Minnesota Supreme Court Decides That Builders Can Be Sued for Defects That Occur Many Years after Construction Is Complete
In Vlahos v. R&I Construction the Minnesota Supreme Court decided that a “major construction defect” in the home warranty statute includes “actual damage to load-bearing portions of the dwelling occurring after the completion of construction”, and that a breach of the home warranty is discovered “when the homeowner discovers, or should have discovered, the builder’s refusal or inability to ensure the home is free from major construction defects.” The Vlahos case now goes back to the trial court to litigate the only remaining issue in the case–the viability of the major construction defect warranty claim against the general contractor.
Defining the Major Construction Defect Warranty.
The decision on what constitutes a major construction defect was not entirely unexpected: The Court had to decide whether such a defect can arise after completion of construction or whether it must be created during construction and be present upon completion of construction. The record showed the Vlahos home had experienced water intrusion from the outside inwards (rain, snow melt) and moisture intrusion from the inside outwards (condensation from heated interior swimming pool and hot tub) over the course of nearly 10 years since completion of construction in 1991. Based upon the statutory definition of a major construction defect, the Court decided that damage to load bearing portions that occurs after completion of construction qualifies as a major construction defect.
The first homeowners discovered the water intrusion but did not resolve the problems. The problems were discovered in 2000 by the second homeowners (Vlahos) who sued in 2001. Defendant general contractor argued that the only reasonable interpretation of the statutory home warranty scheme is that the 10 year warranty against “major construction defects” does not include damage to a home caused by incremental moisture intrusion over nearly 10 years that is not resolved and eventually causes moisture rot and decay to load bearing portions of the house. The Supreme Court rejected this argument. The basis for the decision is the language in the warranty statute that defines a major construction defect as “damage”. The Court applied what it took to be the plain meaning of the statute to hold that the warranty is not limited to defects that exist upon completion of construction but that it extends to actual damage to load-bearing portions of the home that occurs after completion of construction.
Discovering a Breach of the Major Construction Defect Warranty.
The decision on what “discovery of the breach” of the home warranty statute means for purposes of the two year limitations period was unexpected: The Court decided that the event that triggers the running of the statute is not discovery of the damage or loss (the injury). Instead, the triggering event is discovery of the breach which happens “when the homeowner discovers, or should have discovered, the builder’s refusal or inability to ensure the home is free from major construction defects.”
The Vlahos decision means that the limitations period for home warranty claims does not begin to run until the builder is notified of the problem, given an opportunity to perform repairs, and then either refuses to fix the alleged defects or is unable to fix the alleged defects. This event triggers the statute of limitations regardless of when the homeowner actually discovers the problem. However, discovery of the problem (injury) still triggers the two year limitations period for negligence, breach of contract, and other claims arising out of defective and unsafe improvements to real property (new home and remodeling construction).
To illustrate how the different triggering events will work in practice, take the example of a home built in 1995. Suppose the owner discovers water intrusion in 1997 and commences suit in 2003 asserting negligence, breach of contract, and statutory home warranty claims. On these facts, the homeowner’s negligence and contract claims expire in 1999, two years after the owner discovers the injury, and these claims are time-barred. However, and provided the homeowner gives written notice to the builder within 6 months of discovering the damage or injury in 1997, the owner does not “discover the breach” for purposes of the home warranties until the owner discovers (or should have discovered) that the builder will not or cannot fix the problem. Even if this event does not occur until 2001, the homeowner’s warranty claims are still timely because suit is commenced in 2003 within two years of discovery of the breach.
The Statute of Repose for Home Warranty Actions.
In a related development, the Minnesota legislature closed the open-ended window of opportunity to bring stale warranty claims. As pointed out in Koes v. Advanced Design, Inc., provided that suit is commenced within two years of discovery of the breach, an action for breach of the home warranties can be brought many years after the warranty period has expired. Effective August 1, 2004, there will be a 10 year statute of repose for home warranty claims. An action for breach of the statutory home warranties still must be brought within two years of discovery of breach, but such a claim cannot be brought under any circumstances “more than 12 years after the effective warranty date.” In the example above, assuming the homeowners first occupied or took title to the home in 1995 (the effective warranty date is the earlier of the two), an action for breach of the statutory home warranties cannot be commenced after 2007. So, if the owner discovers the breach in 2001 as described in the example, suit must still be commenced within two years of the discovery (i.e., by 2003). If the owner only discovers the breach in 2005 (in the tenth year) the owner still gets two years to bring an action (i.e., until 2007), but no action can be commenced after 2007 under any circumstances.
This amendment effectively penalizes homeowners who fail to take affirmative steps to engage the builder in addressing construction problems (which homeowners still must bring to the builders attention in writing within 6 months of discovering the problems). Homeowners must press the builder to resolve identified problems and, when they discover that the builder will not or cannot remedy the problems, they must commence suit within the two year limitations period. If the breach is not discovered within 10 years of the effective warranty date, no warranty action can be brought.
The legislature has acted to clarify and close the repose period loop-hole. The legislature may yet be called upon to clarify the definition of a “major construction defect” to exclude claims based upon defects in the home that occur after construction is complete.
About the Author: Anton concentrates his practice primarily in the defense of products liability and construction law claims and lawsuits. He also has experience in intellectual property and appellate practice. Before joining the firm, his practice included national and local defense of manufacturers of various products, including automobiles, injection molding machines, power tools, and gas control devices. Anton is fluent in both English and Afrikaans.