In a pivotal decision with far-reaching implications, the Pennsylvania Supreme Court in Johnson v. Toll Brothers, Inc. et al., 302 A.3d 1231 (2023), delivered a victory for the construction industry. The Supreme Court's affirmation of the trial court's granting of summary judgment in favor of the contractor, which was grounded in the application of the Statute of Repose, has significant implications for the construction and insurance industries. This article delves into the intricacies of the case, explores its significance for these industries, and sheds light on the decision's broader impact on the construction landscape in Pennsylvania.

Background of the Case

When the Superior Court of Pennsylvania addressed this case in 2022, it ruled that homeowners did not qualify for a two-year extension under the Statute of Repose when a defect of the property was known to them and had existed prior to the tenth year after a Certificate of Completion had been issued. The Superior Court held that where a governing body issued a Certificate of Completion for a property, the homeowner could not later claim that the contractor’s building practices were "unlawful."

The Statute of Repose

Pennsylvania's Statute of Repose (42 Pa. C.S.A. §5536(b)(1)) provides that, "[a] civil action or proceeding brought against any person lawfully performing or furnishing the design, planning, supervision, or observation of construction, or construction of any improvement to real property must be commenced within 12 years after completion of construction of such improvement to recover damages.” As applied to a claim for a construction defect, the statute provides an outer limit of 12 years to bring an action for a construction defect.

Defense's Success with Statute of Repose

At the trial court level, the defense successfully argued that plaintiffs' claims were time-barred as they exceeded the 12-year limit post-completion of the construction. The Supreme Court endorsed both the trial court's and the Superior Court's rulings, emphasizing that Toll Brothers' actions were considered "lawful" under the laws of the Commonwealth, even if Toll Brothers might have violated other regulations. The Supreme Court highlighted Toll Brothers' status as a licensed builder, coupled with the applicable jurisdiction's issuance of a Certificate of Occupancy upon project completion.

The concept of whether a contractor's actions were “lawful” is at the heart of this decision. This issue was previously tackled by the Pennsylvania Superior Court in Branton v. Nicholas Meat, LLC, 159 A.3d 540 (Pa. Super. 2017). In Branton, a slaughterhouse farm was sued for the raucous smells emanating from the farm and had previously been cited on several occasions by the Pennsylvania Department of Environmental Protection for violations of state and federal law as well as local regulations. The defendants in Branton argued that they were shielded from Plaintiff’s nuisance claim by the Statute of Repose contained within the Pennsylvania Right to Farm Act, which prohibited nuisance actions “against an agricultural operation which has lawfully been in operation for one year or more prior to the date of bringing such action.” 3 P.S. §951-957. The Superior Court agreed with the slaughterhouse and found that as it was in substantial compliance with the law and had made every reasonable effort to comply with the law, it was protected by the Statute of Repose. Thus, the nuisance claims brought by the neighboring property were barred.

In a more recent case, the Pennsylvania Superior Court delved into this "lawful" issue in the context of a construction claim. In Evangelical Lutheran Church of the Atonement at Wyomissing, PA. v. Horst Constr., 251 A.3d 1221 (Pa. Super. 2021), the Superior Court was asked to determine whether a builders’ work on a new wing of a church was "lawful" despite water filtration problems arising out of alleged violations of the building codes and local ordinances. The Superior Court ruled that because the jurisdiction responsible for overseeing the project issued a Certificate of Occupancy, said Certificate “constituted evidence of record to indicate that the builders performed the construction lawfully.”

In Johnson, Toll Brothers was issued a Certificate of Completion from the applicable jurisdictional body and it argued that it operated within the bounds of all applicable codes and ordinances in the construction of the subject residence. The Supreme Court agreed with Toll Brothers and rejected the Johnsons’ argument that Toll Brothers acted "unlawfully" in the construction of the property.

This decision empowers defense lawyers to strategically assert the protections afforded by the Statute of Repose, reinforcing the importance of understanding, and leveraging statutory provisions when mounting a defense. Further, it underscores that even if technical violations occurred in connection with the construction, as long as the construction was "lawful" and was operating within the parameters of the jurisdiction responsible for oversight, the Statute of Repose can be a powerful defense tool.

Moving Forward

This case is particularly important because it strengthens the ability of the defense to navigate construction defect claims. The essence of the ruling--that adherence to state licensing and approval processes constitutes lawful actions--can be utilized to defeat claims of defective construction. Beyond its significance for defense lawyers, this case also has significant consequences for the construction and insurance industries in Pennsylvania.

The clarity provided by the Supreme Court regarding the Statute of Repose establishes a framework which can be employed to protect contractors from protracted legal exposure. The decision is a significant benefit for an industry grappling with challenges such as affordable housing shortages, rising costs, and increasing litigation. It is clearly a significant victory for builders and developers who are concerned with homeowners instituting suits for alleged defects that existed years before the Statute of Repose expired and who later assert that the building methods employed were deficient even though they constituted best practices at the time of the construction. The Johnson v. Toll Brothers case provides a sturdy scaffolding for the construction industry, offering a clear path to navigate and defend against construction defect claims.

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