Statute of Limitations: Ostroth Overturned by SB 77, New Law Takes Effect January 1, 2012

By: Gary D. Quesada, Esq

Cavanaugh & Quesada, PLC

One of the most effective defenses to a lawsuit is the statute of limitations. Limitations periods created by statute are grounded in public policy considerations which include encouraging the prompt recovery of damages, penalizing plaintiffs who have not been industrious in pursuing their claims, affording defendants security against stale demands and prolonged fear of litigation, and prevention of fraudulent claims. After a claim accrues (or is alleged to have accrued), if a plaintiff delays too long before bringing suit, the statute of limitations will serve to bar the claim, despite any other considerations.

Before February 2006, Michigan’s design and construction industry was subject to the same statute of limitations system as other businesses. However, in February 2006, the Michigan Supreme Court issued its ruling in Ostroth v Warren Regency, 474 Mich 36; 709 NW2d 589 (2006). Ostroth overruled existing case law and long-established practice, segregated the industry from general limitations law and lengthened all limitations periods specific to the design and construction industry in Michigan. 

The impact of Ostroth was significant.  For instance, according to a survey published by the American Council of Engineering Companies in 2008, Michigan’s statute of limitations for design professionals became the longest in the country. Ostroth also eliminated the rule that the limitation period begins to run when a claim accrues. In practical application, that effect served to double, triple or even quadruple the limitations period for many typical claims. Ostroth also eliminated any identifiable limitations period for incomplete projects. Clearly, the Ostroth decision negatively affected individual design and construction businesses, and the industry as a whole.

As early as the Winter of 2006, Michigan’s design and construction industry organizations began working together to reverse Ostroth by legislation. 

After 5 ½ years of political activity in connection with this effort, SB 77 was finally passed by the Michigan House of Representatives on Tuesday, September 20, 2011.  The vote was 87-21, with broad bi-partisan support. The Senate concurred the next day, and SB 77 is now expected to be signed into law by Governor Rick Snyder.  The new law will take effect January 1, 2012.

SB 77 solves the problems created by Ostroth, restores the applicable limitation periods to their previous durations, and restores the long-established rules that govern them. The period of time that facility owners have to discover latent defects is not affected by SB 77. 

As with any political campaign, teamwork and perseverance were required for success. SB 77 bill sponsor Senator Tonya Schuitmaker (R-Lawton) provided her leadership throughout the process, from introduction through final passage. Industry organizations that supported this successful legislative effort represent all sections of the design and construction industry, including the following:

• American Institute of Architects of Michigan
• American Council of Engineering Companies
• Michigan Society of Professional Engineers 
• American Society of Civil Engineers - Michigan Section
• Michigan Society of Professional Surveyors, 
• AGC of Michigan 
• Michigan Infrastructure and Transportation Association (MITA)
• Construction Association of Michigan (CAM), and 
• Michigan Association of Homebuilders

Gary D. Quesada is a partner with the construction law firm of Cavanaugh & Quesada, PLC.  Mr. Quesada served as the point person for legal issues throughout the campaign to overturn Ostroth, and testified in favor of the bill on numerous occasions before Judiciary Committees in both the Michigan House and Senate. 

For more information see www.MichiganConstructionLaw.com, or e-mail gquesada@cqlawfirm.com.