Construction Claims

Limitations & Repose Periods

Statutes of Limitations

Limitations periods in Montana vary widely compared to other states. Construction claims based in tort must be commenced within three years of accrual. Mont. Code Ann. § 27-2-204. Actions based upon a contract or other written instrument must be commenced within eight years. Mont. Code Ann. § 27-2-202. An action upon a contract, account or promise not founded on a written instrument must be commenced within five years. Mont. Code Ann. § 27-2-202. Claims under Montana’s Unfair Trade Practices Act, Mont. Code Ann. §30-14-101, et seq., must be commenced within two years. Osterman v. Sears, Roebuck & Co., et al., 80 P.3d 435 (Mont. 2003).

Under Montana’s “discovery rule,” the limitation period for a cause of action for injury to person or property does not begin to run until facts constituting the claim have been discovered or, in the exercise of due diligence, should have been discovered. Mont. Code. Ann. § 27-2-102. The limitation period for a claim arising from a construction defect may be tolled where the defect is concealed, self-concealing, or where a defendant acted to prevent discovery. Id; Vipperman v. Walsh, 2010 Mont. Dis. LEXIS 15 at 11-12.

Statute of Repose:

No claims, other than an action upon a contract, obligation or liability founded upon an instrument in writing, against any person performing the construction of an improvement to real property may be brought more than ten years after the substantial completion of the improvement. Mont. Code. Ann. § 27-2-208.

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

Mont. Code. Ann. § 70-19-427 provides specific pre-suit procedures before an action may be filed against a construction professional for a construction defect in residential construction. The claimant must serve written notice of claim upon the construction professional describing the claim in reasonable detail to give notice of the general nature of the defect. Mont. Code. Ann. § 70-19-427(1). Serving notice under this section tolls the statute of limitations. Id. Upon receipt of notice, the recipient has 21 days to respond in writing with either a proposal to inspect within a certain timeframe, a monetary offer to settle the claim, or a statement that the claim will be disputed. Mont. Code. Ann. § 70-19-427(2)(a)-(c). The claimant must allow reasonable access to the residence to inspect the defect. Mont. Code. Ann. § 70-19-427(4)(a). The provisions of the right to repair statute are not enforceable unless the residential home owner previously received written notice of its provisions. Mont. Code. Ann. § 70-19-427(8). These pre-suit requirements do not apply to claims for indemnity and contribution among construction professionals. Milligan v. Howard Constr. Co., 2004 Mont. Dist. LEXIS 1776 at 9-10.

Indemnity and Contribution

Indemnity

1. A joint tortfeasor’s settlement with the Plaintiffs ends its exposure to claims for contribution or indemnity by the remaining tortfeasors. Back v. Belt Sch. Dist. 29, 2017 Mont. Dist. LEXIS 5, *4-5, citing, State ex re. Deere & Co. v. District Court, 730 P.2d 396, 397 (Mont. 1986).
2. A provision in a construction contract requiring one party to indemnify, hold harmless, insure or defend another party against its own negligence is contrary to public policy and void. Mont. Code. Ann. § 28-2-2111(1); see also, Mont. Code. Ann. § 28-2-702 (voiding certain contracts which directly or indirectly exempt persons from responsibility for, among other things, negligent violation of the law). A construction contract may provide for project-specific insurance or indemnification against liability caused by the indemnitor or a third party. Mont. Code. Ann. § 28-2-2111(2)(a)-(b). A “construction contract” is defined as “an agreement for architectural services, alterations, construction, demolition, design services, development, engineering services, excavation, maintenance, repair, or other improvement to real property, including any agreement to supply labor, materials, or equipment for an improvement to real property.” Mont. Code. Ann. § 28-2-2111(b)(4).
3. Courts interpreting contractual indemnification provisions give effect to the clear and explicit language of the contract. A.M. Welles, Inc. v. Mont. Materials, Inc., 342 P. 987, 989 (Mont. 2015). Ambiguous indemnity provision are enforceable and are liberally construed in favor of the indemnitee. Id, citing Lesofski v. Ravalli County Elec. Coop., 439 P.2d 370, 371-72 (Mont. 1968).
4. “On account of any act or omission” does not impliedly require negligent conduct or foreseeable harm to trigger indemnification. A.M. Welles, Inc. v. Mont. Materials, Inc., 342 P. 987, 990 (Mont. 2015).
5. “To the fullest extent permitted by law” is not sufficiently “clear and unequivocal” contract language to obtain indemnification for a party’s own negligence (in circumstances not governed by Montana’s anti-indemnity statute, Mont. Code. Ann. § 28-2-2111). United Nat’l Ins. Co. v. St. Paul Fire & Marine Ins. Co., 214 P.3d 1260, 1268 (Mont. 2009).
6. Absent an express term of contract, an indemnitee may not recover attorney’s fees attributable to establishing its entitlement to indemnity. Amazi v. Atlantic Richfield Co., 816 P.2d 431, 435 (Mont. 1991).
7. Montana does not recognize a common law right to indemnity by a party whose negligence was “remote, passive, or secondary, compared to that of the party from whom indemnity is sought.” Metro Aviation, Inc. v. United States, 305 P.3d 832, 837-38 (Mont. 2013).

