Tag Archives: construction defect litigation

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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Minnesota Construction Warranty Claims: New Procedures for 2011

18 Jan

You may be familiar with (or at least aware of) the warranties provided to homeowners under Chapter 327A of Minnesota Statues.  These warranties include a one-year warranty on all workmanship and materials, a two-year warranty on plumbing, electrical or other mechanical systems, and a ten-year warranty against major construction defects.  These warranties apply to new or newly remodeled residential property (which can include single-family homes or community associations, such as condominiums or townhouses), and are binding against the builder (of a new home) or contractor (in the case of a remodeling project).  Throughout the rest of this article, I will refer to both as a “contractor”, though homeowners should appreciate there can be a difference.

For years, Chapter 327A has contained certain procedures that owners must follow to preserve a claim for a breach of one or more of these warranties.  Effective January 1, 2011, these procedures now have been revised, and new procedures have been added.  You can read the complete text of the new statute here.  The legislature’s goal in making these changes is to try to reduce the number of lawsuits that are necessary to resolve these warranty disputes, but as with any new process there will always be traps for the unwary and navigating the new procedures is bound to catch more than a few homeowners off guard.

The process still provides that written notice of an alleged defect must be provided to the contractor within six months of the discovery of the defect, with the new exception being where the owner can demonstrate the contractor had actual notice of the claimed defect. Of course, it’s best to provide timely written notice if you wish to rely on this statutory warranty.  Many owners falter by failing to provide this notice within six months of discovering the defect.

After this notice has been provided, the contractor has always been required to inspect the alleged defect within 30 days and propose a repair.  The new amendment now requires the owner to allow the contractor to conduct “invasive” testing to determine the extent of any damage or the proper type of repair, however.  Invasive testing may involve making test cuts in stucco or interior drywall and/or using a probe to test the moisture content of the wood framing members of the home, though the statute does not specify.  It is of course fair to permit the contractor a reasonable opportunity to understand fully the defect (if any) involved, and the contractor is required to place the property back into “pre-inspection condition” following any invasive procedures, but it is unclear how this restoration process will be measured or enforced in practice.

In the event the contractor inspects the property and the owner and contractor cannot agree on the proposed repair (and owners should carefully evaluate proposed repairs, preferably with the assistance of a trusted contractor, engineer or attorney), the homeowner must (yes, must) follow through with the new “home warranty dispute resolution process”.  The new dispute resolution process requires the selection of a “qualified neutral” from a list maintained by the Minnesota Department of Labor and Industry, which will charge aspiring neutrals a $200 fee to be listed.  There are rather short timeframes applicable to the steps for selecting a neutral, so homeowners should consult with an experienced member of the construction industry and/or their own construction attorney before submitting their claim to the commissioner of the Minnesota Department of Labor and Industry.  Otherwise they will find themselves with little time to make a decision about the neutrals from which they must choose to evaluate their case.

After a neutral has been selected, the parties must meet together with the neutral and each will submit its own reasons why its proposed repair is proper.  There is a fee of $25 per party for participation in the process, in addition to the hourly fees of the neutral third-party the parties select.  It also is possible the parties will use attorneys to represent them through this process, and contractors with insurance coverage almost certainly will have attorneys present to represent them, though homeowners presumably will not be required to do so.  According to the amendment, at the end of this process the neutral third party does not issue a binding decision (it simply is an evaluation). Moreover, this evaluation may not be used as evidence in any later litigation if the “unreasonable” party does not care to acknowledge that it is being unreasonable. The process does, however, provide the parties with perhaps some further understanding of the potential damages at stake and chances of a favorable (or unfavorable) result.

Barring certain exceptions, the parties must complete this process before litigation can be commenced.  However, there are four situations which owners may commence litigation earlier if the contractor is not engaging in the process in good faith:

1) The homeowner may sue the contractor immediately if:

a) the contractor fails to conduct an inspection within 30 days after the owner has provided written notice of the defect;

b) the contractor performs the inspection but fails to provide a written proposal to make a repair of the alleged defective condition within 15 days after the inspection is complete;

c) the contractor provides a proposed repair, to which the owner agrees, but the contractor does not perform the repair.

2) The homeowner may also sue the contractor following the expiration of 60 days from the owner’s receipt of the contractor’s repair proposal, whether or not the dispute resolution process is complete.

In the event the evaluation process is not successful in bringing the owner and contractor to a resolution, the new amendment also alters certain timing considerations applicable to a construction defect lawsuit. This is because there are numerous claims (or theories of recovery) applicable to construction defect cases. These can include not just a claim that the contractor breached one or more of the statutory warranties under Chapter 327A, but also that the contractor breached an applicable contract, or that the contractor was negligent. There are also other warranties that may apply, including warranties applicable to common interest communities (condominiums and townhouses) as well as warranties covering the sale of goods (such as windows, doors, shingles, etc.). Each of these claims has not only its own standards, but each also has an applicable limitations period (the period within which you must sue or your claim is barred) which may be different from the next. The amendments to 327A now provide that, for as long as an owner is following this statutory procedure, or for 180 days, whichever is longer, all of those claims will be “tolled” (meaning their expiration will be delayed). This is a useful provision for ensuring a homeowner does not lose the right to commence litigation as a result of participating in this mandatory dispute resolution process.

The new provisions of Chapter 327A certainly have created more opportunities for construction defect cases to reach resolution outside of court, in theory.  However, there is little likelihood that a contractor who was being unreasonable under the prior procedures failed to realize it was being unreasonable, and there is little consequence to a contractor that fails to reach a reasonable resolution even under this new scheme.  Therefore, until we have seen this process utilized a few times, we do not know whether it will provide aggrieved homeowners with a legitimate alternative to litigation, or just another hurdle to clear to obtain a recovery under Chapter 327A.  In the meantime, if you have any questions about whether this process applies to you and how to comply with its provisions, contact Matt Drewes or one of the other construction litigation attorneys at Thomsen Nybeck.

Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s 10-member Community Association Representation Group and co-leads the firm’s construction litigation group.  Matt practices in the areas of business and real estate litigation, construction litigation, community association law, debtor/creditor law, insurance and employment, has been included in Minneapolis/St. Paul Magazine’s list of Rising Stars for several years, and has been quoted on issues involving construction litigation, community associations and real property issues in the Minneapolis Star Tribune, Minnesota Lawyer, Yahoo!finance.com and Bankrate.com, and elsewhere.  He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Matt Drewes Quoted in Articles About Construction Defects Appearing at HOAleader.com

13 Mar

Matt Drewes recently contributed quotes for the following articles published at www.hoaleader.com, a national web-based publication focused on homeowners association and condominium board members and association management professionals: 

 

Matt Drewes is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s 10-member Community Association Representation Group and co-leads the firm’s construction litigation group.  Matt practices in the areas of business and real estate litigation, construction litigation, community association law, debtor/creditor law, insurance and employment, and has been included in Minneapolis/St. Paul Magazine’s list of Rising Stars for several years.  He can be reached at mdrewes@tn-law.com.

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