WE’RE ALL IN THIS TOGETHER

By Roger C. Justin

Recent decisions out of the Minnesota courts have had the effect of greatly extending a builder’s time limit on exposure to claims by homeowners. In Koes v. Advanced Design, decided in 2001, the Minnesota Court of Appeals held that the Statute of Repose contained in Minn. Stat. §541.051, stating that actions must be commenced within ten years of substantial completion, did not apply to the home warranties under section 327A.02. It found that there was essentially no Statute of Repose under home warranty claims, just that an action must be brought within two years of discovery of the problem. In Vlahos v. R & I Construction of Bloomington, Inc. decided in April of this year, took that analysis one step further. In that case, the Minnesota Supreme Court decided that the beginning of that two year period was the date the homeowner discovered that the builder would not remedy the defect, not when they discovered the defect. Again, this had the potential of pushing the date which claims could be brought by a homeowner even further into the future.

            The warranties under Minn. Stat. §327A run from the person or entity which contracts to the homeowner. Subcontractors who do not directly contract with the homeowner, may believe that because they are warranting their work to the general contractor, for either a one year or a two year period, they will therefore escape these potentially lengthy claim periods under section 327A. Not so. As Red Green would say, ‘We’re all in this together’.

            Most every claim in Minnesota is subject to some type of statute of limitations. A statute of limitations is a period of time which you have to bring a claim after an event happens. If you do not bring the claim within that time, no matter how valid it is, you cannot recover on it. For instance, assume a general contractor hires a subcontractor to do plumbing, and the plumbing subcontractor performs poorly. The general contractor then has to hire someone to come in and replace or repair portions of the project, at a significant cost to the general contractor. The contractor would have six years to bring a claim against the plumbing contractor for the additional costs it incurred in repairing the situation. If they did not bring it within that time period, they never could. Many contractors and subcontractors shorten that time frame voluntarily by contract. They could agree that the statute of limitations could be four years, two years, or even shorter. Subcontractors on residential homes may think when that period is over, their liability is gone. That is not entirely correct.

            The law in Minnesota, and throughout the nation, allows claims for contribution and indemnity. Indemnity is generally looked at as a contract where one person agrees to compensate the other for losses sustained by the first party, or from claims against the first party by a third person. For instance, the plumbing subcontractor agrees to indemnify the general contractor for losses sustained by the homeowner as a result of bad plumbing. Contribution is similar, except that both parties may have some liability, or did something to cause the damage to the third party. For instance, the contractor and subcontractor both did something wrong in the construction of a home, and the homeowner sustained damages.

            Typically, a homeowner will only sue the contractor for breaches of the warranty under section 327A. That is the person they had the contract with. If the general contractor defends against those claims, and eventually either makes some sort of settlement, or a payment after an arbitration decision, or judgment in district court, they very well may have a claim of contribution or indemnity against the subcontractor, whose work caused the problem. Minn. Stat. §541.051 specifically states that the cause of action for contribution or indemnity against those other responsible parties, does not spring to life, or come into being, until that settlement payment, or payment of the judgment or arbitration award is made. The general contractor therefore has two years after that payment to seek contribution or indemnity from the subcontractor. Depending on the nature of the defect the homeowner claimed, the payment may be made solely as a result of the subcontractor’s action (indemnity), or may be a combination of fault between the contractor and one or more subcontractors (contribution). The upshot of either of these causes of action is that as long as the contractor has potential liability hanging out there from the homeowner, the subcontractor’s liabilities continue as well.

            What does this all mean? One thing, certainly, is that a homeowner complaint can very possibly be a concern for more than just a general contractor. It may be important to involve your subcontractors in potential claims as soon as you can. It is important that the subcontractors do not ignore those complaints, or assume that nothing bad can happen to them as a result of the “old” claims. Because these claims can impact both the contractors and subcontractors, coordinated efforts in responding to and dealing with any claim may often times be more beneficial than a ‘wait and see’ attitude. It also points out the importance to general contractors of dealing with reputable subcontractors who you believe will be around in the future should any problems arise. Of course, we all hope that we do not have claims about faulty construction with any of the homes which we build. However, if there are problems, and problems which crop up years and years after construction, its always nice to have someone share your pain if you can.

©2004 Roger C. Justin, Rinke-Noonan Law Firm, St. Cloud, Minnesota.

Roger Justin is a litigation partner in Rinke-Noonan’s Construction Law Practice Group. He is licensed to practice in Minnesota, Wisconsin and North Dakota.