Iowa Construction Defect Law Update re Claims, Statutes of Limitations and Statute of Repose

by Ryan C. Nixon

Iowa law regarding construction defect claims has evolved over recent years. This article is intended to provide updated general information regarding potential claims as well as information regarding statutes of limitations and statutes of repose that may be applicable to construction defect claims in Iowa. But, construction defect claims are very fact specific. As such, this information must be considered only as general information and not legal advice specific to any facts or potential claims.

Construction Defect Claims

Negligence Claims

Iowa case law allows claims for negligence based on defective construction. E.T. Corp. v. Frank Paxton Co., Inc., 329 N.W.2d 416 (Iowa 1983). However, such negligence claims are limited (and in many instances actually prohibited) by the economic loss doctrine. Under Iowa’s discovery rule, “a cause of action based on negligence does not accrue until the plaintiff has in fact discovered that he has suffered injury or by exercise of reasonable diligence should have discovered it …” Bob McKiness Excavating & Grading, Inc. v. Morton Bldgs., Inc., 507 N.W.2d 405, 408 (Iowa 1993).

Breach of Contract Claims

In Iowa, construction breach of contract claims can be brought by the property owner against the general contractor or subcontractor, and by a general contractor against a subcontractor. “A cause of action on contract accrues and the limitation period begins to run when the contract is breached, not when the damage results or is ascertained.” Brown v. Ellison, 304 N.W.2d 197, 200 (Iowa 1981); see also Shams v. Hassan, 905 N.W.2d 158, 165 (Iowa 2017); (citing Diggan v. Cycle Sat,, 576 N.W.2d 99, 102 (Iowa 1998).

Breach of Express Warranty Claims

A construction contract is typically a contract primarily for services. As a result, Article 2 of the Uniform Commercial Code does not directly govern most construction contracts. See Johnson v. Associated Milk Producers, Inc., 886 N.W.2d 384, 391 (Iowa 2016). The Iowa Supreme Court has reserved the option to apply UCC Article 2’s “policies and reasons” when analyzing construction contracts. However, when the common law of Iowa and other states provides sufficient authority for analyzing express warranty, the Iowa courts have proceeded without the assistance of Article 2. See Flom v. Stahly, 569 N.W.2d 135, 139 (Iowa 1997). The Iowa Supreme Court, citing common law from Iowa and other states, held “that the theory of express warranty can apply to specific representations or warranties contained in contracts for the sale of real estate” and allowed a buyer to recover for breach of express warranty where the builder of a house made representations that particular materials were used and specifications met, and these representations were expressly incorporated into the contract. Id. at 140. Parties to a construction contract can create an express warranty, even without using words like “warranty” or “guaranty.” Id. In order to create an express warranty, “the plaintiff must ‘show that the seller made some distinct assertion of quality concerning the thing to be sold as distinguished from a mere statement of opinion or of praise.’” Id. (citing Carleton D. Beh Co. v. City of Des Moines, 292 N.W. 69, 71 (Iowa 1940)). The plaintiff must also show “that [the seller] intended such assertion to be believed and relied on by the purchaser as an undertaking on his part that the article is what he represents it to be.” Id. Finally, the plaintiff must show that he understood, believed, and relied on the assertion to successfully recover on a breach of express warranty claim. Id.

Breach of Implied Warranty Claims

Iowa case law has long recognized that “[i]n construction contracts there is an implied warranty that the building to be erected will be built in a reasonably good and workmanlike manner and that it will be reasonably fit for the intended purpose.” Kirk v. Ridgway, 373 N.W.2d 491, 493 (Iowa 1985); see also Sokol v. Morrissey, 909 N.W.2d 230 (Iowa Ct. App. 2017). The Iowa Supreme Court has also held that a warranty can run from the “buyer of the [construction] services…to the seller[,]…based upon the buyer’s contract requirements.” Midwest Dredging Co. v. McAninch Corp., 424 N.W.2d 216, 221 (Iowa 1988) (finding that the buyer created an implied warranty in favor of the contractor where the buyer used tests to develop plans and to require specific techniques that warranted to the contractor that the particular job was feasible).

