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Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

Issue-spotting construction defect litigation: Basic and frequently litigated CD concepts

Construction defect claims generate substantial civil litigation, and no wonder. A single project often requires the coordination of dozens of parties of varying skills, expertise, and sophistication—owners, contractors, subcontractors, design professionals, suppliers, insurers, and lenders—pursuant to multiple, often technical and lengthy contracts and subcontracts, each subject to changes during performance over a protracted time period, to create a product that is exposed to the whims of Mother Nature.1

Despite the frequency of construction defect cases and the likelihood that each may involve several to a dozen or more participants in need of representation, most attorneys do not receive any training specific to construction law prior to entering the field. In 2017, Minnesota’s three ABA-accredited law schools, the University of Minnesota, Mitchell | Hamline, and St. Thomas, awarded a total of 547 JD degrees.2 Of those schools, only one offered a construction law course in the 2016–17 school year. And only 13 students enrolled in it.3

Many of Minnesota’s newest associates will cut their teeth as civil litigators by responding to the challenges associated with construction defect cases, such as management of voluminous document production, extensive motion practice, numerous parties, deponents, and other fact witnesses, as well as consultation with multiple experts. But these challenges can become opportunities for new civil litigators armed with a basic understanding of the frequently litigated concepts outlined below.

Statute of limitation and repose for an improvement to real property

In general, the time limits for bringing an action for damages arising out of the defective construction of an improvement to real property are governed by Minn. Stat. §541.051. This section establishes both a period of limitation and a period of repose. A cause of action under this section must be brought within two years of its accrual. Accrual occurs upon discovery of the injury, except that no cause of action may accrue more than 10 years after substantial completion of the construction.4 This section thus creates a discovery-plus-two-years statute of limitation within which a claim must be brought and a 10-years-after-substantial-completion statute of repose within which a claim may accrue.5

Notwithstanding these limitations, Minn. Stat. §541.051 also identifies a separate set of time limits applicable to an action based on contribution or indemnity arising out of the defective construction of an improvement to real property. These claims are common in construction defect cases because of the numerous parties and contracts often associated with a project. A homeowner suffering damage, for example, may know the identity of the general contractor and assert a claim against that contractor, after which the contractor will assert a contribution claim against one or more subcontractors. In this example, the homeowner’s claims are subject to the aforementioned two-year limitation and 10-year repose, but different limits are set on the general contractor’s contribution claims.

Contribution or indemnity actions under Minn. Stat. §541.051 may be brought no later than two years after their accrual and no more than 14 years after substantial completion of the project.6 For the purposes of contribution or indemnity, accrual occurs upon the earlier of: (a) commencement of the underlying action against the party seeking contribution or indemnity (in our example, commencement of the homeowner’s suit against the general contractor); or (b) payment by the party seeking contribution or indemnity of a judgment, award, or settlement arising out of the defective construction (in our example, the general contractor’s payment of judgment, award, or settlement to the homeowner).7 Unlike the homeowner’s original claims, the general contractor’s contribution or indemnity action may be asserted more than 10 years, but not more than 14 years, after substantial completion of the project.8

The parties to a construction defect lawsuit often dispute whether Minn. Stat. §541.051 applies to the action. The section only applies where damages arise out of an “an improvement to real property,” which is defined by abundant case law.9 Minn. Stat. §541.051 also explicitly excludes from its application any claims for damages arising out of the negligent maintenance, operation, or inspection of the property by its owner or other possessor10 and any claims against a manufacturer or supplier of equipment or machinery installed on the property.11

The “owner liability hole” in a standard design-bid-build project

Design-bid-build is the most common method of construction project delivery. In this framework, an owner hires a designer (such as an architect) to draw up the project plans and specifications. The project is then let for bidding; contractors submit bids of how much they would charge to complete all or part of the project. The contract is then awarded to one or more contractors, who must complete the project according to the design plans and specifications. Each contractor may also hire one or more subcontractors (who each may have their own subcontractors) to complete all or part of the project.

Typically, the contract requires a contractor to build according to the project plans and specifications as well as any applicable codes. In such case, the project owner
(or other entity hiring the contractor) has impliedly warranted that, if the contractor builds according to the plans and specifications, the project can and will be built to the owner’s satisfaction.12 Accordingly, in a construction defect action, a contractor’s counsel almost always asserts as an affirmative defense that his or her client performed according to the plans and specifications.

