Construction Defect Law
Legal Matters: Law Clears up Confusion on Defect Claims
Dan Heilman
May 20, 2013
A bill signed into law last month by [Minnesota] Gov. Mark Dayton probably won’t have an earth-shattering effect on the legal exposure risked by contractors and subcontractors in cases of defective construction. But construction lawyers say it does go a long way in tidying up what was previously a confusing statute concerning how long property owners and contractors have to file suit in such cases.
H.F. 450 (and its companion Senate bill, S.F. 392) modifies the limitations of suits over damages based on services or construction to improve real property, which amends the earlier statute 541.051). The bill passed unanimously in both houses of the Legislature.
The new law is designed to address the time within which a builder or someone sued by an owner can bring other parties in as third-party defendants by asserting claims for contribution and indemnity — a way in which a party being sued can sue other parties to help pay for some or all of the damages involved.
The new law is similar to the old one in that it says contractors can’t be sued over construction defects past a point two years after the time the defect was discovered, or 10 years after substantial completion of the construction.
What has changed is that the statute now allows for claims of contribution or indemnity against subcontractors and suppliers — a shift that could act as a shield for general contractors. Those claims can be brought within 14 years after completion, regardless of when they’re discovered.
“There was a problem with the way the law used to read,” said Dave Hammargren, a construction attorney and shareholder with Hammargren & Meyer in Bloomington. “A builder would get sued, but before he had time to bring the subcontractors into the suit and assert a claim for contribution and indemnity, those claims were time-barred.
“The recent amendment makes it clear how much time they’ve got and gives them a little more breathing room.”
The tidied-up law has its roots in a pair of significant pair of recent construction-related legal developments in Minnesota, says Ted Roberts, a shareholder and construction litigator with Fabyanske Westra Hart & Thomson in Minneapolis.
One was the spate of water intrusion suits that hit homebuilders in the late 1990s and early 2000s, many of which were unsuccessful because they were based on damage not discovered until well after the deadline that existed then.
“Many of the players in residential construction were not around anymore once the homeowners discovered their windows hadn’t been installed incorrectly or the weatherproofing was wrong,” said Roberts. “They’d sue the contractor, and the way commercial general liability insurance works, a general contractor’s insurance wouldn’t cover defective workmanship, but would cover the defective workmanship of their subcontractors.”
The other is the litigation that came in the aftermath of the 2007 Interstate 35W bridge collapse over the Mississippi River in Minneapolis. After the state enacted a victim’s compensation fund, subsequent legislation allowed it to recoup the money paid out from parties deemed responsible, according to Roberts, whose firm represented St. Michael-based Progressive Contractors Inc., the contractor working on the bridge at the time of the collapse.
That created a situation where contractors settled with an owner without a lawsuit, thus nullifying the deadline for filing suit.
“We possibly could have sued the designer for indemnity and contribution because this loophole was still open,” Roberts said. “We could have brought such a claim against an entity that had finished its work a long time ago. We could not do that under the new law.”
Scott V. Kelly, a construction litigator with Farrish Johnson in Mankato, said the issue of contribution claims is key in the new statute. Under the new law, Kelly said, if a homeowner brings a claim against a general contractor saying he’s responsible for defects discovered 10 years after the home was finished, the general contractor has some latitude to find out via discovery whether one of his subcontractors has exposure liability.
“There might be a contribution action against the sub,” said Kelly. “The statute was amended to allow some time to get that done.”
Aaron J. Glade, another construction litigator from the Farrish firm, said that despite initial appearances to the contrary, the law also offers protection for subcontractors in that it establishes a firm limit on the time a general contractor has to bring contribution indemnity claims, a point also made by Hammargren.
“The law now makes it clear that under no circumstances can a claim for contribution and indemnity be made more than 14 years after the substantial completion of the project,” said Hammargren. “That will give subs and third-party defendants a sense of security once that 14-year period is up.
“It benefits builders to the extent that it clarifies the amount of time they have to make a claim for contribution and indemnity.”
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SOURCE: finance-commerce.com/2013/05/legal-matters-law-clears-up-confusion-on-defect-claims/