Contribution

The right of contribution is strictly statutory right under Montana law. Metro Aviation, Inc. v. United States, 305 P.3d 832, 836 (Mont. 2013). A party who settles a claim prior to the filing of any court action cannot thereafter seek contribution from a joint tortfeasor. Id, at 836. A defendant who settles with the plaintiff in advance of trial may not thereafter bring a subsequent lawsuit for contribution against a joint tortfeasor who was not joined in the initial action. Id, at 837.

Certificate of Merit – Experts

Montana does not have a certificate of merit requirement.

Economic Loss Doctrine

Montana has not adopted the economic loss doctrine. St. Goddard v. Helena Motors, 2017 Mont. Dist. LEXIS 21. Economic losses may be recovered in a negligence action irrespective of privity between the parties. Jim’s Excavating Serv. V. HKM Assocs., 878 P.2d 248, 253-55 (Mont. 1994).

Contractor Licensing Requirement.

State level licenses are required for electrical contractors (Mont. Code. Ann. § 37-68-301); engineers and land surveyors (Mont. Code. Ann. § 37-67-301); and architects (Mont. Code. Ann. § 37-65-301).

Common Law & Statutory Claims

Claims against construction and design professionals are derived from traditional tort and negligence principles.

Montana’s Supreme Court has followed the Restatement 2d of Torts, § 552, in determining the scope of third parties owed a duty by a project engineer or architect supplying information relied upon for construction purposes. Jim’s Excavating Serv. V. HKM Assocs., 878 P.2d 248, 255 (Mont. 1994).

Generally, an employer is immune from liability for personal injury or death of an employee, or from claims for contribution or indemnity by a third party on the basis of such liability, where an election is made for benefits under the Montana’s workers’ compensation law. Mont. Code. Ann. § 39-71-411. This immunity does not extend to a contractor required to pay benefits on behalf of a subcontractor who fails to independently maintain workers’ compensation coverage. Webb v. Montana Masonry Constr. Co., 761 P.2d 343, 350-51 (Mont. 1988).

Construction Damages

Cost of Repair

The purpose of awarding damages for damage to property is to return the injured party to the same condition as before the injury. Chandler v. Madsen, 642 P.2d 1028, 1033 (1982). Whether damages for repair/replacement costs or diminution in value are appropriate does not depend upon a hard and fast rule, but rather upon the application of “good sense” to the circumstances of the case. Id.

Under Montana’s right to repair statute, residential home owners may recover the reasonable cost of repairs necessary to cure a construction defect, including engineering and consulting fees incurred to evaluate or cure the defect, as well as the reasonably necessary expenses of temporary housing during the repair period. Mont. Code. Ann. § 70-19-428(1)(a)-(b).

Diminution in Value

The purpose of awarding damages for damage to property is to return the injured party to the same condition as before the injury. Chandler v. Madsen, 642 P.2d 1028, 1033 (1982). Whether damages for repair/replacement costs or diminution in value are appropriate does not depend upon a hard and fast rule, but rather upon the application of “good sense” to the circumstances of the case. Id.

