No. 27778 -- Gateway Communications, Inc., a corporation v. John R. Hess, Inc., a
corporation; Insurance Company of North America, a corporation; and
Steiglitz, Steiglitz, Tries, P.C., Architects/Planners, a corporation
Starcher, J., dissenting:
The majority opinion incorrectly holds that the sole issue in this case is
whether appellee Insurance Company of North America could legally insert a 2-year
limitation period into the performance bond purchased for the benefit of appellant Gateway
Communications. There is another, more important question in this case, a question that is
totally avoided by the majority opinion, which is this: when does a cause of action accrue
against a performance bond so as to trigger the limitation period?
W.Va. Code, 33-6-14  prohibits any insurance contract from limiting the time within which an action may be brought to a period of less than two years from the time the cause of action accrues. . . . The purpose of such a limitation period is to discourage fraud by preventing the assertion of claims after such lapse of time that it is difficult if not impossible to ascertain the truth. It is not the purpose of the statute to deprive a party of rights because of fraud. Restatement of the Law of Suretyship and Guaranty, Third (1995) , § 66, comment (a). We have therefore held that a cause of action accrues, and the statute of limitations begins to run when the breach of contract occurs or when the act breaching the contract becomes known. McKenzie v. Cherry River Coal & Coke Co., 195 W.Va. 742, 749, 466 S.E.2d 810, 817 (1995) (per curiam) (emphasis added). In other words, the discovery rule applies to toll the deadline for filing lawsuits until the aggrieved party discovers the existence of a breach of the insurance contract's terms.
The Restatement of the Law of Suretyship and Guaranty, Third (1995) makes clear that the discovery rule should apply to insurance contracts such as the performance bond at issue in this case.See footnote 1 1 The Restatement reasons that if the principal obligor on a contract -- the construction company in this case -- fails to perform and then hides that breach of the contract by making a pretended performance, then the principle obligor continues to be responsible for the completion of the contract. The innocent obligee can continue to demand performance of the contract, and the principal obligor cannot take advantage of his pretended performance to rely upon the statute of limitation. If a secondary obligor -- such as the performance bond company in the instant case -- is guaranteeing the performance of the principal obligor, then the secondary obligor's responsibility persists as well.See footnote 2 2 The cause of action does not accrue, and the statute of limitation does not begin to run, until the innocent obligee discovers or reasonably should discover the facts giving rise to a cause of action against the principal obligor.
In this case, the construction company breached the contract in 1984 by failing to correctly install an underground drainage system for the appellant. In other words, the construction company pretended to perform the contract and concealed the fact that it never performed the contract. The appellant did not discover the facts giving rise to a cause of action for breach of contract until 1989.
Therefore, the instant contract cause of action did not accrue until 1989. W.Va. Code, 33-6-14 requires insurance contracts to cover any claim filed within 2 years of the accrual of the claim. The instant case was filed in April 1990.
I therefore believe that the performance bond at issue in this case -- by requiring that any action against the bond be filed within 2 years of the last payment on the underlying contract -- improperly limited the time for filing a claim to a period less than 2 years from when the cause of action accrued. The appellant's cause of action was timely filed within 2 years of the date the action was discovered and accrued. Consequently, the circuit court erred by enforcing the limitation period against the appellant.
Accordingly, I respectfully dissent. I am authorized to state that Justice McGraw joins in this dissent.