While the liability of a contractor in a construction defect case often depends on the contractor’s deviation from specifications, the liability of a design professional, such as an architect, is determined by a professional standard. The professional architect does not warrant the finished project; rather, the architect’s duty is to “exercise such care, skill, and diligence as [persons] in that profession ordinarily exercise under like circumstances.”13 Thus, in the absence of an express warranty, a party asserting a claim against a professional for defective design must establish professional negligence, and doing so almost necessarily requires the testimony of an expert in the same field.14

The “owner liability hole” describes the circumstance in which damage occurs even though the plans and specifications were designed in accordance with applicable professional standards and all contractors performed according to these specifications. The owner bears the risk of this unfortunate type of loss.

Although construction defect cases are often complex, the handful of concepts previewed above lie at the core of many typical construction cases. For an associate starting out in the field of construction defect litigation, a solid understanding of these issues serves as a favorable starting point and can help new attorneys view CD litigation as an opportunity to develop practical litigation skills rather than as a challenge they may not have anticipated during law school.


ALEX HERMAN earned his JD in 2016 from the University of Minnesota Law School, where he was an editor of the Minnesota Law Review. He is an associate at Stich, Angell, Kreidler, Unke & Scattergood, P.A. in Minneapolis and an active member of the Minnesota Subcontractors Association.


Notes

1 See Leslie King O’Neal, “Contemplating Litigation & Its Alternatives,” in Construction Disputes: Representing the Contractor 17, 21–23 (Robert F. Cushman et al. eds., 3d ed. 2001).

2 See email from Beth Soberg, Assistant Registrar, Univ. Minn. Law Sch., to author (10/17/2017, 10:27 CDT) (on file with author) (206 JDs awarded); Class of 2017 Honored for Achievements & Service, Mitchell | Hamline Sch. L. (5/18/2017), https://mitchellhamline.edu/news/2017/05/18/class-of-2017-honored-for-achievements-and-service/ (217 JDs awarded); Helen Clarke Ebert, St. Thomas Law School Class of 2017 Recognized at May 13 Commencement,
U. Saint Thomas (5/18/2017), https://news.stthomas.edu/st-thomas-law-class-2017-recognized-may-12-commencement/ (124 JDs awarded).

3 See email from Michael Gallagher, Registrar, Univ. Minn. Law Sch., to author (10/20/2017, 14:18 CDT) (on file with author) (stating 13 students enrolled in Construction Law); Complete Course Catalog, U. Saint Thomas Sch. L., http://www.stthomas.edu/law/students/registrar/completecoursecatalog/ (last visited 10/12/2017) (no course); Course Information Page, Mitchell | Hamline Sch. L., https://agresso.mitchellhamline.edu/information/inquiries/courselist.aspx (last visited 10/12/2017) (no course).

4 Compare Minn. Stat. §541.051, subd. 1(a), with id. at subd. 1(c) (equating accrual with discovery, provided the discovery occurs within 10 years).

5 “Substantial completion” is defined as “the date when construction is sufficiently completed so that the owner or the owner’s representative can occupy or use the improvement for the intended purpose.” Id. at subd. 1(a). Suffice it to say that litigating the date of substantial completion may be both critical and onerous. It is a material fact with respect to application of the statute of repose, often resulting in the parties disputing the status of construction 10 or more years earlier.

6 Id. at subd. 1(b).

7 Id. at subd. 1(c).

8 Id. at subd. 1(b).

9 See, e.g., Siewert v. N. States Power Co., 793 N.W.2d 272 (Minn. 2011); Lietz v. N. States Power Co., 718 N.W.2d 865 (Minn. 2006); State Farm Fire & Cas. v. Aquila, Inc., 718 N.W.2d 879 (Minn. 2006); Sartori v. Harnischfeger Corp., 432 N.W.2d 448 (Minn. 1988).

10 Supra note 6 at subd. 1(d).

11 Id. at subd. 1(e).

12 See United States v. Spearin, 248 U.S. 132, 135–36 (1918) (citations omitted) (“[I]f the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications.”), adopted in McCree & Co. v. State, 91 N.W.2d 713, 722–25 (Minn. 1958).

13 City of Mounds View v. Walijarvi, 263 N.W.2d 420, 424 (Minn. 1978) (citation omitted).

14 See also Minn. Stat. §544.42 (establishing threshold procedures to assert and maintain an action against an architect or engineer, including service with the original pleading of an affidavit of expert review).

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