August 2007

Construction Law Bulletin

The Construction Law Bulletin is published by the  Construction Law Practice Group at Arthur, Chapman, Kettering, Smetak & Pikala, P.A. to keep our clients informed of the ever-changing complexities of Minnesota law.  In this issue:

• Legislature Modifies Right of Contractors to Bring Actions for Contribution or Indemnity under Minn. Stat. § 541.051
• Changes to the Minnesota State Building Code
• 2007 Minnesota Construction Defect Seminar

LEGISLATURE MODIFIES RIGHT OF CONTRACTORS TO BRING ACTIONS FOR CONTRIBUTION OR INDEMNITY UNDER Minn. Stat. § 541.051

Introduction

In our August 2006 Construction Law Bulletin, we discussed the Minnesota Supreme Court’s decision in Weston and its practical implications for the construction industry. The basic holding in Weston was that the statute of repose for actions arising out of the defective or unsafe condition of an improvement to real property (Minn. Stat. § 541.051) bars a contribution or indemnity action by a general contractor against a subcontractor or material supplier that did not accrue and was not brought within the ten-year statutory period. The potential adverse impact on general contractors and their liability insurers in construction defect litigation was obvious, given the fact owners routinely sue only their contractors and often more than ten years after the date of substantial completion, thereby completely depriving the contractor of any opportunity to obtain indemnity or contribution from subcontractors or suppliers whose workmanship or materials actually caused or contributed to the alleged damages. The Minnesota legislature promptly responded to those concerns this session by amending Section 541.051 to permit contribution and indemnity actions beyond the 10-year repose period under certain circumstances. In this article we will summarize the Weston decision, highlight the legislature’s response, and briefly discuss the practical ramifications.

Weston Revisited

As noted, we reviewed Weston in our August 2006 Construction Law Bulletin, and thus, will reiterate only the highlights here. In that case, the homeowners sued the general contractor two months before expiration of the 10-year statutory repose period expired. The contractor did not commence a third-party action against the subcontractors for contribution or indemnity until after the repose period expired. The Supreme Court, in a decision filed June 29, 2006, reinstated the trial court’s order granting summary judgment, in favor of the subcontractors, who argued third-party claims were untimely pursuant to Section 541.051. The court concluded the statute was unambiguous and, when read together with the statement in the statute that a cause of action for contribution or indemnity accrues "upon payment of a final judgment, arbitration award, or settlement."

The court acknowledged that the different definitions of accrual in the statute (discovery for the underlying injury claim and payment for the contribution and indemnity claim) left open the possibility that the injury claim could accrue within the repose period, while the contribution and indemnity claim would not accrue until after, but concluded such an outcome accomplished rather than confounded the clear legislative purpose of preventing accrual after a specified period of time.

The court further dismissed the contractor’s argument that it had no control over when it could assert contribution and indemnity claims because they derive from the underlying action and it had no control over when that action was commenced. The court simply noted the legislature could have declared different repose periods for contribution and indemnity claims, but did not.

Finally, the court held that the statute’s elimination of contribution or indemnity actions even before they accrue in certain circumstances did not violate constitutional due process rights, because such elimination is a rational means to achieve a legitimate legislative purpose.

The Legislature Responds

The legislature responded to Weston during the 2007 session by amending Section 541.051 to permit actions for contribution or indemnity beyond the 10-year period in certain circumstances. In so doing, the legislature accepted the Supreme Court’s invitation to change the definition of "accrual" with respect to contribution or indemnity actions from payment to the commencement of the action against the contractor or payment. This change eliminated the possibility recognized by the Weston court of situations where the underlying cause of action accrues within 10 years of substantial completion, but the contractor’s claims for indemnity or contribution do not accrue, and therefore, are eliminated because there is no final payment within the specified time period.  The new pertinent language reads as follows:

Notwithstanding paragraph (a), an action for contribution or indemnity . . . may be brought no later than two years after the cause of action for contribution or indemnity has accrued, regardless of whether it accrued before or after the 10-year period referenced in paragraph (a).

The amendment also leveled the playing field with plaintiffs in construction defect cases by permitting contractors to commence contribution and indemnity actions up to two years after being sued, even in cases involving discovery of the injury during the ninth or tenth year after substantial completion.  The new pertinent language is as follows:

Nothing in this subdivision shall limit the time for bringing an action for contribution or indemnity.

Finally, the amendment provides that actions for contribution or indemnity arising out of actions based on breach of the statutory home warranties in Section 327A.02 or on breach of an express written warranty may be brought up to two years after the earlier of commencement of the underlying action or payment.