Damages for diminution in value are recoverable by residential homeowners pursuant to Mont. Code. Ann. § 70-19-428(1)(c).

Punitive Damages

Generally, punitive damages may be awarded where it is found, by clear and convincing evidence, that the defendant acted with actual fraud or actual malice. Mont. Code. Ann. § 27-1-221(1), (5). Actual fraud arises where a defendant knowingly makes a false statement, or, while intending to harm or impair the rights of the plaintiff, intentionally conceals a material fact. Mont. Code. Ann. § 27-1-221(3)(a)-(b). Actual malice exists where a defendant knows of or intentionally disregards facts creating a high probability of injury, and deliberately acts with indifference or conscious disregard of the probability of harm. Mont. Code. Ann. § 27-1-221(2).

Punitive damages are not recoverable for defects in residential construction. Mont. Code. Ann. § 70-19-428(1).

Punitive damages are not available for causes of action rising from contract or a breach of contract. Mont. Code. Ann. § 27-1-220(2)(a)(ii).

Attorney’s Fees

Mont. Code. Ann. § 70-19-427, expressly allows residential home owners to recover reasonable costs and attorney’s fees.

Mont. Code. Ann. § 71-3-124 allows recovery of attorney’s fees in actions upon a mechanic’s lien. Frank L. Pirtz Constr. V. Hardin Town Pump, 692 P.2d 460, 464 (Mont. 1984).

Joint and Several Liability (specific to construction)

Joint and several liability is generally governed by Mont. Code. Ann. § 27-1-703. A defendant found to be more than 50% liable is jointly and severally liable to the claimant, and has a right of contribution against any other party whose negligence proximately caused the injury. A defendant who is less than 50% liable is severally liable only unless the defendant acted in concert with or as the agent of another tortfeasor.

Cost Incurred to Access Repair Areas

Not specifically addressed in the case law or by statute, but are likely allowed if they constitute a reasonable measure of compensatory damages. See Chandler v. Madsen, 642 P.2d 1028, 1033 (Mont. 1982).

Consequential Damages

Consequential damages are generally recoverable for breach of contract if they were “within the contemplation of the parties when they entered into the contract” and “might naturally be expected to result from its violation.” Mont. Petroleum Tank Release Comp. Bd. V. Crumleys, Inc., 174 P.3d 948 (Mont. 2008). A contractual waiver of consequential damages has been found to be enforceable where the contract was freely entered into by parties with equal bargaining power. Zirkelbach Constr., Inc. v. DOWL, LLC, 402 P.3d 1244, 1248 (Mont. 2017).

Coverage Trigger of Coverage

Definition of an Occurrence

Montana law defines an “occurrence” as “an unexpected happening that occurs without intention or design on the part of the insured.” Safeco Ins. Co. of Am. v. Liss, 16 P.3d 399, 405 (Mont. 2000). Federal courts following Montana law have concluded an “occurrence” does not include defective workmanship. Phoenix Ins. Co. v. Ed. Boland Constr., Inc., 2016 U.S. Dist. LEXIS 182162 *10-11.        

Duty to Defend

An insurer’s duty to defend its insured arises when a complaint alleges “facts which represent a risk covered by the terms of an insurance policy.” Farmers Union Mut. Ins. Co. v. Staples, 90 P.3d 381, 385 (Mont. 2004).

Contractual Indemnity

The duty to indemnify is narrower than the duty to defend. Farmers Union Mut. Ins. Co. v. Staples, 90 P.3d 381, 385 (Mont. 2004). Where the insurer has wrongly refused coverage to an insured, the insurer is liable to the insured for consequential damages and attorney’s fees. Westchester Surplus Lines Ins. Co. v. Keller Transp., Inc., 365 P.3d 465, 472 (Mont. 2016).

Anti-Indemnity Statutes

A provision in a construction contract requiring one party to indemnify, hold harmless, insure or defend another party against its own negligence is contrary to public policy and void. Mont. Code. Ann. § 28-2-2111(1). See “Indemnity” section, above.

