Construction Claims

Limitations & Repose Periods

Statutes of Limitations

1. Except where fraud is involved, Minnesota has a two (2) year statute of limitations for claims involving improvement to real property. Minn. Stat. § 541.051. An “improvement to real property” is defensed as “a permanent addition or betterment of real property that enhances the capital value and that involves an expenditure of labor or money as is designed to make the property more useful or valuable as distinguished from ordinary repairs.” Williams v. Tweed, 520 N.W.2d 515, 518 (Minn. Ct. App. 1994). The time under this statute accrues upon discovery of the injury to real or personal property.
2. Property Damage. Claims for other damages to property not arising out of an improvement to real property is six (6) years. Minn. Stat. § 541.05(1)(4).
3. Contract Damages. Claims based on a contract are separated based on the nature of the contract. For oral contracts, the statute of limitations is four (4) years. Minn. Stat. § 336.2-725. For written contracts, claims must be commenced within six (6) years. Minn. Stat. § 541.05.

Statute of Repose

Minnesota has adopted a statute of repose, barring any action against any person performing or furnishing the design, planning, supervision, materials, or observation of construction or construction of the improvement to real property beyond that time beyond ten (10) years from date of substantial completion. Minn. Stat. § 541.051(1).

If a cause of action accrues during the ninth or tenth year after substantial completion, an action may be brought within two (2) years of after the date on which the cause of action accrued, but in no event may such an action be brought more than 12 years after substantial completion. Minn. Stat. § 541.051(2).

Right to Repair Laws and/or Pre-Suit Statutory Procedures

In order to bring a statutory warranty claim, homeowners are required to notify the vendor in writing within six (6) months of when they discovered or should have discovered the injury or loss. Minn. Stat. § 327A.03(a).

Indemnity and Contribution

Indemnity

1. Minnesota law also supports the validity of indemnity provisions in contracts. Lake Cable Partners v. Interstate Power Co., 563 N.W.2d 81, 85-86 (Minn. Ct. App. 1997). A party to a contract may “‘properly bargain for indemnity against his own negligence where the latter is only an undesired possibility in the performance of the bargain, and the bargain does not intend to induce the act.’” St. Paul Fire & Marine Ins. Co. v. Perl, 415 N.W.2d 663, 666 (Minn. 1987) (quoting Northern Pacific Ry. Co. v. Thornton Bros. Co., 206 Minn. 193, 197, 288 N.W. 226, 227-28 (1939).
2. Ambiguity in an indemnity contract is resolved against the drafter. Katzner v. Kelleher Constr., 545 N.W.2d 378, 382 (Minn. 1996). As a result, indemnity agreements are to be strictly construed when the indemnitee seeks to be indemnified for its own negligence. Farmington Plumbing & Heating Co. v. Fischer Sand & Aggregate, Inc., 281 N.W.2d 838, 842 (Minn. 1979).
3. Minnesota law precludes the enforceability of indemnification agreements related to “a building or construction contract”, unless the underlying injury is attributable to the negligence or otherwise wrongful act or omission of the promisor or the promisor’s independent contractors, agents, employees, or delegates. Minn. Stat. § 337.02. However, § 337.02 “does not affect the validity of agreements whereby a promisor agrees to provide specific insurance coverage for the benefit of others.” Katzner, 545 N.W.2d at 381 (quoting Minn. Stat. § 337.05(1).

Contribution

1. “One who has paid more than his share is entitled to contribution from the other to reimburse him for the excess so paid, thus equalizing their common burden.” Emp’rs Mut. Cas. Co. v. Chi., S. P., M. & O. R. Co., 235 Minn. 304, 310, 50 N.W.2d 689, 693 (1951).
2. Each party’s degree of fault is allocated by the jury in an action to which all tortfeasors need not be a party. Spitzack v. Schumacher, 308 Minn. 143, 148, 241 N.W.2d 641, 644-645 (1976). Actions to which a tortfeasor is not a party still obligate that party for the awarded portion of its liability. Id.
3. An action for contribution or indemnity arising out of the defective and unsafe condition of an improvement to real property may be brought no later than two (2) years after the cause of action for contribution or indemnity has accrued, regardless of whether it accrued before or after the ten-year period referenced in paragraph (a), provided that in no event may an action for contribution or indemnity be brought more than 14 years after substantial completion of the construction. Minn. Stat. § 541.051(1)(b)

Certificate of Merit – Experts

In a malpractice action against an architect, engineer, land surveyor, or landscape architect, the plaintiff must serve an affidavit of expert review and serve and affidavit identifying experts to be called within 180 days of commencing discovery. Minn. Stat. § 544.42.

Economic Loss Doctrine

In Minnesota, claimants may use tort theories to recover for personal injuries, and in some instances property damages, in a defective construction case. Brasch v. Wesolowsky, 138 N.W.2d 619 (Minn. 1965).

Three contexts exist in which economic losses are recoverable in tort claims for property damage.

