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The High Cost of Failing to Comply With a Contractual Notice of Claim Provision

A decision earlier this year from Justice Elizabeth H. Emerson of the New York State Supreme Court, Suffolk County Commercial Division, illustrates the harsh consequences that can result from failing to comply with a contractual notice of claim provision, even when the alleged breaching party has actual notice of the apparent claim.

In Village of Greenport v Manning Plumbing and Heating Corp. (click here for a copy of the decision), the court dismissed the Village of Greenport’s complaint against a plumbing contractor for alleged negligent design and construction work at the Mitchell Park Marina in the Village of Greenport. The contractor had entered into a contract with the Village to complete the fire suppression system on the two piers being built at the marina. The Village claimed the system’s piping and connections ruptured during its use and that the system subsequently failed tests administered by the contractor
The court dismissed the Village’s complaint based on the Village’s failure to comply with the contract’s notice of claim provision, which required either party to give written notice of any claim arising out of the contract within 21 days after it recognized conditions giving rise to the claim. The court reached this result even though the contractor was clearly on notice of the potential claim and it had sent the Village a letter informing it of the system failure only two days after it happened. According to the court, this letter “d[id] not constitute a Claim” within the meaning of the contract because it was not a letter from the Village demanding relief against the contractor.
The impact of notice of claim provisions is not limited to construction contracts. Courts routinely enforce contractual time limits for raising disputes, especially where the contract at issue is between two sophisticated parties. For instance, in McFadyen Consulting Group Inc. v. Puritans Pride, Inc. (click here for a copy of the decision), a Suffolk County Commercial Division case that was successfully handled by our firm, the court enforced an invoice dispute time limitation in a software development contract. The court required the defendant to pay our client, a software developer, over $780,000 in outstanding invoices because the defendant had failed to dispute any of the developer’s invoices in writing within 15 business days of their submission, as required by the parties’ contract.
Contractual notice of claim provision can sometimes be as short as weeks or even days. Therefore, at the earliest sign of a contractual dispute, it is critical to carefully review the contract in order to avoid the costly mistake of missing a notice of claim deadline.