Accrual of Statute of Limitations in Actions Against Contractors for Construction Defect: An Ever-Moving Goal Post
Category | Briefing Papers
By Lucas T. Clayton
Luke is a shareholder of the firm’s Construction Law Department. He can be reached at 612.359.7628 or lclayton@fwhtlaw.com.
When any contactor performs its work, it anticipates constructing a successful project, with the prospect of future litigation being nothing more than a distant fear. As we all know, however, every job is not completely successful, and, sometimes, the work is not performed correctly. When that happens, the specter of litigation becomes very real and contractors assess the scope of their potential liability. One of the most important considerations with respect to that liability is the statute of limitations, which prescribes how long a party has to commence a lawsuit. This briefing paper analyzes the typical statute of limitations applicable to construction defect claims in light of a recent case from the Minnesota Court of Appeals which has made potential calculation of the limitations period more complicated.
Minn. Stat. § 541.051
Most construction defect claims in Minnesota are governed by the two-year statute of limitations in Minn. Stat. § 541.051. Section 541.051 describes in detail (a) what kinds of claims are governed by the statute and (b) when a cause of action accrues for purposes of the statute of limitations. Generally, this statute outlines a “discovery rule” regarding when a cause of action accrues for purposes of the statute of limitations. Section 541.051 provides, in pertinent part, as follows:
(a) Except where fraud is involved, no action by any person in contract, tort, or otherwise to recover damages for any injury to property, real or personal, or for bodily injury or wrongful death, arising out of the defective and unsafe condition of an improvement to real property, shall be brought against any person performing or furnishing the design, planning, supervision, materials, or observation of construction or construction of the improvement to real property or against the owner of the real property more than two years after the cause of action accrues, as specified in paragraph (c) . . . . Date of substantial completion shall be determined by the date when construction is sufficiently completed so that the owner or the owner’s representative can occupy or use the improvement for the intended purpose.
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(c) For purposes of determining only when the statute of limitations begins to run pursuant to paragraph (a), a cause of action accrues: (1) for a bodily injury or wrongful death action, upon discovery of the injury; and (2) for an action for injury to real or personal property, upon discovery of the injury, but in no event does a cause of action accrue earlier than substantial completion, termination, or abandonment of the construction or the improvement to real property.
Minn. Stat. § 541.051, subd. 1 (emphasis added). In sum, claims are time-barred unless they are brought within two years after discovery of the injury, or, if later, within two years from substantial completion, termination, or abandonment. In the circumstance where a project is completely constructed and a latent defect isn’t discovered until several years later, the accrual date for the two-year statute of limitations is clear; it begins to accrue on the date of discovery of the injury.
Things become more complicated, however, if the discovery of the injury occurs before the project is substantially complete or before a contractor is terminated or abandons the project. In 2018, the Minnesota Legislature amended Minn. Stat. § 541.051 to specify that a cause of action cannot accrue “earlier than substantial completion, termination, or abandonment.” The impetus for this amendment was the Minnesota Supreme Court’s opinion in 328 Barry Ave., LLC v. Nolan Properties Group, wherein the Supreme Court held that the statute of limitation began to accrue when the property damage or defect was discovered, regardless whether the project was substantially complete. 871 N.W.2d 745, 750 (Minn. 2015). The concern was that this ruling would force property owners to file suit right away in order to preserve their claims, even in situations where the project was not substantially complete. Accordingly, the amendment to Minn. Stat. § 541.051 was meant to deal with the ruling in 328 Barry and ensure that the statute of limitations did not start to run “earlier than substantial completion, termination, or abandonment.”
Until recently, a fair reading of the amended statute would be that in circumstances where a property owner discovers the injury in question during construction, the statute of limitations begins to accrue at the earliest of: (1) substantial completion of the project; (2) termination of the contractor; or (3) abandonment of the project by the contractor. Under this reading, if a contractor were terminated, and the property owner knew of the contractor’s defective work at the time of the termination, the property owner would have two years from the date of termination of the contractor to commence suit. Recently, however, the Minnesota Court of Appeals found this straight-forward understanding of the statute to be incorrect.
American Family Insurance Co. v. NB Electric, Inc.,
16 N.W.3d 837, 839 (Minn. Ct. App. 2025)
In American Family, the issue presented to the court was the accrual date of a cause of action against a general contractor and subcontractor related to a home remodeling project. In February 2020, the homeowners hired the general contractor. In turn, the general contractor subcontracted the electrical work to a subcontractor. Subsequently, in July 2020, a fire occurred, causing damage to the home. The project continued, although the subcontractor was no longer involved in the construction. In April 2021, prior to the project achieving substantial completion, the homeowners terminated the general contractor. The homeowners hired a new general contractor, and the project was substantially complete in July 2021. Ultimately, the homeowner’s insurance company commenced suit against the original general contractor and electrical subcontractor in July 2023, more than two years from termination, but less than two years from substantial completion. The district court dismissed the case, holding that it was barred because it was not commenced within two years from when the homeowners terminated the original general contractor.
On appeal, the contractors continued to argue that because the action against them was not commenced until more than two years after termination, the action was time-barred. The insurance company argued that the terms “substantial completion, termination, or abandonment of the construction” in the statute refer to the entire construction project, as opposed to simply an individual contractor’s work on the project. Based on this argument, the insurer asserted that the limitations period did not accrue until July 2021, when the project was substantially complete, making its action against the contractors timely.
The Court of Appeals performed an analysis of Minn. Stat. § 541.051, and determined that the term “construction” in the statute “plainly links the three events triggering accrual of the statute of limitations . . . to the entire construction project, not an individual contractor.” In so holding, the court found that because at the time the contractors were terminated, there was no substantial completion, termination, or abandonment of the entire project, the statute of limitations did not accrue until the project achieved substantial completion and the insurer’s action against the contractors was timely.
Notably, the decision included a dissenting opinion from a member of the appellate panel. In that dissent, the judge stated that the triggering events of “substantial completion, termination, or abandonment” unambiguously apply to individual contractors, as opposed to the entire construction project. The dissent noted that, among other things, the court’s opinion in this matter may lead to absurd results. Principally, as the dissenting opinion highlights, in a situation where a contractor is terminated, and where the owner of the project is aware of the contractor’s defective work at the time of termination, the contractor may end up “in limbo for weeks, months, perhaps even years before the statute would commence running” such that the two-year limitations period is stretched into “something quite different.”
Ultimately, the takeaway of the opinion in American Family is that even in situations where a contractor has been terminated, its liability for injuries known at the time of termination potentially extends beyond the two-year limitations period in Minn. Stat. § 541.051. Importantly, the American Family decision has been accepted for review by the Minnesota Supreme Court. Contractors should stay tuned for the Supreme Court’s ruling, as it may provide further clarity on the time limits for property owners to commence actions against contractors for construction defect.
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