Sunday, February 17, 2008

Statute of Limitations Bill Passes the Senate

On Thursday February 14, 2008, Senate Bill 865 came up for vote in the Michigan Senate. When it became apparent that a last minute effort to tie the bill to Senate Bill 445 (which would reverse recent Michigan Supreme Court decisions concerning the threshold standard for bringing suit under the Michigan no-fault insurance act) would fail, the backers of that effort withdrew and SB 865 proceeded to a vote. The bill passed with 31 votes in favor, 7 against. It now heads to the Michigan House.

Sponsored by Senator Alan Sanborn, SB 865 reverses the Michigan Supreme Court decision in Ostroth v. Warren Recengy GP Limited Partnership. The Ostroth decision upset nearly 15 years of settled jurisprudence, and had the effect of extending the statute of limitations for most claims against design professionals and construction contractors from 2 or 3 years to 6 years.

The governing statue of limitations for claims against design professionals and construction contractors is found at MCLA 600.5805. Simply put, a statute of limitations provides a time window within which a claim that has accrued must be brought, or it becomes time barred. In addition, a statute of repose is found at 600.5839(1). By contrast, pursuant to a statute of repose, if a claim has not accrued after a specified period of time, it can never accrue. Together, the two statutes create an outside limit for claims against design professionals and construction contractors.

The Court of Appeals in Witherspoon v. Guilford read those sections harmoniously such that the end result gave meaning to both statutes. The traditional statutory scheme set out in MCLA 600.5805 governed, but in no instance could the claim window run past that time specified in MCLA 600.5839(1).

That state of harmony reigned until the Ostroth decision in July of 2004. In the Ostroth case, the Court concluded that the 6 year period set out in MCLA 600.5839(1) was a period of both limitations and repose, and that controlled all claims to the exclusion of MCLA 600.5805. The net effect was a substantial increase in the statutory time limits. Since most claims accrued at completion of the construction or shortly after, the 2 or 3 year periods set out in MCLA 600.5805 usually controlled their disposition. The 6 year period of MCLA 600.5839(1) represented a marked departure from and increase in those time limits.

As yet, the effect of Ostroth has not manifested in the form of higher insurance rates. However, as we move into the extended claims period it permits, reasonable expectations suggest that will begin to occur. SB 865 would effectively reverse Ostroth and restore the statutory balance the Witherspoon court struck. As such, SB 865 is not a reduction in the statutory limitations period, but is instead simply a return to settled law pre-Ostroth.

With bi-partisan support in the Senate, SB 865 will hopefully receive favorable treatment as it moves into the House such that design professionals and construction contractors will see a return to the pre-Ostroh law, and the reasonable statutory time frames it reflects.

For more information about this issue , contact Frederick F. Butters at Keranen & Associates, P.C., 6895 Telegraph Road, Bloomfield Hills, Michigan 48301, Tel: (248) 647-9653.

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