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Published 9 April 2014
Construction insurers will be familiar with the long-tail liabilities which can arise out of construction projects. They should, therefore, welcome the recent decision in Co-operative Group Ltd v Birse Developments Ltd  EWHC 530 (TCC) which provides more certainty on the law on limitation applied to a construction specific scenario.
The case concerned the construction of a warehouse which achieved practical completion in September 1998. Defects were noticed in 2004. The leaseholder commenced proceedings against the building contractor, the flooring sub-contractor and the engineer in September 2010. The leaseholder's claims against the latter two were discontinued, but the building contractor issued proceedings against them in December 2011 and the geotechnical specialist in March 2013. The court ordered a trial of the preliminary issues of whether the claims in negligence against the engineer and the geotechnical specialist were time barred.
Section 2 of the Limitation Act 1980 provides that the period within which claims for negligence must be made is six years from the date on which the cause of action accrued. In the context of a construction project, the court concluded that the primary risk that should be in the contemplation of the parties will be that the main contractor will hand over a defective building. Accordingly, the building contractor's cause of action in negligence accrued when it incurred actual liability to its employer as a result of the sub-contractor's negligent work or design, which was at handover or practical completion at the very latest.
The building contractor had sought to argue that no loss would be suffered until any liability was decided, or until it received notification of any claim. The court rejected this approach as "unprincipled and unacceptable", as whilst liability may not be decided until a trial or a potential claim remained un-notified, the building contractor's liability would have existed since breach of the building contract in handing over a defective building.
The claims in negligence against the engineer and the geotechnical specialist were therefore time barred, as practical completion had been achieved more than six years before those proceedings had been commenced.
This decision provides construction insurers with more certainty as to the limitation applicable to construction claims. As such, insurers should be able to better estimate the lifespan of potential claims, as six years from the date of practical completion of a project is a new, shorter limitation long stop for bringing claims in negligence. However, permission to appeal has been granted, so construction insurers need to be aware that the Court of Appeal may take a different view.