Repose Revised: A change in the statute establishing limitations and repose periods for construction defect cases

23 May

A significant amendment to Minnesota’s statute establishing time limitations applicable to construction defect lawsuits will take effect on August 1, 2013. The statute, Minn. Stat. § 541.051, governs not only how long a person may have to sue for many claims “arising out of the defective and unsafe condition of an improvement to real property” once an injury is discovered, but also has contained a “repose” provision that provides no such cause of action shall accrue more than 10 years after substantial completion. There have been a couple of exceptions to this repose period, however, one of which was for the benefit of parties who may have been sued already and who want to add new parties to the case.

The bill, which Governor Dayton approved on April 24, 2013, does not change the limitations of time within which a person may bring an action once the injury is discovered (two years) or the original plaintiff’s repose period (10 years). Rather, it clarifies what has been a source of some confusion and concern among the parties who may be sued in such cases.

Frequently, when a person commences a construction defect lawsuit, that person sues the primary contractor or builder with whom the person may have signed a contract and with whom that person may have dealt during the construction process. Even where the current property owner or manager didn’t deal with the prime contractor or builder, that party is usually easier to find than the various subcontractors or materials suppliers who may have contributed to the project. Once the contractor or builder is sued, it may argue that one or more of the parties to whom it delegated a portion of its work (i.e., a subcontractor) is fully or partially responsible for the alleged defect(s). To ensure proper allocation of the plaintiff’s damages to the parties truly responsible for the defect(s), the prime contractor or builder usually will add these subcontractors (and sometimes suppliers) to the case under the theories of contribution and indemnity.

For some additional insight into the current development, it’s useful to mention that this same statute was amended in 2007. Before the 2007 amendment, it used to be that a contractor or builder that was sued had a somewhat indeterminate amount of time within which to add other parties under its claim for contribution or indemnity. Pursuant to the statute a cause of action for contribution or indemnity historically did not arise until the party seeking contribution or indemnification had paid on a final judgment, arbitration award, or settlement. Thus, if the builder was sued in year 10 after substantial completion, and the case for some reason didn’t go to trial or settle until year 15, and payment wasn’t made until year 16 its subcontractors would still be on the hook 18 years after the work was complete. In that time, memories fade, witnesses disappear, and records may be destroyed. The 2007 amendment then provided that the cause of action for contribution or indemnity arises upon the earlier of such a payment on the original settlement or judgment, or when the party seeking contribution or indemnity is sued. This meant a prime contractor or builder that was sued couldn’t delay in adding any other parties it may believe were responsible for the defect(s).

But the 2007 amendment appeared to leave a loophole that there was no end date for claims against subcontractors that may not have been placed into suit against the prime contractor or builder, and instead were settled out of court. This is what happened in connection with the 35W bridge collapse case. The contractor involved in performing the work was threatened with suit, but instead settled out of court; its claim for contribution or indemnity was only triggered by its settlement payment, meaning it then had a legitimate argument that the designer of the bridge that completed its work decades earlier could still be sued for contribution or indemnity, even though none of the people injured by the collapse could have asserted their own claims directly against that same designer.

This new amendment to 541.051  now provides that even claims for contribution or indemnity may be barred from accruing. These claims must now be discovered within 14 years of substantial completion of the improvement or they will be deemed not to have accrued, and will be barred. This now gives certainty to all parties involved in construction projects that may go bad. Subcontractors and contractors alike will benefit from the certainty, and while the 35W bridge collapse was an exception, in most cases this new limitation will not affect the people claiming to be injured by a defective or unsafe condition arising out of an improvement to real property.

Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s eight-member Community Association Representation Group and the firm’s Creditors’ Remedies Group, and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance. He has been included in the annual list of Minnesota’s Rising Stars for several years, and has been quoted in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere on issues involving construction litigation, community associations and real property issues. He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

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