The idea of limiting the reporting period for claims is old and relatively self-explanatory. You, as insured have a limited period in which to report a claim potentially covered under your liability policy. Any claim reported after a certain period of time may not be covered. The amount of time a claim may be reported differs between policies and carriers. The operative language is typically attached to a policy as an endorsement.
However, a new “statutes of repose” related to residential construction defects was announced recently. These relatively new statutes, that took effect Jan. 1, 2003, provide the time in which general contractor or subcontractor may be held liable for certain construction defect claims. Construction defects are often hidden, and claims are likely to be brought some time after completion of the project. Therefore, they are affected by limited reporting periods or “sunset clauses.”
The statutes of repose are essentially based on the type of defect. The following is a summary of such statutes found in California Civil Code section 896:
Plumbing and sewer issues 4 years
Electrical system issues 4 years
Driveways, sidewalks, pathways, etc., cracks 4 years
Irrigation and drainage issues 1 year
Untreated wood post deterioration 2 years
Untreated steel fence deterioration 4 years
Paint and stain deterioration 5 years
Landscaping systems 2 years
Dryer ducts 2 years
Depending on the type of work performed by you, a policy with a shortened reporting period may cover the time in which you may be held liable for certain construction defects claims. For example, a contractor may not be liable for a landscaping system claim beyond two years from the close of escrow. Therefore, a policy with a three-year “sunset clause” would potentially cover landscaping system claims.