#40: Contractual “Notice of Claim” Requirements
In construction settings, claims for adjustments in the contract price are endemic. Most such claims are resolved short of arbitration or litigation. But for that to happen, they obviously have to be raised by the claimant before the filing of a complaint or a demand for arbitration. And if they are to have the best chance of being settled, claims need to be raised before the evidence on both sides goes stale (or gets covered up!) and before budget decisions on other changes are made.
It is thus common for construction contracts to include provisions for giving notice of claims promptly after the grounds for a claim is discovered. Typical is the AIA A201 (2007) General Conditions §15.1.2: “Claims by either party must be made within twenty-one (21) days after occurrence of the event giving rise to such Claim or within twenty-one (21) days after the claimant first recognizes the condition giving rise to the Claim, whichever is later.”
Courts are sensitive to the rationale for such notice provisions. Mountain Environmental, Inc. v. Abatement International/Advatex Associates, Inc., 149 N.H. 671, 674 (2003) (“the main purpose of a notice requirement is to provide parties with an opportunity to settle the claim without resorting to litigation”); Opinion of the Justices, 126 N.H. 554, 566-67 (1985) (“The notice of claim provision has two purposes: to allow the State to investigate claims promptly after an injury, and to permit the State to pursue settlement negotiations prior to the institution of suit”). But courts also recognize that barring a claim completely due to late notice can be a harsh penalty. Opinion of the Justices, 126 N.H. at 567 (“Although these are permissible objectives, the loss of rights of action for failure to satisfy the notice requirement is a penalty grossly disproportionate to these intended benefits”).
Two related questions need to be separated: (1) Does the failure to give timely notice of a claim result in forfeiting the claim? (2) Does the failure to give timely notice in the form required by the contract result in forfeiting the claim? The answer to both questions is: maybe.
Some courts find that the failure to give contractually-required notice results in a waiver of the claim, based on the paramount principle of freedom of contract. If the parties have bargained for notice as a precondition to maintaining a claim, courts are reluctant to rewrite the bargain. See RCR Building Corporation v. Pinnacle Hospitality Partners, 2012 WL 5830587 (Tenn. Ct. App. Nov. 15, 2012) (“the parties agreed to initiate Claims by utilizing this procedure, and it is not our role to judge the wisdom or folly of the agreement.”). Other courts, however, focus on whether a party was aware of the facts giving rise to the claim despite not receiving notice from the other party. Brinderson Corp. v. Hampton Roads Sanitation Dist., 825 F.2d 41, 44 (4th Cir. 1987) (“Generally, when the owner has actual or constructive notice of the conditions underlying the claim and an opportunity to investigate, that is sufficient."). New Hampshire’s Supreme Court has yet to indicate which approach it favors, but its recognition of the beneficial purposes of notice suggests to me that the strict approach will be favored. Notice of a claim is different from notice of the conditions or facts giving rise to that claim. If it is to reap the benefits of its bargain for timely notice, a party is entitled to know that a claim is being made, not simply that grounds for such a claim exist.
Expect more leniency when the contract specifies written notice which hasn’t been given, but the party to be notified received oral notice of the claim. In that situation, the absence of written notice will most likely be excused. Couture v. Hebert, 93 N.H. 378, 380 (1945) (“The oral notice in the instant case gave the plaintiff all the information he would have received had a written notice been given”); In re Redondo Const. Corp., 678 F.3d 115, 123 (1st Cir. 2012) (“strict conformity with a contract’s written notice provision is not required as long as the counterparty receives substantially the same information through timely actual notice and suffers no prejudice from the non-conformity").
But why risk it?