An implied warranty extends to buyers of homes constructed by a “builder-vendor.” Luana Sav. Bank v. Pro-Build Holdings, Inc., 856 N.W.2d 892, 896 (Iowa 2014). This implied warranty requires that: “(1)…the house was constructed to be occupied by the warrantee as a home; (2)…the house was purchased from a builder-vendor, who had constructed it for the purpose of sale; (3)…when sold, the house was not reasonably fit for its intended purpose or had not been constructed in a good and workmanlike manner; (4)…at the time of purchase, the buyer was unaware of the defect and had no reasonable means of discovering it; and (5)…by reason of the defective condition the buyer suffered damages.” Id. A “builder-vendor” is defined as one “who is in the business of building or assembling homes designed for dwelling purposes upon land owned by him, and who then sells the houses, either after they are completed or during the course of their construction, together with the tracts of land upon which they are situated, to members of the buying public.” Kirk, 373 N.W.2d at 496. (specifically excluding “merchants, material men, artisans, laborers, subcontractors, and employees” from this definition of builder-vendor). Generally, the Iowa Supreme Court has been willing to extend this cause of action to reasonable persons, including subsequent owners of the property but has also been unwilling to extend the cause of action in certain situations.

A construction contract can also become subject to an implied warranty of fitness for a particular purpose. See Semler v. Knowling, 325 N.W.2d 395, 397 (Iowa 1982); see also Reilly Const. Co., Inc. v. Bachelder, Inc., 863 N.W.2d 302 (Iowa Ct. App. 2015). The necessary elements for recovering under such a warranty are as follows: “(1) the seller must have reason to know the consumer’s particular purpose; (2) the installation contractor must have reason to know that the consumer is relying on his skill or judgment to furnish appropriate installation services; and (3) the consumer must, in fact, rely upon the installer’s skill or judgment.” Id. at 399.

Misrepresentation and Fraud

General contractors may be sued for negligent misrepresentation as well as fraudulent misrepresentation. A contractor is liable for negligent misrepresentation if he or she fails to exercise due care when acquiring or disseminating information he or she is in the business of supplying. Dinsdale Construction, LLC v. Lumber Specialties, Ltd., 888 N.W.2d 644, 650-651 (Iowa 2016); see also Restatement (Second) of Torts § 552 (1977). A contractor is liable for fraudulent misrepresentation if a plaintiff can show that the contractor (1) made a false representation; (2) the representation was material; (3) the contractor knew the representation was false; (4) the false representation was made with the intent to deceive; (5) there was justifiable reliance on the representation; (6) the representation proximately caused damage; and (7) the amount of damages. See Van Sickle Const. Co. v. Wachovia Commercial Mortg., Inc., 783 N.W.2d 684, 687 (Iowa 2010) (citing Lloyd v. Drake Univ., 686 N.W.2d 225, 233 (Iowa 2004)). Punitive damages are available for plaintiffs who prove fraudulent misrepresentation. at 689. In general, misrepresentation and fraud claim are very difficult to prove.

Statutes of Limitations

Statutes of limitations specify the amount of time during which construction defect actions must be asserted after the claim accrues or such claims will forever be barred as a matter of law. See generally Iowa Code § 614.1. Iowa has a two-year general statute of limitations for injuries to persons, “whether based on contract or tort.” See Iowa Code § 614.1(2). But, two limitations periods typically apply more specifically to construction defect claims in Iowa. Claims “founded on unwritten contracts, those brought for injuries to property, or … fraud” are subject to a five-year statute of limitations period. See Iowa Code § 614.1(4). Claims “founded on written contracts…and those brought for the recovery of real property” are subject to a ten-year statute of limitations period. See Iowa Code § 614.1(5).

