Article - Content Copyright Rinke Noonan

THE TIMES, THEY ARE A CHANGING

There was a flurry of activity this spring in the Courts and in the Legislature regarding application of the Statute of Limitations for claims under the Home Warranty Laws. In Vlahos v. R&I Construction, the Minnesota Supreme Court weighed in on two very significant warranty issues. In Vlahos, the Court of Appeals had decided that a claim, under the major construction defect portion of the law, meant the major construction defect had to exist at the time construction was completed. In that case, the Court of Appeals found that damage to the load-bearing structure, as a result of water infiltration after the house was completed, did not constitute a construction defect because the defect did not exist at the time of completion. As some of us expected, the Supreme Court reversed that holding. The Minnesota Supreme Court stated that the plain meaning of the statute indicated that any major construction defect, whether it occurs at the time of completion or during the period of the warranty, constitutes a claim which can be made against the builder.

A second, equally important holding in Vlahos, dealt with when the Statute of Limitations for the homeowner begins to run. Generally, the Statute of Limitations on a damage claim begins to run after the person knows or should have known that they have suffered an injury. Under the Home Warranty Laws, it was generally assumed that the statute, therefore, began running at the time the homeowner understood that there was something wrong with the house. It was not necessary that they knew the cause of the problem, only that they knew that there was a problem. Vlahos altered this understanding. The Supreme Court said that because these are warranty claims, the real injury does not occur at the point the homeowner discovered there is a problem, the injury occurs when the builder fails to or refuses to remedy that problem. That is where the warranty is breached so that is where the injury occurs. Faced with this new trigger point, builders should be ever more vigilant about handling warranty claims, documentation of what warranty work is performed, and what the homeowner is told about those efforts.

In contrast to the Court’s “builder unfriendly” ruling in Vlahos, the Legislature passed a law this spring which is helpful. In Koes v. Advance Design, Inc., the Court of Appeals had held there was no Statute of Repose for home warranty claims under Chapter 327A. Essentially that case held that as long as a claim was brought within two years of when the cause of action started, a homeowner could bring a claim at any time in the future. The Legislature eliminated that loop hole and under the new law a claim must be brought within two years of discovery of the breach, but no later than 12 years after the warranty date. This law will go into effect on August 1, 2004, and will apply to homes completed and transferred on that date or later. This law is significant in that it changes Koes so that a builder’s liability will not extend forever in time. On the downside, this law was not made to be retroactive so that it would apply to all construction, both before and after August 1, 2004. Therefore, for any dwellings built prior to August 1st, the Koes decision remains the law regarding the length of the time available for a homeowner to bring warranty claims. For any construction occurring before that date, essentially, there is no Statute of Repose and the potential for claims under these theoretically never expires.

It does not appear that there are any “easy” ways around warranty claims under Chapter 327A. Your practices should continue to include frequent and effective communication with the homeowner, quality construction of the homes which meets all code provisions, and detailed record keeping and retention of those records indefinitely. These steps will help you deal with warranty claims or litigation if it arises, but more importantly, will avoid or minimize the claims in the first instance.

Roger Justin is licensed to practice law in Minnesota State and Federal Courts, as well as North Dakota and Wisconsin, and deals extensively representing builders in regard to construction defect litigation.