1. First, if the property is negligently damaged in the performance of a service contract, as opposed to one for the sale of goods. Construction contracts are typically construed as being as one for the sale of goods. Valley Farmers’ Elevator v. Lindsay Bros. Co., 398 N.W.2d 553, 556 (Minn. 1987).
2. Second, where economic losses are sustained in performance of a contract for a sale of goods, they are recoverable if the contract is deemed to constitute a “consumer transaction”. Hapka v. Paquin Farms, 458 N.W.2d 683 (Minn. 1990).
3. Third, economic losses due to the damage to tangible property other than the goods sole may be recoverable in tort. Minn. Stat. § 604.10.

Contractor Licensing Requirement.

All residential building contractors and residential remodelers who contract with an owner to construct or improve dwellings for habitation by 1 to 4 families (including detached garages), and perform two or more special skills, must be licensed. Minn. Stat. § 326.805

Common Law & Statutory Claims

Negligence. A contractor has a duty to use due care in the performance of a contract in order to avoid injuring the other party or his property. Pac. Fire Ins. Co. v. Kenny Boiler & Mfg. Co., 277 N.W. 226, 228 (Minn. 1937). This is a non-delegable duty and event where a contractor delegates aspects of performance of a contract to a subcontractor, the contractor may still be liable for damages caused by the negligence of the subcontractor. Id.

Recovery of damages on a breach of contract claim does not preclude recovery of additional damages for negligent constructions. Rediske v. Minn. Valley Breeker’s Ass’n, 374 N.W.2d 745, 749 (Minn. Ct. App. 1985).

A violation of an OSHA regulation can constitute negligence per se, and such a violation results in liability on the part of a contractor if a person harmed by the violation was a member of the class of persons intended to be protected by the statute. Alderman’s Inc. v. Shanks, 536 N.W.2d 4, 8 (Minn. 1995).

Construction Damages

Cost of Repair

Under Minnesota law, the measure of damages to real property is either of (1) the reasonable cost to repair, or (2) the difference in value of the property before and after the harm. Rinkel v. Lee’s Plumbing & Hearing Co., 99 N.W.2d 779, 783 (Minn. 1959). Reasonable cost of repair is the amount necessary to restore the property to the condition in which it was before the harm. Hart v. N. Side Firestone Dealer, Inc., 235 Minn. 96, 99, 49 N.W.2d 587, 588 (1951).

Diminution in Value

If repairs are made and the repairs do not restore the property to substantially the same condition as before the damage, then the claimant may recover the cost of the repairs in addition to the change in value. Id. However, the total damages may not exceed the difference in the value before and after the damage. Id.

Punitive Damages

In order to plead punitive damages in a court in Minnesota, a party must move the court to amend its pleadings and receive court approval. Minn. Stat. § 549.191.

To recover punitive damages, a plaintiff must demonstrate with “clear and convincing evidence” that the defendant acted with “deliberate disregard for the rights or safety of others”. Minn. Stat. § 549.20(1).

Given the standard for punitive damages, they are rare in the construction setting. However, in determining the amount of any aware, a jury must consider (1) the seriousness, duration, profitability, awareness, and concealment of the hazard, (2) the conduct upon discovery of the hazard, (4) the number of people involved in concealment of the hazard, (4) the financial status of defendant, (5) the financial effect a punitive damages award will have on the defendant when added to compensatory damages. Minn. Stat. § 549.20(3)

Attorney’s Fees.

Attorney’s fees are only recoverable in Minnesota when authorized by contract or statute. Kvidera v. Rotation Eng’g & Mfg. Co., 705 N.W.2d 416, 424 (Minn. Ct. App. 2005). However, where an insurer refuses to defend and a duty is subsequently determined, the insured can recover its attorney’s fees. Westfield Ins. Co. v. Kroiss, 694 N.W.2d 102, 108 (Minn. Ct. App. 2005).

Joint and Several Liability

Minnesota has a modified form of joint and several liability. Minn. Stat. § 604.02. Defendants are jointly and severally liable for an entire aware where (1) the tortfeasor’s fault is greater than 50%, (2) two or more tortfeasors act with a common scheme or plan that results in injury, or (3) a tortfeasor commits an intentional tort.

Cost Incurred to Access Repair Areas

Costs for the repair of damage to property resulting from repairs to other property is not an “occurrence” and therefore not covered under a CGL policy. accident” Bright Wood Corp. v. Bankers Standard Ins. Co., 665 N.W.2d 544, 549 (Minn. Ct. App. 2003)

Consequential Damages

Under Minnesota law, a party is only liable for consequential damages that were reasonably foreseeable to the parties at the time the agreement was reached. Imdieke v. Blenda-Life, Inc., 363 N.W.2d 121, 125 (Minn. App. 1985), review denied (Minn. Apr. 26, 1985).

Trigger of Coverage

Definition of an Occurrence

Occurrence means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Am. Family Ins. Co. v. Walser, 628 N.W.2d 605, 609 (Minn. 2001). The word “accident” encompasses both the acts of the insured and the consequences of the insured’s acts. Id. In essence, where there is no intent to injury, the incident is an accident, even if the conduct itself was intentional. Id. at 612.

