CLL Associates Ltd. Partnership v. Arrowhead Pacific Corp., 91-1460

• Court: United States State Supreme Court of Wisconsin
• Citation: 174 Wis.2d 604,497 N.W.2d 115
• Docket Number: No. 91-1460,91-1460
• Parties: , 33 A.L.R.5th 771 CLL ASSOCIATES LIMITED PARTNERSHIP, a Wisconsin limited partnership, and Wisconsin Housing and Economic Development Authority, a Wisconsin public body corporate, and politic, Plaintiffs-Appellants, d v. ARROWHEAD PACIFIC CORP., a Minnesota corporation, Lund-Martin Construction Inc., a Minnesota corporation, Stanley Fishman Associates, Inc., Stanley Fishman, individually, Defendants, St. Paul Fire & Marine Insurance Company, a Minnesota corporation, Defendant-Respondent, Clark Engineering Company, a Minnesota corporation, and Continental Casualty Company, an Illinois corporation, Defendants, St. Paul Fire & Marine Insurance Company, a Minnesota corporation, Third Party Plaintiff, Corn Belt Aluminum, Inc., M.L. Gordon Sash and Door Co., (now known as Gordon Millwork Company), and GRW Realty Co. (formerly known as Standard Builders Supply, Inc.), Third Party Defendants, Clark Engineering Company, Third Party Plaintiff, Security Insurance Company of Hartford, and Northbrook Insurance Company, Third Party Defendants. . Oral Argument
• Decision Date: 30 November 1992

Page 115

497 N.W.2d 115 174 Wis.2d 604, 33 A.L.R.5th 771 CLL ASSOCIATES LIMITED PARTNERSHIP, a Wisconsin limited
partnership, and Wisconsin Housing and Economic Development
Authority, a Wisconsin public body corporate, and politic,
Plaintiffs-Appellants, ^d
v.
ARROWHEAD PACIFIC CORP., a Minnesota corporation,
Lund-Martin Construction Inc., a Minnesota
corporation, Stanley Fishman Associates,
Inc., Stanley Fishman,
individually, Defendants,
St. Paul Fire & Marine Insurance Company, a Minnesota
corporation, Defendant-Respondent,
Clark Engineering Company, a Minnesota corporation, and
Continental Casualty Company, an Illinois
corporation, Defendants,
St. Paul Fire & Marine Insurance Company, a Minnesota
corporation, Third Party Plaintiff,
Corn Belt Aluminum, Inc., M.L. Gordon Sash and Door Co.,
(now known as Gordon Millwork Company), and GRW
Realty Co. (formerly known as Standard
Builders Supply, Inc.), Third
Party Defendants,
Clark Engineering Company, Third Party Plaintiff,
Security Insurance Company of Hartford, and Northbrook
Insurance Company, Third Party Defendants. No. 91-1460. Supreme Court of Wisconsin. Oral Argument Nov. 30, 1992.
Opinion Filed March 23, 1993.

Page 116

[174 Wis.2d 607] For the plaintiffs-appellants there was a brief by Richard M. Burnham, Lawrence Bensky and LaFollette & Sinykin, Madison and oral argument by Mr. Burnham and Mr. Bensky.

For the defendant-respondent there was a brief by Thomas F. Surprenant and Jack D. Elmquist Law Offices, Minneapolis, MN and Bruce Gillman and Tomlinson, Gillman & Rikkers, S.C., Madison, of counsel, and oral argument by Mr. Surprenant and Mr. Gillman.

Amicus curiae brief was filed by Paul D. Lawent, Madison, for The Wisconsin Chapter, Associated General Contractors of America, Inc.

STEINMETZ, Justice.

There is one issue presented in this case. When does a contract cause of action "accrue," as that term is used in sec. 893.43, Stats., ¹ Wisconsin's six-year statute of limitations for contract actions? We hold that under sec. 893.43, a contract cause of action accrues at the moment the contract is breached, regardless of whether the injured party knew or should have known that the breach occurred.

[174 Wis.2d 608] Plaintiff, CLL Associates Limited Partnership ("CLL"), constructed two, six-story apartment buildings in Superior, Wisconsin (hereinafter referred to as "project") in 1977. The Wisconsin Housing Finance Authority, predecessor to plaintiff Wisconsin Housing and Economic Development Authority ("WHEDA"), was the lender for the venture.

In July of 1988, CLL filed suit against several entities connected with the project, including the contractor responsible for constructing the buildings, ² and its bonding company, St. Paul Fire & Marine Insurance Company ("St. Paul"). CLL alleged, in part, that the contractor breached the project construction contract by failing to include structural support within the walls of the buildings and installing defective windows.

At the close of discovery, St. Paul moved for summary judgment on the ground that CLL's action against it was time barred. The trial court held that sec. 893.43, Stats., begins to run, i.e. the action "accrues," when the contract breach occurs. It further held that CLL's action against St. Paul was time barred because it was commenced more than six years after the last possible date that the contractor could have breached the construction contract.

CLL appealed the trial court's ruling. It argued that sec. 893.43, Stats., should not

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begin to run until the contract breach is discovered, or with reasonable diligence should have been discovered, by the injured party, whichever occurs first. CLL further argued that under this rule its action against St. Paul was not time barred because it was commenced less than six years from the time that CLL discovered the alleged breaches.

[174 Wis.2d 609] The court of appeals certified CLL's appeal to this court under the provisions of sec. 809.61, Stats.1991-92. Although the trial court made no findings as to when CLL discovered or should have discovered the alleged breaches of contract, we assume for purposes of this appeal that CLL commenced this action less than six years after discovery.

