Builder’s Risk Statute of Repose

WDC Journal Edition: Winter 2007
By: Spencer E. Davczyk - Davczyk & Varline LLC

I. Introduction.

Often referred to as the builder’s risk statute or the builder’s statute of repose, Wis. Stat. § 893.89, has been frequently overlooked as a valuable tool for the defense in actions stemming from defects in improvements to real property. This may be due to its relative obscurity, but is more likely a result of past decisions deeming the statute unconstitutional. Nonetheless, it is a statute with potential that deserves to be revived.

In simple terms, the builder’s risk statute places a 10-year time limitation on causes of action for injuries or damages stemming from improvements to real property. The statute covers defects in all improvements and protects the persons involved in the construction and design, as well as, the owners and occupiers of the property. There are only a few exceptions to the statute, so its applicability should be considered any time a claim stems from a structural defect that was created more than 10 years ago.

The builder’s risk statute was originally enacted in 1973. The original purpose was to protect those involved in the design, planning, and supervision of construction projects from seemingly perpetual liability exposure. Specifically absent from this protection, however, were the owners and occupiers of the property and those who provided the materials. In 1975, the statute failed its first constitutional challenge on the basis that the classification of the protected group was unreasonable.[i] It only appeared to protect those who ultimately caused the injury by defective construction and would serve to shift the claims to owners and occupiers.

The legislature tried again by revising the statute to include land surveyors and material providers in 1975. Owners and occupiers of the property were still not included under the protection. The legislature reasoned that owners have continued access to the improvements and are, therefore, in the better position to accept the liability for failing to have the defects corrected. But, again, the statute failed an equal protection challenge.[ii] The Supreme Court in Funk concluded that continuing control is irrelevant to a statute designed to prevent liability for errors and omissions in the construction of improvements to real property, and should therefore include owners and occupiers.[iii]

In its most recent attempt, the legislature drafted a version of the statute in 1993, which successfully survived a constitutional challenge as recently as 2005.[iv] The statute now includes owners and occupiers of the property, but does carve out an exception for claims relating to negligence in repair or maintenance.

Now that defendants have a beneficial statute that can be relied on to withstand constitutional challenge throughout the duration of the defense of an action, the statute warrants additional discussion and dissection; realizing much of the exact confines of protection afforded by the statutory text still need development by the courts. This article seeks to present an overview of the basics and some of the more recent developments.

II. Wisconsin Statute § 893.89 (2005-06).

The current text of the statute provides as follows:

Action for injury resulting from improvements to real property. (1) In this section, “exposure period” means the 10 years immediately following the date of substantial completion of the improvement to real property.

(2) Except as provided in sub. (3), no cause of action may accrue and no action may be commenced, including an action for contribution or indemnity, against the owner or occupier of the property or against any person involved in the improvement to real property after the end of the exposure period, to recover damages for any injury to property, for any injury to the person or for wrongful death, arising out of any deficiency or defect in the design, land surveying, planning, supervision or observation of construction of, the construction of, or the furnishing of materials for, the improvement to real property. This subsection does not affect the rights of any person injured as the result of any defect in any material used in an improvement to real property to commence an action for damages against the manufacturer of producer of the material.

(3)(a) Except as provided in pars. (b) and (c), if a person sustains damages as the result of a deficiency or defect in an improvement to real property, and the statute of limitations applicable to the damages bars commencement of the cause of action before the end of the exposure period, the statute of limitations applicable to the damages applies.

(b) If, as a result of a deficiency or defect in an improvement to real property, a person sustains damages during the period beginning on the first day of the 8th year and ending on the last day of the 10th year after the substantial completion of the improvement to real property, the time for commencing the action of the damages is extended for 3 years after the date on which the damages occurred.

(c) An action for contribution is not barred due to the accrual of the cause of action for contribution between the end of the exposure period if the underlying action that the contribution action is based on is extended under par. (b).

(4) This section does not apply to any of the following:

(a) A person who commits fraud, concealment or misrepresentation related to a deficiency or defect in the improvement to real property.
(b) A person who expressly warrants or guarantees the improvement to real property, for the period of that warranty or guarantee.
(c) An owner or occupier of real property for damages resulting from negligence in the maintenance, operation or inspection of an improvement to real property.
(d) Damages that were sustained before April 29, 1994.

(5) Except as provided in sub. (4), this section applies to improvements to real property substantially completed before, on or after April 29, 1994.

(6) This section does not affect the rights of any person under Ch. 102.

III. Statute of Limitations vs. Statute of Repose.

The builder’s risk statute is a statute of repose, not a statute of limitations. Although statutes of repose and statutes of limitations both place time limitations on the filing of a cause of action, they look to different events to start the clock. Under certain fact scenarios, the builder’s risk statute and a statute of limitations will interact.

