Can a subcontractor be liable for damages resulting from a pipe break 10 years after it last performed work at the project? Not if its relationship to the plaintiff is the “functional equivalent of privity” and the plaintiff is “not a stranger to the contract.”

When some latent defect in the construction work causes damage many years after the completion of the work, does a subcontractor which performed the work remain on the hook for the damage? Does it matter who suffered the damage? A recent case, Phila. Indem. Ins. Co. v. Buffalo Hotel Supply reminds us how the rules applicable to the statute of limitations are to be applied in this scenario.
 
The Country Club of Ithaca, NY engaged in a renovation project around 2004. Some 10 years later a pipe ruptured, resulting in a water leak and property damage to the Club. After the insurance company paid for the damage, it commenced a subrogation action against three subcontractors that had done work relating to the pipe. Each subcontractor then moved to have the action dismissed against it on the grounds that the statute of limitations had run.
 
The court first established that each subcontractor had completed its work in 2004 and had no ongoing responsibility for maintenance of the piping system. Next, it determined that the statute of limitations for negligence or property damage is three years. But the real question to be tackled was when the claim accrues—when does the clock start ticking? Does it accrue from the point of the occurrence, i.e., when the pipe burst? Or does it accrue from the date the work was last performed?
 
Citing to the landmark Court of Appeals case of City of Newburgh v. Stubbins & Assoc., the court held that so long as the plaintiff bringing the suit is “not a stranger to the contract” (e.g., a passerby or neighbor) and further that the relationship of the defendant being sued to the plaintiff is the “functional equivalent of privity,” the claim is deemed to have accrued upon the completion of the work some 10 years earlier. Therefore, the claim is barred by the statute of limitations against all three subcontractors.
 
The court held that the insurance company was not a stranger to the contract, as it was standing in the shoes of the Club in bringing the subrogation action. As for the subcontractors, they all had contracts with the general contractor (even if not with the Club). Their work was “undertaken on behalf of the Country Club and for the benefit of the Country Club, and represents the functional equivalent of privity.”
 
The result of the court’s decision is that, at least as to those involved in the original contract, the claim was effectively time-barred even before the pipe burst. A strange result, perhaps, but one that keeps contractors from being liable for damages in perpetuity. 
 
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