SJC Rules on Statute of Repose Relating to Construction Defects

By Hugh J. Gorman III

Contractors can breathe a sigh of relief following the recent SJC decision clarifying the statute of repose

and its applicability to claims asserted under M.G.L. c.93A relating to building code violations and construction defects.

The Bridgewood v. A.J. Wood Construction decision (Bridgewood v. A.J. Wood Constr., Inc., No. SJC-12352, 2018 WL 4100644, at *2 (Mass. Aug. 29, 2018)) impacts the rights of consumers to bring an M.G.L. c.93A action against builders and protects builders from eternal liability for past projects.  The Bridgewood case came about after a customer’s home sustained serious damages as a result of an electrical fire.  The homeowner, Bridgewood, sued the construction company which, fifteen years prior, had allegedly performed faulty electrical work on her house, resulting in the fire.  Even though the homeowner subsequently discovered that the contractor had failed to obtain proper permits and had violated state and federal building codes in performing its work, the Court found that the six-year statute of repose barred any claims for unfair or deceptive business practices under M.G.L. c. 93A.

While the homeowner’s claims logically support a 93A cause of action (as a per se violation of 93A due to building code violations), the Court determined that the statute of repose rendered the claim invalid, ruling that the statute of repose provides a “substantive right to be free from liability after a given period of time has elapsed from a defined event.” This stands in contrast to the more familiar statute of limitations, which is a procedural limitation on the amount of time permitted to lapse before a cause of action can be commenced. Under the statute of repose, if a claim for damages is not asserted within six years of either the “opening of the improvement for use” or “substantial completion of the improvement and possession by the owner,” then the cause of action is extinguished.  In Bridgewood, the SJC held that a construction liability claim that would otherwise meet the requirements of 93A never legally arises if it occurs outside of the six-year window established by the statute of repose.

This decision has significant implications for contractors and their customers.  Even where there is clear negligence or deceptive business practices on the part of the contractor, customers are barred by the statute of repose where the injury is discovered and the claims are asserted beyond the six-year period of repose.

Chair of Prince Lobel Tye LLP’s construction law group, Hugh Gorman focuses his practice on construction law, creditors’ rights, and general business litigation.  Hugh can be contacted by email at hgorman@princelobel.com.  Thanks and appreciation to law clerk Lauren Koslowsky (Northeastern School of Law, 2019), for her assistance with this article.

Medicaid Planning with Trusts and Deed Alternatives (Video)

Plymouth/Hingham attorney Brian Barreira  speaks on the SJC's 2007 case, Daley vs. Secretary of the Executive Office of Health and Human Services, which affirmed the ability of Massachusetts citizens to use an irrevocable trust to shield their homes from Medicaid's excess assets requirements. Barreira recently prevailed in a Suffolk Superior Court case, Maas vs. Sudders et al, where the Court found that MassHealth's denial notices violated federal due process requirements.

Cybercrime – Who’s Next? An Insurance Primer

By John L. Torvi

Despite the abundance of news, how-to tips and cautionary tales, cybercrime has infiltrated the local, regional and national business space, impacting real

estate professionals with a special severity. The sophistication and global reach of the cybercriminal can easily overwhelm most precautions and risk-management practices (assuming they exist at all) of small to medium sized firms.  While data theft and ransom attacks are most common, the most damaging crimes include the misappropriation of escrow, IOLTA and other custodial funds held by attorneys, title agents and real estate brokerages.  Recent local and regional events illustrate the severity of the problem, with stolen funds in the tens to hundreds of thousands of dollars.