A statute of limitations looks to when the cause of action accrues. For example, in a contract action, the clock starts at the time of the breach. In a tort action, the clock starts at the time of the injury or damage. Tort action accrual may be further extended by the discovery rule.

A statute of repose looks to the defendant’s actions to start the clock, independent of when the injury or damage actually occurs. In the case of the builder’s risk statute, courts look to when the defendant substantially completed the improvement to real property. For example, a contractor substantially completes construction of a railing on a staircase in 1990. In 2005, the railing gives way and seriously injures the plaintiff. The plaintiff’s claims are barred by the 10-year builder’s risk statute of repose even though the cause of action did not accrue until 2005.

The builder’s risk statute provides for what amounts to a 10-year exposure period. During that period, however, the applicable statute of limitations will still apply. Take the 1990 staircase railing as an example again. If the railing gives way in 1995 and injures the plaintiff, given the accrual date and the applicable three-year statute of limitations, the plaintiff will have until 1998 to file the action.

Considering that the statute of limitations is controlling when an action accrues within the 10-year repose period, the builder’s risk statute appears only to be of benefit if the injury or damage occurs at least ten years from the substantial completion. In the event the damages occur between the first day of the eighth year and the last day of the tenth year, the repose period actually is extended by up to three years from the date the damages occurred. Thus, if the above railing gives way in 1999, the statute of limitations would be controlling and actually extend the repose period for the additional 2 years.

IV. Scope of Application.

The current version of the statute has a potentially very broad reach. Provided the injury or damage arises out of an “improvement to real property,” which was “substantially completed” more than 10 years ago, most claims are barred. As mentioned above, the statute now protects all persons involved in the construction and design plus the current owners and occupiers of the property. The statute specifically makes reference to those involved in the design, land surveying, planning, supervision, observation, construction, and the furnishing of materials. The manufacturers and producers of materials incorporated into the improvement, are still excepted from the list of protected individuals under the statute. The statute likewise covers a very broad scope of claims. Its intention is to preclude all claims for property damage, bodily injury, and even wrongful death, once the repose period has ran. This would also include claims for contribution and indemnity arising out of such claims.

Given that nearly all parties involved are protected from nearly all claims commencing 10 years after the construction, the statute may seem easy to apply. Two phrases in the statute, however, have already necessitated construction by the courts. What constitutes an “improvement to real property” is critical to the application of statute, and when an improvement is “substantially completed” is critical to understanding when to start the clock on the period of repose.

A. Improvement to Real Property.

The first of the inadequately defined phrases in the builder’s risk statute is “improvement to real property.” Does improvement mean it must make the property more useful or valuable? Is an improvement to real property only something that is affixed permanently to the property? The statutory language provides no guidance in answering these questions, but recent case law has given some much need insight.

In Kohn v. Darlington Community Schools, 2005 WI 99, 283 Wis. 2d 1, 698 N.W.2d 794, the plaintiff was injured when she fell through a space at the foot of her seat in the home bleachers of Darlington High School during a football game. The bleachers were purchased and installed in 1969 and the fall occurred in 2000. The bleachers were described as “15 rows tall and over 100 feet long. They contained nearly 1500 aluminum seats and a 50-inch-wide walkway elevated 30 inches above the ground.”[v] The parties disputed whether the bleachers were anchored to the ground.

Among the issues in the case was whether the bleachers constituted an “improvement to real property.”[vi] The plaintiff argued that a court must look to the “degree of physical annexation” of the bleachers to the property and whether the bleachers were “integral” to the property.[vii] The plaintiff's position was that the bleachers were simply personal property resting upon real property.

To the contrary, the defense argued that the bleachers were “permanent, as their permanency is a function of their purpose.”[viii] The defense relied on the size of the bleachers, the difficulty in moving the bleachers, the fact that they had been in the same location for 30 years, that there was no intention of moving the bleachers in the future, and that the bleachers made the property more functional and valuable.

Ultimately, the supreme court agreed with the defense and drew a distinction between a test for a fixture on a property and an improvement to property.[ix] In doing so, the court relied on the test set forth in Kallas Millork Corp. v. Square D Co., 66 Wis.2d 382, 225 N.W.2d 454 (1975), which defines an improvement to real property as “a permanent addition to or betterment of real property that enhances its capital value and that involves the expenditure of labor or money and is designed to make the property more useful or valuable as distinguished from ordinary repairs.” [x] As such, an item does not need to be physically annexed to land to constitute a permanent addition or betterment.