The provisions of Iowa Code § 614.1 “establish a limitations period that begins to run when the cause of action accrues.” Shams v. Hassan, 905 N.W.2d 158, 164 (Iowa 2017). Generally, Iowa uses the discovery rule to determine when a cause of accrues. Chrischilles v. Griswold, 150 N.W.2d 94, 100 (1967); see also Steinke v. Kurzak, 803 N.W.2d 662, 667 (Iowa Ct. App). Therefore, a cause of action in a construction case does not necessarily accrue on the date when construction is completed. Bob McKiness Excavating & Grading, Inc., 507 N.W.2d at 408. Instead, it typically accrues when the claimant has in fact discovered the injury to the improvement or “by exercise of reasonable diligence should have discovered it.” Id. (citing Chrischilles, 150 N.W.2d at 100). But, with respect to a breach of contract claim, “the limitations period begins running upon breach of the contract.” Shams v. Hassan, 905 N.W.2d 158, 165 (Iowa 2017); Diggan v. Cycle Sat, Inc., 576 N.W.2d 99, 102 (Iowa 1998).

Statute of Repose

Iowa also has a statute of repose that can affect many types of construction defect claims. Effective July 1, 2017, the Iowa legislature adopted changes to the existing statute of repose as it applies to claims on improvements to real property. See Iowa Code § 614.1(11). The changes apply to any action arising out of the unsafe or defective condition of an improvement to real property based on tort and implied warranty and for contribution and indemnity, and founded on injury to property, real or personal, or injury to the person or wrongful death. See Iowa Code § 614.1(11)(a).

Other than some contract claims, a statute of repose sets the period of time during which claims related to improvements to real property must be brought after the work is performed, or the claim is forever barred. Stated differently, a statute of repose bars and prohibits certain claims after a specific amount of time after the act or omission of the wrongdoer that caused the damage, injury, or death occurred, regardless of the applicable statutes of limitations. The statute of repose adopted as of July 1, 2017, provides for a 10-year statute of repose for residential properties and an 8-year statute of repose for all other properties. There is an exception for fraudulent concealment allowing claims to be made within 15 years of the act or omission causing the damage, injury, or death. See Iowa Code § 614.1(11)(b). There is also an exception that if the unsafe or defective condition is discovered within one year of the expiration of the applicable statute of repose, the period of repose is extended one year. See Iowa Code § 614.1(11)(c). The shortened statute of repose does not apply to improvements in existence before the effective date of the act (July 1, 2017), or to projects having a contract provision setting the effective date of the act. But, the previous statute of repose would still apply to those claims.

Again, the statute of repose applies to many types of construction defect claims, but it does not cover all possible claims. “[C]laims of negligence, implied warranty, and strict liability clearly fall within the scope” of the phrase “tort and implied warranty,” as used in the statute, and thus the statute of repose applies. Bob McKiness Excavating & Grading, Inc., 507 N.W.2d at 409. However, the statute of repose does not apply to an “express warranty claim,” Id. See also Shams, 905 N.W.2d at 165. Nor does it apply to claims “against a person solely in the person’s capacity as an owner, occupant, or operator of an improvement to real property.” See Iowa Code § 614.1(11)(d). See also E. Iowa Propane, Ltd. v. Honeywell, Inc., 652 N.W.2d 462, 464 (Iowa 2002).

Conclusion

In sum, construction defect claims in Iowa can be barred by either the statute of limitations or the statute of repose, and viable claims must pass both sets of hurdles. Stated differently, for a claim to be viable, it must be brought within the time permitted by the statute of limitations and no later than permitted by the statute of repose. The recently enacted statute of repose does not directly relate to or change the statutes of limitations. Either (or both) statute(s) may ultimately bar a construction defect claim.

Overall, it is still possible to pursue construction defect claims in Iowa. But, there are several hurdles and legal challenges that must be overcome to be successful. The viability of claims and challenges will vary greatly depending on the specific facts of each individual claim.

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