Additional Insureds

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

The Supreme Court of Montana has enforced language in a commercial general liability policy restricting coverage to loss for which the named insured is held liable. Plum Creek Mktg. v. Am. Econ. Ins. Co., 214 P.3d 1238, 1248-49 (Mont. 2009).

Determining Primary and Non-Contributory vs. Excess Position

In determining the priority of coverage, Montana courts adopt a reasonable construction of the plain language of the insurance contract given the object of the contract and intent of the parties. United Nat’l Ins. Co. v. St. Paul Fire & Marine Ins. Co., 214 P.3d 1260, 1269 (Mont. 2009).

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

Montana courts have not directly addressed this question, but commentary by the Supreme Court of Montana suggests a contribution claim against a co-primary carrier for defense expenses would be well-received. See Tidyman’s Mgmt. Servs. V. Davis, 330 P.3d 1139, (Mont. 2014) (J. McKinnon, in dissent) citing, State Farm Fire & Cas. Co. v. Schwan, 308 P.3d 48 (Mont. 2013).

Insureds Right to Independent Counsel and Consequences of Rejecting a Defense

No reported cases available.

Coverage Defenses

Willful wrongdoing and criminal acts. Safeco Ins. Co. of Am. v. Liss, 16 P.3d 399, 404 (Mont. 2000).

Choice of Law (Forum Selection Clauses)

In the absence of a valid choice of law provision, Montana courts follow Section 187-188 of the Restatement (Second) of Conflict of Laws and apply the law of the state having the most significant relationship to the transaction and the parties. Tidyman’s Mgmt. Servs. v. Davis, 330 P.3d 1139, 1147- 48 (Mont. 2014). If there is no valid choice of law provision and the place of performance is to be Montana, courts will apply Montana law pursuant to Mont. Code. Ann. § 28-3-102. Id.

Where a contract contains a choice of law provision selecting a state whose contract interpretation principles do not conflict with Montana law, courts will apply Montana law to the construe the contract. Modroo v. Nationwide Mut. Fire Ins. Co., 191 P.3d 389, 395 (Mont. 2008).

Following Section 187-188 of the Restatement (Second) of Conflict of Laws, Montana courts will apply the state law chosen by the parties in their contract unless it is contrary to a fundamental policy of another state having a materially greater interest than the state chosen by the parties. Tidyman’s Mgmt. Servs. v. Davis, 330 P.3d 1139, 1148 (Mont. 2014), citing, Modroo v. Nationwide Mut. Fire Ins. Co., 191 P.3d 389, 395 (Mont. 2008).

Targeted Tenders

Although Montana has been identified as following the targeted tender or selective tender rule in federal cases, see, e.g., XL Specialty Ins. Co. v. Patrol Helicopters, Inc., 2009 U.S. Dist. LEXIS 118580 *39-40, and Mut. Of Enumclaw Ins. Co., v. USF Ins. Co., 191 P.3d 866, 871 (Wash. 2008), Montana’s state courts have not formally adopted the rule. Moreover, in the oft-cited case, Casualty Indem. Exch. Ins. Co. v. Liberty Nat’l Fire Ins. Co., 902 F. Supp. 1235, 1239 (D. Mont. 1995), the federal district court’s denial of equitable contribution between insurance carriers relied on the fact that the sole carrier to receive the insured’s tender failed in its duty to identify other applicable coverages, and only demanded defense and contribution after settlement of the insured’s claim. Consequently, the law is best viewed as unsettled.

Consent Judgments

Where an insurer wrongly refuses to defend an insured, it becomes liable for defense costs and judgments. Westchester Surplus Lines Ins. Co. v. Keller Transp., Inc., 365 P.3d 465, 472 (Mont. 2016; Farmers Union Mut. Ins. Co. v. Staples, 90 P.3d 381, 385 (Mont. 2004). A consent judgment entered into by the insured must be reasonable, and a hearing may be scheduled to determine reasonableness. Mont. Code. Ann. § 27-1-302; Tidyman’s Mgmt. Servs. v. Davis, 330 P.3d 1139, 1148 (Mont. 2014).