B. Substantial Completion.

To determine when to start the clock on the builder’s risk repose period, one needs to look to when the improvement to the real property was “substantially completed.” This serves as the second inadequately defined phrase in the statute; one that the supreme court in Holy Family v. Stubenrauch Assoc., 136 Wis.2d 515, 402 N.W.2d 382 (1987) found to be ambiguous.[xi]

Holy Family involved the construction of a church building that began in 1976 and continued until March 1978. Following an inspection in February 1978, Stubenrauch (the architect) issued a certificate of substantial completion on February 28, 1978. On March 28, 1978, the congregation held its first service in the new building. Shortly after the construction, the roof began to leak, which served as the basis for the suit. Failed attempts to correct the leaky roof continued until final payment was made by Holy Family to Stubenrauch on April 17, 1979.[xii] At issue in the case was determining the date of the “substantial completion” of the improvement. [xiii]

Holy Family contended that the date of substantial completion was when “the last of the designers, planners, and contractors have ceased furnishing their services pursuant to the contract.” Perhaps to the extreme, Holy Family also asserted that because the roof had continued to leak, the improvement never was substantially completed.[xiv] Stubenrauch argued that the contract was controlling and that its certificate of substantial completion in February 1978 should serve as the critical date.[xv]

Finding the term “substantial completion” to be ambiguous, the court first began its examination by determining whether the differing definitions offered by the parties were justified.[xvi] The court ultimately rejected the arguments of both parties on this issue. “Without explicit statutory direction, we cannot imply a legislative intent to empower one party to trigger the . . . limitation period by its unilateral actions.”[xvii] Therefore, Stubenrauch’s issuance of a certificate of substantial completion did not control.

Likewise, Holy Family’s interpretation of the phrase was not substantially justified according to the court. The court felt Holy Family's inetrepretation seemed to ignore the term “substantial” as a modifier to "completion." Holy Family’s position resembled that of absolute completion rather than substantial completion.[xviii]

Having rejected both arguments, the court turned to legislative intent and considered the definition as a matter of control. The issue turns on whether the designers, planners and contractors have control over the property or if that control has shifted to the owners and occupiers of the property. “A convenient and fair measure of the time when control of the improvement shifts from the builder to the owner is the date when construction is sufficiently completed so that the owner or his representative can occupy or use the improvement for the use it was intended.”[xix]

Utilizing a control test, the court determined that the date of issuance of the certificate of substantial completion was appropriate. Yet the court made clear that it is not within the power of one party to unilaterally determine the date of substantial completion. Regardless, March 28, 1978 was the date that Holy Family was able to, and did, hold its first religious service in the building. Given that Holy Family did in fact put the property to its intended use on March 28, 1978, the court determined that, as a matter of law, the improvement was substantially completed on that date.[xx]

V. Builder’s Risk and Safe Place.

Defects in improvements to real property often get presented in the context of alleged safe place violations. Recently the interaction between the builder’s risk statute and the safe place statute has received attention from the court of appeals and supreme court. The sheer volume of safe place cases in litigation warrants discussion of two recent decisions.

Wisconsin Statute § 101.11, known as the safe place statute, provides that an employer has a duty to provide a safe working environment for not only employees, but also frequenters. The duty goes beyond the construction of a safe place of employment and places an affirmative duty to maintain the premises in a safe fashion. This includes repairs, warnings, safety devices, and other reasonable safeguards. Generally, liability under the safe place statute falls into one of two categories of unsafe conditions. The unsafe condition can either be a “structural defect” or it can be an “unsafe condition associated with a structure.”[xxi]

A structural defect arises “by reason of the materials used in construction or from improper layout or construction,” and is a “hazardous condition inherent in the structure by reason of its design or construction.”[xxii] "'[S]tructural defects' have been found in cases involving: the failure to install a handrail along a staircase; a trapdoor that was not surrounded by a railing; a balcony railing that was not high enough; and a false ceiling that did not support a worker’s weight.” [xxiii]

An unsafe condition associated with a structure arises instead from a breach of the duty to repair, maintain, or inspect an originally safe structure.[xxiv] “'Unsafe conditions associated with the structure' have been found in cases involving: Improper lighting; the failure to remedy the movement of gravel that resulted in a height disparity between the edge of a paved parking lot and an abutting gravel strip; a loose window screen; and an improperly connected elevator motor.”[xxv] This is typically reserved for claims where safely constructed structures fall into disrepair.

In the context of a safe place claim, the distinction determines whether notice of unsafe condition is required. This distinction is also critical to the application of the builder’s risk statute. Generally, if the injury or damage is caused by a structural defect, the builder’s risk statute will apply. If the injury or damage is caused by an unsafe condition associated with the structure, it will not bar the claim.

