As is always the case when I attend the Virginia State Bar’s annual construction law seminar, I come away from it with a few posts on recent cases and their implications. The first of these is not a construction case, but has implications relating to the state project related statute of limitations and indemnification issues for construction contracts brought out in stark relief in the now infamous Hensel Phelps case.
In Radiance Capital Receivables Fourteen, LLC v. Foster the Court considered a waiver of the statute of limitations found in a loan contract. The operative facts are that the waiver was found in a Continuing Guaranty contract and that the default happened more than 5 years prior to the date that Radiance filed suit to enforce its rights. When the defendants filed a plea in bar stating that the statute of limitations had run and therefore the claim was barred, Radiance of course argued that the defendants had waived their right to bring such a defense. The defendants responded that the waiver was invalid in that it violated the terms of Va. Code 8.01-232 that states among other things:
an unwritten promise not to plead the statute shall be void, and a written promise not to plead such statute shall be valid when (i) it is made to avoid or defer litigation pending settlement of any case, (ii) it is not made contemporaneously with any other contract, and (iii) it is made for an additional term not longer than the applicable limitations period.
The Circuit Court and ultimately the Supreme Court agreed with the defendants. In doing so, the Virginia Supreme Court rejected arguments of estoppel and an argument that a “waiver” is not a “promise not to plead.”
The Court also rejected an argument that was made based upon the Hensel Phelps case. When faced with the argument from Radiance that the Court had in fact endorsed just such a waiver in the Hensel Phelps case, the Court rejected that argument and in doing so stated:
This argument is misplaced. In Hensel Phelps, we examined the language of a subcontract between a prime contractor and a subcontractor and determined that no provision demonstrated that the subcontractor had waived its right to plead the statute of limitations. See Hensel Phelps, 292 Va. at 702-03. As the subcontractor failed to waive its right to plead the statute of limitations, we did not determine whether such a waiver was enforceable pursuant to Code § 8.01-232. Thus, the holding in Hensel Phelps did not reach the issue presented in this case.
The result was a holding by the Virginia Supreme Court that the waiver found in the Guaranty Agreement was invalid and the claim barred by the statute of limitations.
How does this non-construction case make its way into Construction Law Musings? Not only does it mention Hensel Phelps, it has implications for construction contract drafting. First of all, it essentially invalidates any provisions of construction contracts purporting to provide a waiver of the statute of limitations by any subcontractors, thus removing one of the possible work-arounds to the lack of a statute of limitations applicable to the Commonwealth of Virginia for construction projects. Any purported waiver can at best now double any statute of limitations for claims. Second of all, it puts an even higher premium on the proper drafting of indemnificaiton provisions in these contracts. Remember, one of the issues for Hensel Phelps was that its indemnification provision purported to have its subcontractors indemnify it for its own negligence and was thus invalid.
Finally, what this case coupled with the Hensel Phelps case tells us is that you should draft or review your contractual indemnification clauses with the assistance of an experienced Virginia construction attorney and that if you are a general contractor in Virginia you should work toward a fair statute of limitations applicable to the Commonwealth for construction projects.
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