These losses, if needing to be reimbursed by the affected real estate practice, can easily force a firm to go out of business. Many law, title and real estate firms have started taking preventative steps to reduce cybercrime risk, including strengthening office protocol and putting informational and instructional language on websites and emails related to monetary transfer procedures. Hopefully this is done in conjunction with regular staff training and includes a forensic and system-wide analysis by an IT-security expert. Nevertheless, breaches and crime are almost exclusively a consequence of human error.  Putting aside the buzzwords like phishing, hacking and spoofing, ultimately the bad guys will infiltrate a computer system when someone clicks a bad link, opens an infected document, forwards the latest “joke of the day” or other seemingly innocent moves done in the middle of a busy work day. Once that happens, the flood gates are open, with 90% of all cyberattacks coming through an infected email. It may be weeks or months before the innocent party even becomes aware (if at all) of the breach.  Even if one does not adopt the “when, not if” attitude about the likelihood of becoming a cyber-victim, a risk-management program must consider insurance coverage to help mitigate the damage and cost of a data or monetary breach. 

There are numerous insurance plans available to protect one’s cybercrime exposure.  Sound coverage and reasonable premiums are becoming readily available though plans and terminology can be confusing.  An understanding of policy language and available coverage  can be instructive when choosing protection.

A first step for a firm (or a non-profit) would include an assessment of the risk – i.e. what does my practice have that a criminal might want? Here, there are two main categories – data and money. Most businesses have confidential and privileged information (awareness and compliance with Massachusetts General Law 93H and 201 CMR 17:00, which outline consumer protections, required practices and data security regulations are critical but should be seen as a starting point).  Thus a good place to begin is understanding what the consequences of a data breach are, and therefore what should be covered in an insurance policy. Besides the civil penalties imposed by the government – fines can be imposed on a “per record” basis rather than per breach -  a compromised firm might face lawsuits, be required to provide notifications of breach and credit monitoring to each affected party, conduct forensics to determine and eliminate the infection, perform data and system restoration to be able to continue business, payment card industry fines and reputational harm and loss of income.  A cyber insurance policy should provide coverage for these as a basic level of protection. The Better Business Bureau reported in 2017 that the average cost of a cyberattack (not including theft/loss of funds) is almost $80,000. Within six months of an attack, 60% of small companies will go out of business.  Another type of cyberattack is ransomware. Here, the criminal installs malignant software into a computer network, effectively disabling the network until a ransom is paid. Ransom demands are usually small, typically under $10,000 with a demand for bitcoin or alternate currency. Businesses can be shut down for days trying to remedy this and there is also the cost of forensics and system restoration in addition to the ransom and loss of production. Again, ransomware coverage should be included in an insurance policy.

Firms that control funds have additional threats, including wire and computer fraud, social engineering and employee dishonesty/theft. The distinction in these terms is important, as insurance plans define them differently, effecting coverage. Briefly, wire and computer fraud is when the criminal uses a firm’s computers to steal money directly or act as a representative of the firm to trick a third party into sending money. Social Engineering is when a representative of the firm is duped into sending funds themselves. Again, policy language and coverage may be different for wire, computer fraud or social engineering, so diligence is needed in setting up a policy. Also in the “money” category of computer threat is employee dishonesty, including embezzlement, fraud, theft of property or alteration of records, and ERISA Compliance malfeasance.  These risks are properly addressed in a Crime or Fidelity insurance policy, not typically in a cybercrime policy.

There is no denying that the threat of computer and cyber-crime is real. Though the process of developing an appropriate insurance plan might be daunting – and yes require another insurance premium – the cost of a breach can be enormous or even put one out of business. Assessing the threat and vulnerabilities and putting a risk management and insurance plan in place can effectively provide predictability of cost and long-term security to a law or real estate practice.

John Torvi is the Vice President of Marketing & Sales at the Landy Insurance Agency, an affinity partner of the Association.  He is a regular speaker and contributor to the legal, real estate, accounting and insurance professions. REBA members should feel free to email John for advice when their errors and omissions policy comes up for renewal.  He can be reached  at johnt@landy.com.

SJC Imposes 6-Year Statute of Repose on Construction Claims Brought Under Chapter 93A

By Thom Aylesworth

 

When the unit owners of a condominium take control of the condominium board of trustees, one of the first tasks that the new board should undertake is to

investigate whether any construction defects exist in the condominium common areas. Examples of such defects may include water infiltration around windows or balconies, storm water drainage issues, failure to meet building code requirements, and other construction problems that should be corrected. The board’s investigation typically involves hiring a licensed engineer to perform an inspection of the common area and make findings about the conditions, including whether any construction defects exist. When construction defects are found, the board will often make a claim against the condominium developer seeking to recover the costs to correct the defects. If the developer refuses to pay, the board will have to consider whether to file a lawsuit.

