Limitation Periods and Third Party Claims in Construction Contracts

Our previous post discussed the general two-year limitation period and how it can impact your ability to sue. This post looks at the common practice of using indemnity clauses to protect parties in construction contracts, and the limitation period for initiating claims for contribution and indemnity.

Indemnity clauses in construction contracts

Construction projects usually involve a series of contractual relationships between an owner and the various parties performing work on their behalf. These contracts and subcontracts frequently include an indemnity clause. An indemnity clause is used to control risk and potential expenses in the event of negligence, breach of contract, or losses to third parties. It allows a contracting party to limit their liability to the things within their control, and to protect against unknown risk.

An owner will usually require their contractor to provide indemnity against liability. Subcontractors are likewise generally required to indemnify the contractor against potential legal claims.

Third party claims for contribution and indemnity

When something goes wrong during a construction project or after construction is substantially completed, it can lead to lawsuits against the various parties involved. In many cases, the first party sued is the general contractor responsible for the project. If the general contractor believes that a subcontractor is at fault, it can commence a third party claim against the subcontractor for contribution and indemnity based on an indemnity clause in their contract.

Not all participants in a construction project will have a contractual relationship, and not all contracts will contain a valid indemnity clause. Absent a contract between parties with an indemnity clause, Ontario’s Negligence Act allows a defendant to make a third party claim against any other party that may be wholly or partly responsible for the damages claimed against the defendant.

Limitation periods for third party claims

The Limitations Act, 2002 has specific provisions that address the timeframe within which a defendant may begin a third party claim for contribution and indemnity. Beginning on the date that they are served with a claim by the plaintiff , a defendant generally has two years to initiate a claim for contribution and indemnity against a third party.

Advice during construction contract negotiation and drafting

At Duncan, Linton LLP, our Construction Law team can assist clients with all stages of contract negotiation, drafting and review. We can help you understand risk and develop strategies to mitigate and manage that risk while protecting your interests.

If you have questions about an existing or prospective construction project, do not hesitate to reach out to our team for guidance. Contact us online or call 519-886-3340 to make an appointment with one of our construction lawyers.