Subcontractors could face protracted liability for work performed on prior projects according to a recent decision of the Michigan Supreme Court, where a contractor sought and obtained indemnification from its subcontractor, even though the court held the statute of limitations barred recovery on the subcontract itself.

In Miller-Davis Co v Ahrens Construction, Inc, 495 Mich 161; 495 NW2d 161 (2014), the Michigan Supreme Court enforced an indemnity clause against a subcontractor even though more than six years had elapsed since final payment was made to the subcontractor. The subcontractor was engaged to construct a specialized roof for a natatorium. The contractor made final payment to the subcontractor in April 1999, and the subcontractor substantially completed its work on June 11, 1999. However, excessive moisture gathered in the natatorium, and despite the subcontractor’s remedial work in accordance with its one-year guarantee, the problem persisted.

In February 2003, the project architects found deficiencies in the subcontractor’s roof installation upon a more detailed inspection. The contractor demanded the subcontractor remedy its defective work, but the subcontractor refused. The contractor performed remedial work at its cost and expense in response to the owner’s demands.

In May 2005, the contractor sued the subcontractor both for its failure to install the roof correctly and for its failure to indemnify the contractor pursuant to the indemnity clause in the subcontract. The indemnification provision broadly obligated the subcontractor to hold harmless the contractor against “all claims” and “any injury.” The subcontractor did not indemnify the contractor against the “claims” of the owner. The Court treated the subcontractor’s failure to indemnify as an independent breach that was separate and distinct from its failure to correctly install the roof. The Court did not state when the statute of limitations began to run on the indemnity claim, but it gave three potential options: (1) February 26, 2003 when the contractor discovered the non-conforming work; (2) August 27, 2003, when the contractor settled the owner’s claims; (3) December 8, 2003, when an independent engineering firm certified that the contractor had remedied the subcontractor’s deficient work. The contractor filed suit in May 2005, which was within six years of all three possible dates, so the Court held the indemnification claim against the subcontractor was timely.

The subcontractor in Miller-Davis was held responsible to indemnify the contractor against claims by the owner on a project where the contractual limitations period had expired. The Court did not pronounce a time limit for when a claim for indemnification accrues, but the holding of Miller-Davis makes clear that a subcontractor’s indemnity obligation can potentially extend beyond six years of final payment.

Posted in Construction Contracts