . some claim against another party might exist” (internal quotation marks and citation omitted) (emphasis in original)); Wiggins v. Edwards, 314 S.C. 126, 128, 442 S.E.2d 169, 170 (1994) (“The focus is upon the date of discovery of the injury, not the date of discovery of the wrongdoer.”); id. (“If, on the date of injury, a plaintiff knows or should know that she had some claim against someone else, the statute of limitations begins to run for all claims based on that injury.” (citation omitted)).

As to the gym and cottage, the circuit court decision was upheld, reasoning that Glick’s report provided the HOA sufficient information to put it on inquiry notice of construction defects existing in these buildings. See Dean, 321 S.C. at 364, 468 S.E.2d

The appellate court took significant notice of the fact that:

(1) each of the three buildings was constructed at the same time, by the same general contractor, and in accordance with the same plans developed by the same architect;

(2) the minutes from the board of directors meeting in May 2003 provide that after receiving Glick’s report, the board discussed “steps that should be followed,” including “[i]nspection of the cottage and gym building[s]”;

(3) the minutes from the board of directors meeting in June 2003 demonstrate the HOA solicited proposals from companies for “additional investigation” into the defects highlighted in Glick’s report, although it ultimately decided not to pursue this course of action due to the cost;

(4) the HOA was urged to conduct further investigations by Glick, who warned of “significant and pervasive construction defect problems”; and

(5) an inspection report shows the HOA undertook remedial measures on the gym building some time before 2007 “in an effort to inhibit water intrusion at windows.”

There was also evidence that if the HOA had exercised reasonable diligence and investigated the other buildings in 2003, it would have discovered the defects before the statute of limitations ran. Barr, 330 S.C. at 645-46, 500 S.E.2d at 160 (holding had the plaintiffs “exercised reasonable diligence and investigated the problems noted in the . . . inspection reports, they could have realized the magnitude of the problem and brought suit before the statute of limitations ran”). An inspection report issued in 2007 that concerned the gym and cottage buildings alerted the HOA to defects that existed in 2003 and would have been discoverable. Moreover, according to an architect who inspected the buildings, the deterioration of the wooden windows in the gym building resulted, in part, from condensation buildup on the windows, which would “have been occurring prior to [his] observations” in 2007 because it was caused by installation of single-pane windows. Thus, the defect causing the condensation—the single-pane windows— existed at the time construction was completed in 2002.

COMMENT

It is well settled that an expert’s findings, when presented to a claimant, trigger the statute of limitations as to the specific defective conditions and locale where defects are present. This case is interesting in its treatment of the initial report as a trigger of all defects in not only the main building which was subject of the 2003 report, but additional structures.

The additional buildings create further intrigue due to their lack of similarity in use as the main building. A gym and cottage are certainly much different than a multi-story condominium tower. The court seems to rationalize the decision to include these buildings due to the fact similar contractors and materials were used which should have been significant to the HOA. Had these two structures been erected with different materials by distinguishable contracting entities it is a safe assumption that the court might very well have excluded these structures from the 2003 trigger.

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