In Mair v. Trollhaugen Ski Resort, 2006 WI 61, 291 Wis. 2d 132, 715 N.W.2d 598, the plaintiff fell and injured herself in the bathroom of the Trollhaugen ski resort. [xxvi] As she was walking across the bathroom in her ski boots she stepped into a recessed area of the floor used for drainage purposes. The recessed area caused her to lose her balance and fall. It was undisputed that the recessed area was present since construction and that substantial completion of this improvement occurred more then ten years prior to the fall.

The plaintiff attempted to present evidence creating a genuine issue of material fact on whether the fall was caused by a defect in the structure.[xxvii] The plaintiff presented arguments that Trollhaugen failed to maintain the premises in a safe condition, which would constitute an unsafe condition associated with the structure. The supreme court, however, determined that the plaintiff failed to present sufficient evidence in that regard to survive summary judgment. [xxviii]

A similar situation was presented recently in Rosario v. Acuity, a court of appeals case recommended for publication.[xxix] On June 16, 2004, Rosario was injured when she fell at the business of the defendant, Oliver Adjustment Co., Inc. Rosario attributed her fall to a step that was elevated three inches. The parties did not dispute that the step violated the Wisconsin Building Code, which required a sloped surface instead of a step when the elevation change is less than 12 inches. The step had been essentially unchanged since its construction in 1965. The step was a structural defect.

In light of the Mair, Rosario argued that a lack of warnings as to the nature of the step was the cause of her fall and was, therefore, an unsafe condition associated with a structure. Once again, there was a complete failure of proof to establish that lighting or lack of warning caused or contributed to the fall.[xxx] The plaintiff’s expert report on the issue did not rise to the requisite level of certitude on causality. Additionally, the court of the appeals commented that the plaintiff was attempting to “elude the bar imposed by the Statute of Repose by arguing that these circumstances are an unsafe condition because defendant should have warned of the step.”[xxxi] This was viewed as, “circular logic. To accept it would be to undo the Statute of Repose.” [xxxii]

The question left unresolved by Mair and Rosario is whether, provided the evidence is present to support both theories of liability, a claim based on a structural defect and a claim for an unsafe condition associated with a structure can coexist. Can an owner of premises be subject to liability for failing to warn, maintain, inspect, or repair a known structural defect barred by the builder’s risk statute? In Mairand Rosario, the plaintiffs failed to raise sufficient evidence to support unsafe conditions associated with the structure, so the pointed issue was not before either court. Comments in both decisions state that, despite the allegations, the real underlying claim was based upon a structural defect. This implies that the courts took the approach that a given claim can only be either one or the other. On the other hand, the courts in both decisions went to great lengths to describe the lack of evidence supporting the claims for unsafe conditions associated with the structure; an unnecessary step if both claims cannot survive simultaneously.

VI. Conclusion.

Many unresolved issues still surround the application of the builder’s risk statute. But now that the statute has survived constitutional challenges and is being slowly developed through court interpretation into a workable piece of legislation, it is proving to be a useful tool for the defense. There are always risks associated with asking the courts to further define tools of the defense, but a strong precedent is being developed and should be a sign of encouragement.

[i] Kallas Millwork Corp. v. Square D Co., 66 Wis.2d 382, 225 N.W.2d 454 (1975).

[ii] Funk v. Wollin Silo & Equip., Inc., 148 Wis.2d 59, 435 N.W.2d 244 (1989).

[iii] Id.

[iv] Kohn v. Darlington Cmty. Schs., 2005 WI 99, 283 Wis. 2d 1, 698 N.W.2d 794.

[v] Id. at 9.

[vi] Id. at 12.

[vii] Id. at 14.

[viii] Id. at 15.

[ix] Id. at 18

[x] See Kallas Millork Corp. v. Square D Co., 66 Wis.2d 382, 225 N.W.2d 454 (1975).

[xi] Holy Family v. Stubenrauch Assoc., 136 Wis.2d 515, 402 N.W.2d 382 (1987).

[xii] Id. at 518-519.

[xiii] Id. at 518.

[xiv] Id. at 521.

[xv] Id. at 522.

[xvi] Id. at 521.

[xvii] Id. at 522.

[xviii] Id.

[xix] Id. at 523.

[xx] Id. at 526.

[xxi] Barry v. Employers Mut. Cas. Co., 2001 WI 101, 245 Wis.2d 560, 630 N.W.2d 517.

[xxii] Id. at 574.

[xxiii] Id.

[xxiv] Id. at 573.

[xxv] Id.

[xxvi] Mair v. Trollhaugen Ski Resort, 2006 WI 61, 291 Wis. 2d 132, 715 N.W.2d 598.

[xxvii] Id. at 148.

[xxviii] Id. at 149.

[xxix] Rosario v. Acuity, No. 2006AP2421, slip op. (July 10, 2007) (recommended for publication).

[xxx] Id. at ¶ 27.

[xxxi] Id at ¶ 29.

[xxxii] Id.