The Decision
On April 1, 2004, the Minnesota Supreme Court decided the case of Vlahos v. R&I Construction. The court addresses two issues related to Minnesota’s new home warranty statute (Minn. Stat. §327A), reversing a decision of the Minnesota Court of Appeals that was favorable to defendant general contractors. Specifically, the Supreme Court held:
1.) The statute of limitations applicable to claims brought under Minnesota’s new home warranty statute (Minn. Stat. §327A) is found in Minn. Stat. 541.051, subd. 4, which provides that homeowners have two years from the time the breach of the warranty is discovered or should have been discovered.1 Making new law in Minnesota, the court further concluded that the 10 year statutory home warranty for major construction defects is a warranty of "future performance", in other words, a guarantee that the product will perform in the future as promised. Consequently, according to Vlahos, a breach of the warranty is discovered "when the homeowner discovers, or should have discovered, the builder’s refusal or inability to ensure the home is free from major construction defects."2
2.) The definition of "major construction defect," as used in the new home warranty statute, includes "actual damage to load-bearing portions of the dwelling occurring after the completion of construction." In so holding, the court rejected the argument that a major construction defect is a defect that must be created during construction and be present upon completion of construction.
What it Means
The portion of the decision dealing with the question of what triggers the two-year statute of limitations in new home warranty claims significantly changes when the two-year window begins. Under Vlahos, the beginning of the two-year window can now be moved much further forward in time, when compared to a limitations period triggered by discovery of the injury to the property.
An example should help. Suppose a home is built in 1995 and its owners discover water problems in 1997. Suppose further that they do not bring it to the attention of their builder until 2000, then commence suit in 2001. Under this scenario, if the two-year statute is triggered by discovery of the injury, the homeowners’ ability to sue would have expired in 1999, two years after they discovered the injury. However, under the Vlahos decision, they would not discover the breach until sometime after 2000, when their builder tells them he will not or cannot fix the problem (or when they should have discovered that he would not or could not fix the problem), and their suit would be timely.
The practical effect of the Vlahos decision is that the two-year statute does not begin to run until the builder has been notified of the problem, given an opportunity to perform repairs, and then the builder either refuses to fix the alleged defects or he tries but fails to fix the alleged defects. This trigger for the running of the statute of limitations is premised upon the homeowner taking some affirmative action to engage the builder in dealing with the problem. Presumably then, this trigger is the operative event regardless of when the homeowner actually discovers the problem. Note that discovery of the problem or injury is still the trigger for the six month notice provision in the statute and also for claims other than the statutory home warranty claims, such as negligence or contract claims.
The other holding of the court deals with the question of what constitutes a major construction defect as defined in the statute and when does such a defect arise. The Minnesota Supreme Court reversed the decision of the Court of Appeals that a major construction defect cannot be created by water intrusion damage occurring over time after the original construction was completed. In rejecting the argument that a major construction defect is a defect that must be created during construction and be present upon completion of construction, the court held instead that the major construction defect warranty extends to actual damage to load-bearing portions of the dwelling occurring after the completion of construction.
Finally, the court reaffirmed that discovery of a breach of the new home warranty statute can be made by a previous owner. "Because the definition of "vendee" contained in Minn. Stat. § 327A.01, subd. 6, includes both the initial homeowner and subsequent purchasers, any discovery of the breach or defect by any vendee triggers the 2-year statute of limitation contained in Minn. Stat. § 541.051, subd. 4." The court also noted the sixteen exclusions under § 327A.03 to "vendor liability" (i.e., the builder’s liability), any one of which may operate to exclude the liability of a vendor to a warranty claim under the statute.
What it Means for the Vlahos plaintiffs
The Minnesota Supreme Court remanded the Vlahos case back to the trial court for further proceedings. Bearing in mind that the negligence claims and false and deceptive trade practices claims against the general contractor were previously dismissed as time-barred, the only issue before the court will be the viability of a major construction defect warranty claim against the general contractor under the facts of the case.
Please contact any of the members of Arthur, Chapman’s Construction Group with any additional questions you may have.
1 The statute applicable to other claims arising out of improvements to real property is Minn. Stat. 541.051, subd. 1, which provides that the two-year limitations period begins to run when the "injury" to the property is discovered or should have been discovered. The Minnesota Court of Appeals applied this portion of 541.051 in reaching its decision that the Vlahos’ claims were time barred, an error according to the Minnesota Supreme Court.
2 It is not clear what the phrase "ensure the home is free from major construction defects" means, but for present purposes we will assume it means "fix the problem".
To see a copy of the entire decision click here.