A potential trap for the unwary includes the time limits for construction defects claims that are imposed by the applicable Massachusetts statutes.

A potential trap for the unwary includes the time limits for construction defects claims that are imposed by the applicable Massachusetts statutes. Generally speaking, under G.L. c.260, such claims are limited to three years after the claim “accrues.” Under the “discovery rule,” the claim accrues when the plaintiff knows or reasonably should have known that the defect exists. If a condominium board learns of a defect in a common area but waits more than three years to file a complaint in court, the lawsuit will could be dismissed as time-barred under the statute of limitations. However, there is a cut-off point at which any construction defects claim, no matter when discovered, will be time-barred. Under what is called the “statute of repose” (G.L. c. 260, § 2B), no claim may be filed in court after six years have elapsed from the earlier of: “(1) the opening of the improvement to use; or (2) substantial completion of the improvement and the taking of possession for occupancy by the owner.” A court may find that the statute of repose is triggered even during the period that the condominium developer is in control of the condominium trust. Therefore, when the unit owners take control of the condominium trust, the new board must act quickly to determine whether defects exist in any common area to avoid the potential pitfall of the statutes of limitation and repose.

A recent court decision by Massachusetts Supreme Judicial Court emphasizes the importance of acting with urgency in construction defects cases. In Bridgwood v. A.J. Wood Construction, Inc., issued last August, the Court considered a claim brought by a homeowner against a contractor for construction defects. The homeowner, Bridgwood, argued that his claim was not barred by the six-year statute of repose because it was not merely a claim for negligence—rather, it was a claim for violation of the Massachusetts Consumer Protection Act, G. L. c.93A (“Chapter 93A”).1 The Court disagreed and concluded that a claim under Chapter 93A for construction defects is in effect the same as a negligence claim and therefore subject to the statute of repose. Accordingly, the Court affirmed the trial court’s dismissal of Bridgwood’s lawsuit for being time-barred under the statute of repose because it was filed more than six years after the claim accrued. The Court explained that the purpose of the statute of repose is to “protect contractors from claims arising long after the completion of their work” and will be enforced “despite the hardship [it] may impose on plaintiffs.”

The Bridgwood decision is notable in that it is a split decision, with four justices voting in favor of affirming the dismissal of the plaintiff’s case, and three justices voting against it. In a thoughtful dissenting opinion written by Chief Justice Gants, the dissenters opined that no provision of Chapter 93A suggests that the Massachusetts Legislature intended claims under its provisions to be limited by the statute of repose. Judge Gants asked, “Why would the Legislature seek to protect those who engaged in such unfair and deceptive acts from [Chapter] 93A actions brought within the statute of limitations by granting them a statute of repose that could potentially shield such violations from any private cause of action by injured consumers?”

In a footnote to the Bridgwood decision, the majority opinion invites the Massachusetts Legislature to amend the statute of repose to exclude construction defects claims brought under Chapter 93A, if that is what the Legislature actually intended. It will be interesting to see if the Legislature reacts to the decision by amending the statute of repose. For now, the majority opinion in the Bridgwood decision is the law, and claims under Chapter 93A that involve construction defects are subject to the six-year statute of repose.

The above-referenced case is captioned Terry Bridgwood v. A.J. Wood Construction, Inc., et al., SJC-12352 (Mass. SJC, August 29, 2018).

Associated with the Braintree firm of Moriarty, Troyer & Malloy, Thom Aylesworth has over twenty years of practice experience in Massachusetts and New Hampshire. He represents condominiums, corporations, and individuals in a wide range of matters with a primary focus on complex real estate litigation. His specific areas of practice include construction defects, condominium enforcement, zoning and land use litigation, beach rights, and other property disputes.  His email address is taylesworth@lawmtm.com. 

