Experience

Beware of Vlahos v. R&I Construction of Bloomington, Inc.!
Minnesota Supreme Court Establishes Two New Legal Precedents for
Breach of the Ten-Year New Home Warranty Claim

By Elizabeth Snyder Poeschl

In April 2004, the Minnesota Supreme Court delivered its decision in Vlahos v. R&I Construction of Bloomington, Inc., creating two new legal precedents. The first overruled the long-recognized legal understanding about when the two-year limitations period in Minn. Stat. § 541.051 begins to run on a claim for breach of the new home warranty under Minn. Stat. § 327A.02. The second expanded the definition and scope of the term “major construction defects” in Minn. Stat. § 327A.02.

Defendant R&I Construction of Bloomington, Inc. (Builder) built a new house for the Rovicks in 1991. The Rovicks experienced repeated water infiltration problems with the house from 1992 to 1999. Plaintiffs Dean and Michelle Vlahos (Homeowners) bought the house from the Rovicks in August 1999. The Homeowners knew of the water infiltration problems when they bought the house. In April 2000, during an extensive remodeling project, the Homeowners discovered that there was significant water damage behind the walls which had decayed the interior floor, ceiling trusses, and other load-bearing supports throughout the house. The Homeowners immediately notified the Builder of the water damage and gave the Builder an opportunity to repair or pay for the damage. The Builder refused, and the Homeowners spent $1,118,000 to repair the damage.

The Homeowners sued the Builder claiming, among other things, that the Builder breached the residential ten-year statutory warranty provided in Minn. Stat. § 327A.02, subd. 1(c). Both parties moved for summary judgment. Following long-recognized legal precedent, the District Court and the Minnesota Court of Appeals concluded that the Homeowners' claim was time-barred by the statute of limitations under Minn. Stat. § 541.051, subd. 1, because they did not bring their claim within two years of discovering the water seepage that caused the alleged "injury." The District Court also concluded that the Homeowners' claim was barred because it held that water damage was not considered "major construction defects" under Minn. Stat. § 327A.02, subd. 1(c) because the damage occurred after the house had been constructed. The Homeowners appealed.

The Minnesota Supreme Court overturned the two lower courts, and other long-recognized legal precedent in Minnesota, to establish two new legal precedents.

I. Applicable Statute of Limitations
First, and perhaps most importantly, the Court overturned a significant amount of legal precedent to conclude that Minn. Stat. § 541.051, subd. 4 (not subd. 1) is the statute of limitations provision that applies to claims for breach of the new home warranty under Minn. Stat. § 327A.02. The Court arrived at this conclusion after recognizing that there are distinct differences between subd. 1 and subd. 4. Subd. 1 states that claims for injuries caused by a "defective...improvement to real property" must be brought within "two years after discovery of the injury." By contrast, subd. 4, states that new home warranty claims under Minn. Stat. § 327A.02 must be "brought within two years of the discovery of the breach" of warranty. The Court held that the legislature's specific use of the word "breach" instead of "injury," illustrates that it intended for subd. 4, (not subd. 1) to apply to claims for breach of a new statutory home warranty.

After deciding that subd. 4 applied to new home warranty claims, the Court went on to explain how that two-year limitations period is triggered. The Court stated that the limitations period will begin to run when the homeowner discovers, or should have discovered, the builder's "breach" of the warranty. A "breach" occurs when the builder advises the homeowner that it is unable or unwilling to keep the house free from major construction defects. Accordingly, the limitations period is triggered when the current (or previous) homeowner discovers the builder's refusal or inability to ensure the home is free from major construction defects.

Applying subd. 4 to the facts of this case, the Court ruled that summary judgment was inappropriate because there was a factual question about when the Homeowners (or the Rovicks) discovered, or should have discovered, the Builder's refusal or inability to ensure the home was free of major construction defects. Since it was unclear when the breach should have been discovered, the Court could not say that the Homeowners' claim was time-barred as a matter of law.

The Court noted in its decision that the Minnesota courts have routinely, and erroneously, applied subd. 1 of Minn. Stat. § 541.051, instead of subd. 4. It also recognized that its decision would significantly alter a long-standing legal precedent. The Court expressly overruled all prior cases to the extent that they were inconsistent with this holding.

II. Expanded Definition of "Major Construction Defect"
This case is also notable because it expanded the definition and scope of the term "major construction defects" under Minn. Stat. § 327A.02. Section 327A.02 states that a home shall be delivered free of "major construction defects" and that it shall remain so for 10 years. "Major construction defects" are defined as "actual damage to the load-bearing portion of the dwelling." The Court used basic rules of statutory construction to conclude that the legislature intended the term "major construction defects" to be read broadly to include damage that occurs to the "load-bearing portions" of a new house after the completion of construction.

Applying this definition to the facts of this case, the Court held that summary judgment was inappropriate because the Homeowner presented evidence that there was significant water damage to the "load-bearing portions" of their house. The fact that the damage occurred after the construction was complete is irrelevant. The Homeowners' claim was not barred as a matter of law because their damage seems to meet the definition of a "major construction defect."

Elizabeth Snyder Poeschl is an associate in Maslon's Litigation Group, focusing her practice in the areas of construction law and commercial litigation. Elizabeth is a 2001 summa cum laude graduate of William Mitchell College of Law, and represents individuals and businesses in a variety of commercial disputes.