In Markel American Insurance Company v. MT Group, LLC, et al., the United States District Court for the Eastern District of New York held that a suit brought within the time permitted under the state statute of limitations was untimely filed based on a contractual provision that shortened the time limits for filing suit. 2024 WL 630422 (E.D. New York, February 14, 2024).
In August, 2018, 244 Howard Avenue, LLC (“244 Howard”) entered into a contract with MT Group, LLC (“MT Group”) to provide construction inspection services and testing at various milestones throughout a construction project. In negotiating and executing the contract, 244 Howard and MT Group agreed to contractually shorten the applicable statute of limitations period for filing suit and provided that any claim against MT Group had to be brought within two years of MT’s completion of work.
On January 9, 2019, the project suffered a severe building collapse. Following the collapse, MT Group continued to work on the project until October 28, 2019.
On December 20, 2021, Markel American Insurance Company (“Markel”), as subrogee of its insured, 244 Howard, filed suit against multiple defendant contractors and subcontractors for damages resulting from the building collapse. On September 28, 2022, Markel filed an Amended Complaint adding MT Group as a defendant to the action, alleging that the collapse and resulting damages were caused by the negligence, carelessness and negligent acts or omissions of MT Group.
MT Group filed a Motion to Dismiss on grounds that the Amended Complaint was untimely and barred by the contractually negotiated limitations period for filing suit. Markel argued the statute of limitations was tolled by former New York Governor Cuomo’s COVID-19 executive orders, which were in effect from March 20, 2020 until November 3, 2020. Markel also argued that the two-year contractual limitations period did not apply because MT Group owed Markel’s insured a duty of care separate and apart from its contractual obligations and further argued that the shortened limitations period could not act to bar gross negligence claims. In response, MT Group argued that even if the Court factored in the 228-day period in which the limitations period may have been tolled per the executive orders, the claims were still untimely.
Under New York law, the statute of limitations for a negligence action is three years from the date of injury, while a claim for breach of contract must be brought within six years of the breach. However, New York law also permits parties to a contract to shorten statutory limitations periods. See Sidik v. Royal Sovereign Int’l Inc., 348 F. Supp 3d 206, 213-214 (E.D.N.Y. 2018) (“Under New York law, parties to a contract may agree to shorten the applicable statutory limitations period.”)
The Court held that because 244 Howard and MT Group had agreed to contractually shorten the statutory limitations periods, Markel, as the subrogee of 244 Howard, was bound by the same contractual terms. Regardless of whether the claims against MT Group sounded in tort or contract, the contractually-shortened limitations period applied. In light of the two-year limitations period, Markel’s Amended Complaint was filed against MT Group more than one year after the contractually-shortened limitations period expired. The Court held that the claims were untimely. Markel argued it was entitled to equitable tolling of the claims, a determination the Court did not make but at this juncture, but did allow for limited discovery on that issue alone.
Including a specified time limit for filing suit is a good idea and should be negotiated for, if the state in which the contract is being executed allows parties to contractually shorten the limitations periods. While many states have a statute of repose that sets a number of years for filing suit regardless of when the injury may be discovered, it is possible to contractually specify an even shorter period of time for filing suit.