North End Private Way Easement Not Extinguished by Locked Gate (Video)

Today’s guest speakers are Thomas M. Looney of Hackett Feinberg PC and Scott D. Ford of Scott Ford Law LLC.

Scott and Tom discuss Twenty Bartlett LLC vs. Sgarano, a recent Superior Court case involving interesting issues of proof in the prescriptive easement context.  The panelists will also discuss the importance historical research and of securing evidence from long-time residents to succeed in prescriptive easement claims. Scott and Tom represented the prevailing party.

The Ghost Train Departs

By Edward J. Smith

Since 1973 conveyancers and their client developers and lenders have rued the enactment of M.G.L. c. 40, § 54A.  That statute has required written consent,

after a public hearing, by the then Executive Office of Transportation and Construction to the issuance of any municipal building permit relative to land formerly used at any time by a railroad corporation as a right of way or on property appurtenant to a former railroad right of way.  Attorneys are often asked to opine relative to the applicability of this improvidently drafted statute.  I remember well, 15 years ago, that my late friend Henry Thayer proposed legislation to limit the statute’s terms in a manner that would make sense to him and his clients. 

A mentor to generations of REBA members, Henry was also a fan of railroads, and a student of their history.  He told me that the statute was passed in the wake of the financial collapse of major railroads in the northeast in the 1960’s.  The decade saw many railroads in financial trouble as well as a number of mergers.  This culminated in the collapse in 1970 of the newly created Penn Central Railroad giant.  Realizing the severity of the situation, the Federal government established the Consolidated Rail Corporation, which comprised the skeletons of several bankrupt Northeastern carriers, to begin operations in 1976. With Federal backing, Conrail began to slowly pull out of the red ink, and by the late 1980s was a profitable railroad after thousands of miles of excess trackage were abandoned or upgraded.  Also, Amtrak was created to organize a chaotic system from the remnants of the private freight railroads' passenger operations.

Henry said that chapter 40, sec. 54A was one of two statutes, the other one being M.G.L. c. 161C, sec.7, that were intended to preserve rights of way for future transportation needs.  Under chapter 161C, sec.7 the Massachusetts Department of Transportation (MassDOT), or its designee, has a right of first refusal if any railroad company wishes to sell, transfer or otherwise dispose of railroad rights-of-way or related facilities to another party.  This right of first refusal is clear and easily understood by conveyancers. 

On the other hand, chapter 40, sec. 54A was improvidently drafted.  Under its terms it applies to any lands formerly used as a railroad right-of-way, and any property appurtenant thereto, if ever used by any railroad company in the commonwealth.   Henry said that this language could encompass property and facilities not within, or even in proximity to, the right of way.  From his knowledge of history he knew that in Woburn there are former woodlots that belonged to the Boston and Lowell Railroad in the days when locomotives burned wood.  These lots were sold in the 1860’s, but they are still technically subject to the statute.  During a 50-year title search, even assuming a recorded plan shows the former right of way, how would the examiner know if other property was appurtenant to a right of way?

It would not be ascertainable from the record whether the Commonwealth, during any particular administration, might at some point intend to utilize affected land for future transit purposes.  Henry asked whether the statute was intended to apply to the vast acreage of former railroad yards in South Boston, Somerville, West Cambridge, Worcester, Greenfield, to name just a few cities where land is so affected.  Of course, the customary 50-year title search generally would not identify railroad land deeded out during the Depression or earlier.  I think Henry would appreciate my use here of the metaphor “phantom ghost train” to refer to a fact that may be unknowable despite a diligent title search.

The statute would apply each time a property turned over to another potential owner.  If MassDOT declines to consent to the issuance of a building permit, the statute reserves the land owner’s right to be compensated, provided he purchased the land prior to January 1, 1976.  If he purchased after that date, the owner may be out of luck.  A constitutional challenge alleging an unlawful taking of property may follow, although it is not clear that it would be successful.  That may be the only recourse for the owner, since the Supreme Judicial Court held that the statute imposes a “restriction on the use of the property, but it does not affect the owner's title to the property. . . .” Even if a title insurance policy fails to take exception for the statute, the existence of this restriction, therefore, does not give rise to coverage under the policy. Somerset Savings Bank vs. Chicago Title Insurance Company, 420 Mass. 422 (1995.)

