Feb. 1, 2011 – Although Wisconsin’s statute of repose bars claims arising from improvements to real estate beyond 10 years from the date of substantial completion, the provision does not apply if parties have contracted otherwise, a Wisconsin appeals court recently concluded.

In Cianciola, LLP v. Milwaukee Metropolitan Sewerage District, 2010AP87 (Feb. 1, 2011), the District I appeals court upheld a circuit court decision that awarded Cianciola $1.08 million for MMSD’s failure to maintain a sewer tunnel it constructed beneath Cianciola’s property.

Frank Cianciola, owner of the property, conveyed an easement to MMSD in 1988 so MMSD could construct the sewer tunnel. The easement required MMSD to indemnify the owner, successors, and assigns from “all loss or injury to its property and persons due to such construction, operation, maintenance, repair or reconstruction.”

In 1991, MMSD indemnified Cianciola nearly $82,000 because MMSD’s construction of the tunnel led to soil compression and damage to the property. In 1992, a consultant told MMSD to make further repairs or risk future damage to the Cianciola property, but MMSD did not repair.

Cianciola LLP acquired the property in 1996 from the Cianciola family-owned corporation, along with all of the rights and benefits that run with the land. In 2007, Cianciola LLP sued MMSD for breach of the warranty covenants in the easement based on a failure to maintain the tunnel. The Milwaukee County Circuit Court awarded Cianciola $1.08 million, and MMSD appealed.

Statutes of repose and limitations 

MMSD argued that Wisconsin’s statute of repose, Wis. Stat. section 893.89, and the applicable statute of limitations for contracts barred Cianciola LLP’s claims.

The property damage occurred in the eighth to tenth years after construction, which extended the “exposure” period by three years under Wis. Stat. section 893.89(3)(b), MMSD conceded. But MMSD argued that Cianciola filed suit six months after the three-year extension ended.

However, the appeals court rejected this argument, holding that the easement language established an express warranty that fell within the statute’s exception under section 893.89(4)(b), which allows parties to expressly contract to extend liability.

The appeals court distinguished the recent case of Hocking v. City of Dodgeville, 2010 WI 59, 326 Wis. 2d 155, 785 N.W.2d 398, in which private landowners claimed the city’s negligence in developing a subdivision caused water damage to their property.

In Hocking, the appeals court explained, there was no evidence of a contractual relationship between the landowners and the city that would create an exception to the statute of repose.

“Here, the language of the easement establishes a contractual relationship between Cianciola and MMSD,” wrote Judge Joan Kessler.

MMSD also argued that Cianciola’s claims were barred by the six-year statute of limitations for contract claims, because its obligation to keep the tunnel in “good condition and order” triggered the statute of limitations on the date the tunnel was completed.

However, the appeals court agreed with the circuit court that MMSD’s obligation to construct and “maintain” the tunnel means it breached the warranty every day it did not do so. Thus, the statute of limitations period began anew every day.

“The statute of limitations does not expire on Cianciola’s breach of contract claims so long as the tunnel is not maintained as required by the warranty in MMSD’s contract with Cianciola,” Judge Kessler explained.

Finally, the appeals court held that the trial court did not erroneously exercise its discretion when it based Cianciola’s damages award on cost of repairs rather than diminished value, because MMSD failed to produce evidence of diminished property value.