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Minnesota Supreme Court Reviews Minn. Stat. § 541.051 “Substantial Completion” and “Discovery of the Injury” Triggers

January 4, 2016

The Relevant Underlying Facts of 328 Barry

328 Barry Avenue, LLC (328 LLC) retained Nolan Properties Group, LLC (NPG) in 2008 for construction of a building.  Roughly one year later in October 2009, the building experienced water intrusion problems.  328 LLC commenced suit against NPG, alleging the general contractor negligently constructed the building.  The district court (Judge John Q. McShane) granted summary judgment in favor of NPG, finding that the claims were barred by the two year statute of limitations articulated in Minn. Stat. § 541.051, subd. 1(a). The Minnesota Court of Appeals affirmed, and 328 LLC appealed to the Minnesota Supreme Court.  

The Minnesota Supreme Court agreed that the plain language of Minn. Stat. § 541.051, subd. 1, does not require that construction be substantially complete before the statute of limitations begins to run; however, the court thereafter concluded that a genuine issue of material fact existed as to when 328 LLC actually discovered the injury and remanded the case to the district court.

In analyzing the statutory language of Minn. Stat. § 541.051, subd. 1, the Court first examined whether the district court correctly concluded that the two year statute of limitations can begin to run during construction of the building, before substantial completion has occurred.  The Court not only looked to the Legislative intent behind Minn. Stat. § 541.051, but also the plain language of the statute, which predicates the accrual of a cause of action, and the commencement of the statute of limitations, on the “discovery of the injury.” The Court noted that the statute does not mention “substantial completion” in connection with the statute of limitations.  Instead, the term “substantial completion” appears only in the statute of repose, which provides that a cause of action cannot “accrue more than ten years after substantial completion of the construction.” The Court refused to add words to the unambiguous statute under the guise of statutory interpretation.  

The Court then turned to the phrase “discovery of the injury” in Minn. Stat. § 541.051.  The Court observed that “discovery of the injury” may occur during construction or years after the project is completed.  In the instant case, 328 LLC discovered a leak near a window in the fall of 2009. The Court concluded that “discovery of an injury” is a question of fact, not appropriate for resolution on summary judgment, when reasonable minds can differ about the timing of the discovery of the injury.  The Court applied an objective standard to determine when a property owner knew or should have known, through the exercise of due diligence, of the injury.  When 328 LLC discovered the window leak in the fall of 2009, construction was ongoing.  NPG contacted one of its subcontractors, thereafter, who then ultimately repaired the leak by applying sealant to the area.  During discovery, the owner of 328 LLC and NPG testified that “all minor defects had been corrected during” “the punch list” “phase of construction,” before the certificate of occupancy was issued in January 2010.  Moreover, the Court highlighted that the record contained no evidence of additional leaks for a period of approximately 10 months; consequently, one could conclude that the fall 2009 leak had been repaired, so the actionable injury did not occur, and was not discovered, until August 2010.  Accordingly, the district court erred in granting summary judgment in favor of the general contractor.

Potential Impact of 328 Barry for Contractors and Insurance Carriers: 

The biggest take away from the Minnesota Supreme Court’s holding in 328 Barry is that timing of the discovery of an injury will depend on the record evidence and may include consideration of ongoing construction as a factor.  In light of this decision, district courts may be more likely to examine alleged fact issues where an injury may have been "cured" without additional damages being discovered. Consequently, the record evidence, both before and after substantial completion, will, more likely than not, be more closely scrutinized. As such, contractors and their counsel will have to adequately weigh the risks of bringing summary judgment motions under the two year statute of limitations articulated in Minn. Stat. § 541.051.  

Click here to read the text of the Minnesota Supreme Court's decision.

Contact any of the Arthur Chapman Construction Practice Group attorneys to discuss these changes