In Wisconsin, a 90-year line of precedent holds that "[i]n an action for breach of contract, the cause of action accrues and the statute of limitations begins to run from the moment the breach occurs. This is true whether or not the facts of the breach are known by the party having the right to the action." State v. Holland Plastics Co., 111 Wis.2d 497, 506, 331 N.W.2d 320 (1983) (citations omitted); see also Denzer v. Rouse, 48 Wis.2d 528, 531, 180 N.W.2d 521 (1970); Milwaukee County v. Schmidt, Garden & Erikson, 43 Wis.2d 445, 455, 168 N.W.2d 559 (1969); Krueger v. P. Christianson Silo Co., 206 Wis. 460, 462-63, 240 N.W. 145 (1932); Ott v. Hood, 152 Wis. 97, 100-101, 139 N.W. 762 (1913); Effert v. Heritage Mut. Ins. Co., 160 Wis.2d 520, 525, 466 N.W.2d 660 (Ct.App.1990); Segall v. Hurwitz, 114 Wis.2d 471, 490, 339 N.W.2d 333 (Ct.App.1983).

In contrast, with respect to tort actions, Wisconsin has adopted what is known as the "discovery rule." Tort claims accrue and the statute of limitations begins to run on the date that the injured party discovers, or with reasonable diligence should have discovered, the tortious injury, whichever occurs first. Hansen v. A.H. Robins, Inc., 113 Wis.2d 550, 560, 335 N.W.2d 578 (1983); see also Borello v. U.S. Oil Co., 130 Wis.2d 397, 411, 388 N.W.2d 140 (1986); Spitler v. Dean, 148 Wis.2d 630, 636, 436 N.W.2d 308 (1989); H.A. Freitag & Son, Inc. v. [174 Wis.2d 610] Bush, 152 Wis.2d 33, 38, 447 N.W.2d 71 (Ct.App.1989).

Tort law has generally been viewed as serving three broad social purposes: (1) as a matter of justice, tort law shifts the losses caused by a personal injury to the one at fault; (2) by placing this cost with the one in the position to prevent the injury, tort law seeks to deter unsafe behavior; and (3) to compensate the victim, tort law creates a mechanism to distribute losses widely. See John G. Flemming, The Law of Torts 7-10 (7th ed. 1987). The distribution is effected through liability insurance premiums, consumer prices, etc. Id. at 8-10.

The modern trend has been to relax tort law. Statutes of limitation have been relaxed so that victims of latent torts may receive compensation. Consequently, much significant new case law has developed: for example, lawsuits brought for damages due to asbestos exposure, Dalkon Shield use, prescription use of diethylstilbestrol (DES) and workplace exposure to styrene, acrylonitrile, benzene, and other chemicals.

The discovery rule was adopted in Hansen, 113 Wis.2d at 560, 335 N.W.2d 578. In that case, this court reasoned that statutes of limitation raise two conflicting public policy concerns: (1) protecting potential defendants from stale and fraudulent claims and (2) protecting meritorious claimants by allowing them an opportunity to seek legal redress for their injuries. Id. at 558, 335 N.W.2d 578. We examined each of these policy concerns in the tort context and concluded that "the injustice of barring meritorious claims before the claimant knows of the injury outweighs the threat of stale or fraudulent actions." Id. at 559, 335 N.W.2d 578. Accordingly, we adopted the discovery rule for tort actions.

[174 Wis.2d 611] CLL asserts that this rationale applies with equal force in the contract context. Consequently, this court should apply the discovery rule to sec. 893.43, Stats. We disagree. In the context of general contract law, public policy favors the current rule that the contract statute of limitations begins to run at the time of breach. Here,

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unlike in tort law, the need to protect defendants from stale or fraudulent claims outweighs any injustice caused by barring rights of action prior to discovery. This is so because of two critical differences between tort claims and contract claims.

The first difference stems from the availability of liability insurance. In tort law, there is a trend toward "loss distribution": the spreading of tortious losses caused by a certain activity among all those who benefit from that activity, regardless of fault. Flemming, supra, at 7-10. Liability insurance is a mechanism for achieving loss distribution. An insured defendant is shielded from damages because the defendant's insurer is primarily liable. The loss is effectively spread to the pool of all insureds via liability insurance premiums. Id. at 10.

In contrast, contract law, which deals primarily with the enforcement of private promises, has nothing comparable to liability insurance. See generally 9 John A. Appleman & Jean Appleman, Insurance Law and Practice, sec. 5201-5256 (1981) (describes the types of commercial insurance). Although bonds and guaranties provide a form of contract performance insurance, the principal generally remains primarily liable. See 11A id. at sec. 6601, 6608. In other words, contract defendants bear their losses alone. See id.

The absence of liability insurance for contract defendants increases the need to protect them from stale or fraudulent claims. An adverse judgment is generally a much more serious matter to a contract defendant, who [174 Wis.2d 612] is primarily liable on the judgment, than it is to an insured tort defendant, who is not primarily liable on the judgment.

The second critical difference between tort and contract law centers around control. Potential tort claimants generally have minimal control over their risk of loss due to tortious injury: for example, a motorist cannot exercise control over other drivers on the road; a consumer is typically unable to judge or investigate the design and manufacture quality of most products offered for purchase; and a patient can make very few informed judgments about the reasonableness of his or her medical care.

In contrast, a contract claimant often...