Practical Implications

As noted, the amendment to Section 541.051 serves to undo the effect of Weston perceived as unfair by contractors and their insurers by giving contractors the two years after they are sued to commence contribution and indemnity actions against subcontractors and suppliers that owners are given to bring their actions from the date of discovery, assuming the underlying action accrued within ten years of the date of substantial completion. We consequently anticipate a return to the status quo pre-Weston, whereby owners will generally sue only their contractors and contractors will bring third-party claims against their subcontractors and suppliers whose workmanship or materials are implicated in the owners’ claim, and motions to dismiss contribution and indemnity claims such as lead to Weston will by and large become things of the past.

There is one final issue bearing mention. The amendment provides "this section is effective retroactively from June 30, 2006." Usually such amendments expressly apply "to all actions pending on or commenced on or after" the effective date. June 30, 2006, is significant because it is the date following issuance of Weston. However, the language does not expressly apply to all actions pending on or commenced after June 30, 2006. Thus, an argument could be made that the amendment does not apply to actions commenced before June 30, 2006, but may still be pending. The only reasonable construction of that language, however, is that it applies to actions pending on or commenced after June 30, 2006.

It remains to be seen whether subcontractors will move to dismiss contribution or indemnity claims commenced more than ten years after substantial completion in cases brought prior to the Weston decision.  But if they do, we expect the trial courts will apply the amended statute.

Lastly, questions might arise whether the amendment can be applied to vacate judgments in cases settled or tried where contribution or indemnity claims commenced by the contractors more than ten years after substantial completion were dismissed, or where the contractor did not assert those claims at all in light of Weston. We believe no such relief is available in those cases for a variety of reasons both practical and legal. However, such relief might be available in pending cases where such claims were dismissed by summary judgment.

Please contact us if you have any questions concerning cases involving the amendments to the statute of repose or any other construction related questions.

 CHANGES TO THE MINNESOTA STATE BUILDING CODE

On July 10, 2007, the 2007 Minnesota State Building Code will go into effect. All construction conducted pursuant to permits issued on or after July 10, 2007 must comply with the 2007 Minnesota State Building Code. As you will see, numerous additions were made to the code which are aimed at remedying the various factors which engineering experts contend cause or contribute to water intrusion.

The 2007 Minnesota State Building Code:

The 2007 Minnesota State Building Code incorporates by reference the 2006 edition of the International Residential Code (IRC), which was promulgated by the International Code Council, in Falls Church, Virginia. Chapters 2 through 10 and 43 of the 2006 IRC were adopted and must be enforced by municipalities that have adopted the code. The following are highlights that you will likely find most relevant.

A.     Amended Definitions

Several definitions contained in the 2006 IRC Section R202 are amended and included in the 2007 Minnesota State Building Code, including inter alia the following definitions:

B.     Other Significant Amendments Incorporated into the 2007
         Minnesota State Building Code

(See R703.8)

(See R703.8.1)

In addition, the following 2006 IRC chapters were deleted and replaced as follows:

C.     Conclusion

The foregoing amendments incorporated into the 2007 Minnesota State Building Code have been the topic of a great deal of discussion amongst engineers, attorneys, and construction industry organizations. The state-specific amendments are intended to address the host of factors or deficiencies that many believe have caused or contributed to the "wet house" phenomenon. Although establishing more specific and strict building code requirements is an excellent step in the right direction, education and enforcement will be key to ensuring the reduction of moisture intrusion claims. Industry organizations, such as the Builders Association of Minnesota, offer courses to persons within the construction industry to teach proper techniques. General contractors are required to complete continuing education courses to maintain their licenses. An the training requirements for building inspectors are becoming more stringent. All of these changes combined create a promising strategy aimed at effectively reducing the moisture intrusion problems that have plagued Minnesota home owners, contractors, and insurers for the past decade.

Save the Date for our

2007 Minnesota Construction Defect Seminar

October 18, 2007
The Depot | Minneapolis, MN
9:00 a.m. – 12:15 p.m.

Seminar topics will include:
• Case law and legislative update
• Insurance coverage for contractual indemnity obligations
• Case handling techniques for residential and commercial claims handling
• Panel of special guest speakers evaluating damages from the forensic engineering and contractor/estimator perspective

To guarantee a hotel room at the special Arthur Chapman group rate, reservations must be made at least one month in advance.

The Depot - Arthur Chapman Rate: $199
www.TheDepotMinneapolis.com
Reservations: 1-866-211-4611

Questions about this seminar?  Contact our Marketing Department or call  612-339-3500.