Michigan Court of Appeals Provides Guidance as to What Constitutes an Improvement to Real Property Triggering the Application of the Statute of Repose

In addition to the applicable statute of limitations , Michigan law provides a period of repose specific to state-licensed architects, professional engineers, land surveyors (collectively referred to as "design professionals") and contractors which bars claims for personal injury and/or property damage arising out of an unsafe or defective improvement to real property, six years after the improvement is first occupied, used, or accepted. The Statute of Repose was created to "shield architects, engineers, and contractors from stale claims and relieve them of open-ended liability." In 2011, the deadlines by which claims against contractors and design professionals must be filed were significantly altered by the Michigan Supreme Court's decision in Miller-Davis Co. v. Ahrens Constr., Inc. [1] , which held that the Statute of Repose applies only to tort actions, while breach of contract actions are governed by the general breach of contract six-year period of limitations under MCL 600.5807(8), running from the date of breach. [2]

The determination of the applicable periods of limitation and repose to claims against contractors and design professionals became even more complex by the State Legislature's passage of Public Act 162 of 2011 ("PA 162") which amended the tort statute of limitations, MCL 600.5805, and Statute of Repose.  Under the current law, c laims for property damage or personal injury against contractors and design professionals [3] arising out of an improvement to real property which accrue before January 1, 2012, may be brought anytime within six years of the occupancy of the completed improvement, use, or acceptance of the improvement. [4] However, claims against contractors which accrue after January 1, 2012 must be commenced within three years of the accrual of the claim, i.e., the injury. [5] Claims against architects, engineers, and surveyors which accrue after January 1, 2012 [6] , are designated malpractice actions and must be brought within 2 years of the last date of professional service [7] or within six months of the discovery of the claim. [8] In addition to the applicable period of limitation, claims against architects, engineers, and contractors accruing after January 1, 2012 are also subject to the six year Statute of Repose. [9]

On October 4, 2012, the Michigan Court of Appeals provided further guidance as to what constitutes an "improvement to real property" triggering the application of the Statute of Repose. [10] In Caron v. Cranbrook Educ. Cmty ., the plaintiff was injured when a portable room partition ("PRP") fell on her in 2009.  The PRP was installed during a classroom addition construction project which was completed in 2002, more than six years before the injury. Thus, the issue was whether the PRP that fell on her constituted "an improvement to real property" under the Statute of Repose.  The Court applied a four factor analysis to determine whether the PRP component of the construction project constituted an improvement to real property. The Court considered: (1) the general nature of the PRPs; (2) whether the PRPs are integral components or essential to the operation of the addition; (3) whether the PRPs required the expenditure of labor and money, and added value to addition in relationship to the structure's intended use and purpose; and (4) the permanence of the PRPs, considering whether they were affixed, or otherwise physically annexed to the addition and the intended duration of the installation.

The Court concluded that the first factor favored a holding that the PRPs constituted an improvement because the PRPs were part of the original construction design for the classroom addition and were actually installed during the project construction (the Court noted that there could be no dispute that the construction project as a whole was an improvement to real property).  Because the PRPs served as walls, which are integral components of buildings, the Court found that the second factor supported a determination that the PRPs were improvements to property as well. Under the third factor, the Court found that the PRPs required the expenditure of labor and money, increased the usefulness of the addition as intended, and that it was reasonable to infer that the PRPs increased the value of the structure.  Finally, the Court noted that the "permanence" of a component, which is only one factor and not dispositive of the issue, does not mean "eternal" nor does the ability to remove an object without damaging realty preclude a finding of permanence. The Court held that walls, even if portable, are generally "permanent".  The PRPs, which were specifically designed and constructed for a critical function within the building were permanent in nature despite their portability and lack of annexation to the structure. Thus, the PRP's constituted an improvement to real property and plaintiffs' claims were time-barred by the Statute of Repose.

Why does it matter which statute of limitations applies to a particular matter? Because tort claims, breach of contract claims, claims against contractors and claims against design professionals are now subject to separate periods of limitations and repose (running from different triggering dates) a gap may exist between the expiration of the limitations periods, potentially exposing property owners, contractors and design professionals to liability without recourse.  Because of the recent changes in the application of the Statute of Repose and applicable statutes of limitation, it will be important for property owners, contractors and design professionals to closely watch how Miller-Davis and PA 162 are applied in order to take the appropriate steps to minimize exposure.

If you have any questions about the Caron v. Cranbrook decision or the application of the Statute of Repose and Statutes of Limitation, contact Brian P. Lick or another member of Clark Hill's Construction Practice Group.  Brian P. Lick may be contacted at (517) 318-3058 or blick@clarkhill.com .