Minnesota case law clearly establishes an “occurrence” can occur in a breach of contract context. See, e.g., Ohio Cas. Ins. Co. v. Terrace Enters., Inc., 260 N.W.2d 450, 453 (Minn. 1977) (en banc) (determining the settling of an apartment building from faulty construction was an occurrence when the action by the insured might have been negligent, but was “not reckless or intentional”).

Duty to Defend

Additional Insureds

1. Coverage for AI’s own negligence vs. vicarious liability for Named Insured

   Minnesota courts have interpreted additional insured endorsements broadly. Andrew L. Youngquist, Inc. v. Cincinnati Ins. Co., 625 N.W.2d 178 (Minn. Ct. App. 2001). Specifically, where A.I. coverage is required for work “arising out of” a subcontractor’s work, has been interpreted to mean that such coverage should be enforced whenever there is a causal link between the plaintiff’s injury and the subcontractor’s ongoing operations. Id. at 185.

2. Determining Primary and Non-Contributory vs. Excess Position

   In determining the duty to defend at the suit’s commencement, Minnesota law looks to the actual policy language, which generally does not activate the true excess carrier’s defense obligation until the primary coverage is exhausted. SCSC Corp. v. Allied Mut. Ins. Co., 536 N.W.2d 305 (Minn. 1995). However, an excess policy’s duty to defend can be triggered by the primary insured having entered into a Drake-Ryan Agreement with the plaintiff, where the insured pays the gap between the primary insured’s payment and the primary insured’s policy limit. Cincinnati Ins. Co. v. Franck, 644 N.W.2d 471 (Minn. App. 2002).

3. AI carrier’s rights to reimbursement for defense expenses from other, co-primary carriers

   Where more than one primary insurer covers the same risk, and an insurer discharges a common obligation also bellowing to another insurer, a right to equitable contribution exists. Cargill, Inc. v. Ace Am. Ins. Co., 784 N.W.2d 341, 354 (Minn. 2010). This applies to defense costs. Id.

Insureds Right to Independent Counsel and Consequences of Rejecting a Defense

1. “[B]efore an insured will be entitled to counsel of its own choice, an actual conflict of interest, rather than an appearance of a conflict of interest, must be established.” Mut. Serv. Cas. Ins. Co. v. Luetmer, 474 N.W.2d 365, 368 (Minn. Ct. App. 1991).
2. An insurer has a contractual duty to defend an insured. An insurer has a duty to defend the insured as long as “any part of a cause of action is arguably within the scope of coverage.” Prahm v. Rupp Constr. Co., 277 N.W.2d 389, 390 (Minn. 1979).
3. An insurer seeking to avoid its duty to defend as the burden of establishing the claim clearly falls outside the scope of the policy’s coverage, with any ambiguities resolved in the insured’s failure. Id.

Reservation of Rights

1. If an insurer defends with knowledge of facts which constitute a defense to coverage, it can be estopped from later asserting that the policy does not cover the claim. See Peterson v. Maloney, 181 Minn. 437, 442-43, 232 N.W. 790, 792 (1930).
2. An insurer who undertakes an insured’s defense under a reservation of rights can withdraw its defense once all arguably covered claims have been dismissed with finality. Meadowbrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411, 416 (Minn. 1997). However, “with finality” means when no further rights to appeal those arguably covered claims exist. Id. at 417.

Coverage Defenses

Late Notice

Failure to provide notice does not render coverage void unless the insurer can establish actual prejudice. Reliance Ins. Co. v. St. Paul Ins. Cos., 307 Minn. 338, 343, 239 N.W.2d 922, 925 (1976). Whether the insured’s notice of suit has prejudiced the insurer is a question of fact. Hopkins v. Empire Fire & Marine Ins. Co., 474 N.W.2d 209, 213 (Minn. App. 1991).

Lack of an Occurrence

An insured contractor’s willful and intentional violations of contract specifications and expected standards of workmanship do not establish an “occurrence”. Johnson v. AID Ins. Co., 287 N.W.2d 663, 665 (Minn. 1980)

Choice of Law (Forum Selection Clauses)

Minnesota courts generally enforce contractual choice-of-law provisions. See Milliken & Co. v. Eagle Packaging Co., 295 N.W.2d 377, 380 n.1 (Minn. 1980).

Targeted Tenders

None

Consent Judgments

Consent judgment settlements are known as Miller-Shugart agreements based upon the 1982 Minnesota Supreme Court case of Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982). In a Miller-Shugart agreement, the defendant company agrees to allow the plaintiff to enter a consent judgment against it in exchange for an agreement that the plaintiff won’t seek to satisfy the judgment from the defendant. Instead, the plaintiff pursues payment from the defendant-company’s insurance carrier in a separate garnishment action. A recent Minnesota Court of Appeals case confirmed a policyholder’s right to enter into this type of agreement. See State Farm Mut. Auto. Ins. Co. v. Beauchane, 2015 Minn. App. Unpub. LEXIS 322 (Minn. Ct. App. Apr. 6, 2015)