Henry Thayer wanted a hard statute of limitations (50 years made sense to him) to limit the arbitrary effect of the statute.  He also wanted to get rid of the “property appurtenant thereto” clause.  To that end, REBA filed and supported legislation for several years.  I recall getting it through the House one year, but failing in the Senate.  Another year the Senate passed it, but the House did not.  Other REBA leaders, including former presidents Steve Edwards and Greg Peterson, joined in the advocacy. 

In recent years, REBA joined with NAIOP, the premier commercial and industrial real estate trade association, to support passage of legislation.  Representative Joseph F. Wagner (D-Chicopee), House Chairman of the Joint Committee on Economic Development, filed NAIOP’s bill.  Paula Devereaux, REBA’s current president-elect, was part of a team, coordinated by NAIOP Senior Vice President for Government Affairs Tamara Small, who met with senior staff at MassDOT to negotiate a final bill that we could jointly recommend to the General Court and Governor Baker. 

Representative Wagner and his Committee’s Senate Chairman, Senator Eric P. Lesser (D-Longmeadow), recommended the legislation in an omnibus bill that was passed at the end of formal sessions in July.  Also supporting the legislation were the co-chairs of the Joint Committee on Transportation, Senator Joseph A. Boncore (D-Winthrop) and Representative William M. Straus (D-Mattapoisett).  On Friday August 10, 2018 the legislation was approved, with an Emergency Preamble, by Governor Charles D. Baker. St. 2018, c. 228, § 10.

We were unable to get the hard statute of limitations, but the new act clarifies the former statute so that land that was not used as a railroad right of way would be excluded from its terms.  The clause that refers to other property “appurtenant thereto” was eliminated.  The act retains the required consent by MassDOT to issuance of a building permit on former railroad land, and gives MassDOT new discretion to determine when a public hearing is required.  REBA looks forward to the promulgation of regulatory guidance in that regard. 

Ed Smith has served as legislative counsel to the Association since 1987.  He can be contacted by email at ejs@ejsmithrelaw.com.

Ensuring Good Deeds Go Unpunished: Avoiding the Risks Posed by Volunteers

By Thomas O. Moriarty

There is no question that a community association benefits when its unit owner membership is interested and involved in the life of the association. Such

involvement is evident in associations in which unit owners serve as active and engaged volunteers. Unit owner volunteers can serve their associations in numerous capacities, from advising the board on a landscaping committee or planning the annual holiday party, to tasks that involve rolling up the sleeves, like an annual clean-up day or maintaining the flower beds at the clubhouse. Creating opportunities for and encouraging unit owners to volunteer should be applauded in any community association. It can not only save an association money but it can build a spirit of community that makes the living experience much more enjoyable for all residents. However, unit owner volunteers can pose a risk of liability for the association in sometimes unexpected ways. This article will highlight areas of risk and steps that can be taken to avoid exposure.

...unit owner volunteers can pose a risk of liability for the association in sometimes unexpected ways.

Liability and D&O Insurance:

 A board member and/or an association can be sued for the actions a board member takes on behalf of the association. While certain activities are more likely to generate claims than others, no action taken by a board member is without risk of suit. Recognizing that possibility, most governing documents indemnify the board member for actions taken in their role as board members except in the most egregious of circumstances. Additionally, given the liability risk, most associations understand the need for Directors and Officer’s liability insurance (“D&O Insurance”) and have policies in place which provide insurance defense and, where necessary, indemnification to the board members and/or the association in the event a lawsuit suit is filed in connection with a member’s actions on behalf of the association while serving on the board. Liability in this context can stem from the actions a board member takes or fails to take. While acting reasonably in any given circumstance is a likely means of avoiding liability in most circumstances, often times the costs associated with defending against a claim can be significant. For that reason, even the best run associations and most reasonable boards benefit from insurance coverage.

