Waterpark resort’s breach of contract claims barred by statute of limitations

By Joe Forward, Legal Writer, State Bar of Wisconsin

Feb. 27, 2012 – A corporation that paid a $26.2 million for the design and construction of the Kalahari Resort and Conference Center in Wisconsin Dells was too late in filing claims that defective designs caused water damage at a significant cost.

Iconica Inc. finished the Kalahari Resort project in early May 2000. Nearly 10 years later, Kalahari Development LLC asserted breach of contract and professional negligence claims.

Kalahari Development incurred significant costs to inspect and repair walls for damage caused by moisture, it alleged, arguing Iconica defectively designed or installed vapor barriers.

But in Kalahari Devlopment LLC v. Iconica Inc., 2011AP643 (Feb. 23, 2012), the District IV Wisconsin Court of Appeals barred the claims, rejecting the argument that Wisconsin’s 10-year statute of repose for substantial improvements to real estate applied.

Wis. Stat. section 893.89 provides that a person involved in the improvement of real estate can’t be sued after 10 years from the date of substantial completion of the project. But the appeals court explained that the limitations period for breach of contract claims is shorter.

“[W]hen an action is one for contract damages, Wis. Stat. § 893.89(3)(a) directs that its ten-year time limit be compared with the time limit applicable to contract actions to see which is shorter, and that the shorter limit applies,” wrote Presiding Judge Paul Lundsten.

Instead, Wis. Stat. 893.43’s six-year statute of limitations applied, the court concluded. It also rejected Kalahari’s argument that section 893.89(3)(b) bars application of the shorter limitations period, because the damage occurred more than seven years after completion.

Section 893.89(3)(b) extends the limitations period for damages occurring in the last three years of the 10-year limitations period. “As applied to the facts before us, subsection (3)(b) is not, in any logical sense, an exception to subsection (3)(a),” Judge Lundsten wrote.

The appeals court also denied Kalahari’s professional negligence claim as barred by the economic loss doctrine, which generally prevents a party from recovering economic losses in tort when a contract is predominantly for a “product,” not services.

Kalahari primarily contracted for a water park and convention center, the court explained, not the services generally involved in completing construction projects. It noted that architectural and engineering services were a small fraction of the contract price, about four percent.

Finally, the court rejected Kalahari’s argument that “professional” negligence claims are categorically exempted from the economic loss doctrine and thus a tort claim could stand.

Under Insurance Co. of North America v. Cease Electric Inc., 2004 WI 139, 276 Wis. 2d 361, 688 N.W. 2d 462, the court explained, it does not matter if services are professional or nonprofessional if the contract is predominantly for a product.