Partner, Gibbs Giden Locher Turner Senet & Wittbrodt LLP, Los Angeles, California

In this report covering the Western Region of the US, I focus on two aspects of risk mitigation in construction contracts, namely limitations on liability for latent defects and arbitration clauses. Both of these contractual issues can arise when parties seek to limit their exposure on foreign and domestic projects. As the recent cases from the state courts of California and the Federal 9th Circuit (discussed below) show, various US jurisdictions are aligning on these issues in favour of freedom of contract; in essence allowing parties to contract out of some of the particularities of California, or more broadly, US law.

In a recent case of first impression, the California Court of Appeal addressed the extent to which contracting parties may limit the liability of the contractor for latent defects found within completed works under what is known as the delayed discovery rule. The delayed discovery rule is commonly understood as the legal doctrine that suspends the running of statutes of limitations during periods of time in which the plaintiff did not discover, or by the exercise of reasonable diligence, could not have discovered, the injuries that would give rise to a cause of action against the defendant*. This definition encapsulates the doctrine as extant in the California Civil Code. The question before the court in this particular case was whether the delayed discovery rule could be limited by contractual agreement1.