However, complications and potential gaps in coverage arise when the individual acting on behalf of the board is a volunteer and not a board member. In a circumstance where a unit owner volunteer has been specifically authorized to act on behalf of the association in a particular area, that volunteer may be viewed as an agent of the association. Even in circumstances where no specific authority has been vested in the volunteer, their role may create a circumstance where the volunteer appears to have been acting on behalf of the association and they may be treated as an agent of the board. In either case, as an agent of the association, the volunteer’s actions or inaction may be imputed to the board, that is, the board may be held liable for the actions of the volunteer. The complications in such circumstance can be significant. For the volunteer, they may find that because they are not a board member, they are not indemnified by the association and that the association is not required to defend them or pay any judgment that might enter against them. The volunteer may also learn that the association’s insurance policy does not extend coverage to volunteers. From the association’s perspective, it may learn that the volunteer’s action have exposed it to liability but that the association’s policy provides no coverage because volunteers are not identified as insured under the policy.

While one approach to addressing this issue could be to ban volunteers, but that approach is not realistic and, as discussed above, that step would deprive the association of substantial benefit. The more realistic and beneficial approach would be to consider the following steps:

- clearly limit the volunteer role in this context to advisory and confer no independent decision making authority on the volunteer (a good practice generally as the board should be making decisions by a majority vote) and ensure that the volunteer’s limited decision making role is well publicized;

- amend the documents so that volunteers are indemnified by the association. That step should be taken in consultation with counsel and it may not be advisable or palatable in all circumstances. While addressing a concern for the volunteer, such step would increase the association’s exposure and would almost certainly have to be coupled with securing a policy of insurance which extended to volunteers;

- the volunteer should determine whether its homeowners policy provides coverage and, if not, explore whether such coverage can be added to the policy;

- ensure that the association’s D&O policy extends to volunteers and treats such volunteers as insureds in every instance as is necessary to provide the association with defense and indemnification in the event an action or inaction by a volunteer results in a lawsuit against the association. The board should consult with its insurance agent or other insurance consultant with regard to the placement of the policy.

Worker’s Compensation:

There is, similarly, liability risk for the association in those circumstances where the unit owner volunteer is engaged in physical activity on the property. While it is obvious that when an association hires and pays an employee to perform services on the common areas, the association must provide worker’s compensation insurance to that employee. It is also necessary, though sometimes less obvious, for an association to ensure that the contractors it engages provide worker’s compensation insurance for all the employees that enter and perform work on the common areas as the association could be the target of a claim under the Worker’s Compensation Act by any injured employee of a contractor it engages.

It is far less obvious, and often times overlooked, that volunteers who perform regular activities on behalf of the association could be considered employees under the Worker’s Compensation Act. That is not to suggest that any action taken by a unit owner as a volunteer makes them an “employee” for purposes of coverage under the Act. If a unit owner sees some trash on the ground and picks it up or sees a weed growing in a flower bed and pulls it, that random, one-off activity is highly unlikely to result in a unit owner volunteer being treated as an employee. However, where a unit owner volunteer regularly performs work on behalf of the association there is real risk that an injury to such volunteer could result in a claim under the Worker’s Compensation Act. The problem for the association in such circumstance is that the standard worker’s compensation policy provides coverage only to paid employees not to unpaid volunteers that might otherwise fit the definition of employee. If a volunteer is injured in such circumstance the association may have liability under the Act which includes medical bills which can be significant. It is advisable, therefore, that the association not only obtain a worker’s compensation policy, but that the policy extend to unit owner volunteers.

The presence of unit owners willing to volunteer their time and talent is a fundamental good in most community associations. With some simple advance work and planning the risks associated therewith can be effectively managed so that the benefits are not outweighed by the potential downsides.

Originally posted September 6, 2018 on

https://www.lawmtm.com/avoiding-legal-risks-posed-volunteers.html

Tom is a former REBA President (2010), Co-Chair of both REBA’s Residential Conveyancing and Unauthorized Practice of Law Committees, and a founding partner of Moriarty Troyer & Malloy, LLC.