How long should a contractor be liable for construction mistakes? A year? Two years? Ten years? Imagine being sued over a job completed 20 years ago. Memories fade. Witnesses die or disappear. Evidence gets lost. The property would have been out of your control for many years. Anything could have happened.
Without a time limit for making claims, construction contracting would be a very hazardous business. Fortunately, every state limits the time allowed to make claims against a contractor. But that’s just the beginning. Your contract can shorten the time to make claims. More about that later.
Consider the Minnesota Statute
In MN, construction claims for obvious defects are barred two years after substantial completion. For hidden defects, the two years starts from discovery of the defect. Of course, that could be many years after completion. So Minnesota, like other states, also provides a “statute of repose”. In MN, all claims are barred 10 years after completion no matter when discovered. Every state has a similar law. If this seems simple, consider a MN case decided last month.
- February 2020: Morningstar Remodeling contracted to improve a MN home. NB Electric Inc. was the electrical sub.
- July 2020: Work stopped when fire damaged the home. When work resumed, NB Electric was no longer involved.
- April 2021: A new general contractor replaced Morningstar.
- July 2021: Work was completed.
- July 2023: The owner’s insurance carrier filed suit against Morningstar and NB Electric alleging defective construction. That was more than two years after both Morningstar and NB Electric had been terminated.
The trial court dismissed the claim. The insurance carrier had waited too long to bring suit – filed more than. two years after Morningstar and NB Electric were terminated. The insurance carrier appealed, claiming the statute didn’t start running until two years after completion of the whole project, not just the work of Morningstar and NB.
How Would You Decide this Case?
Spoiler alert: Insurance companies usually win in appellate court.
Here’s the court’s reasoning. Under the Minnesota statute, defect claims accrue at “substantial completion, termination, or abandonment of construction." The term “construction” refers to the entire project, not just to a particular contractor. Work on the full project was completed in July 2021. The insurance carrier filed suit within the two-year limit. If the legislature wanted the statute to run from completion of each contractor, the statutory term would have been “contractor”, not “construction”. Notice what that means.
- Early contractors (excavators) have a longer risk period than later contractors (roofers).
- A job running several years can extend the claim period well beyond the statutory two years.
- An owner could delay completion for several years, resume work years later and then file suit against every contractor who set foot on the job.
- Courts will have to decide: Was a job delayed, terminated or simply abandoned? It makes a difference. Delay extends the two years. Abandonment doesn’t.
- Even worse, the term "construction" also appears in the MN statute of repose. Has the court's decision also extended the statute of repose beyond 10 years?
I believe the appellate court’s decision defeats the purpose of the statute: To bar forever stale claims. The dissent by judge Cleary makes the point. Defining “construction” as the whole project begs the question. Ask an electrical contractor or a plumbing contractor about the job. His or her work is the “construction project". When that part of the job is done, the two-year statute should start running.
If you draft contracts for your jobs, you write the rules. Minnesota courts allow parties to define their own time limit for claims so long as the period is not unreasonably short. Take the hint. Let Construction Contract Writer draft agreements that protect your pocketbook. The trial version is free.
