Governor Mark Dayton recently signed into law two important changes to Minnesota statutes that will impact the law of contribution and indemnification in the construction industry. The first change extends the indemnity bar to "additional insured" requirements in construction contracts. The second change revives the statute of repose for contribution and indemnity claims involving improvements to real property. Full information on both changes, as well as our recommendations, are provided below.
Change 1: The New Anti-Indemnity Law That Limits the "Additional Insured" Exception.
On May 24, 2013, a new law was enacted that substantially amends Minnesota's anti-indemnity statute relating to construction contracts, significantly limiting when a party can insure (and indemnify) another party. These important changes to Minnesota's anti-indemnity statute will apply to all construction agreements entered into on or after August 1, 2013.
Minnesota is one of many states with a statute that voids clauses in construction contracts that attempt to require a party to indemnify another party for one's own negligence. However, there was an exception in the anti-indemnity law that allowed a construction contract to require a party to provide specific insurance coverage for another party as an additional insured. This exception did not bar insurance coverage regardless of promisor's fault. As a result, savvy parties have included favorable additional insured provisions in their construction agreements to make the indemnification obligations of the other party very broad.
The New Amendment.
After the Minnesota Supreme Court recently noted that this "'narrow exception' appears to have swallowed the rule" in a case called Engineering & Construction Innovations, Inc. v. L.H. Bolduc Co., Inc
., the Minnesota legislature decided to narrow the additional insured exception to the anti-indemnity law. The new amendment now expressly bars "[a] provision that requires a party to provide insurance coverage to one or more other parties, including third parties, for the negligence or intentional acts or omissions of any of those other parties, including third parties . . . ." Therefore, the additional insurance coverage requirement must be limited to the promisor's negligence or intentional acts to be enforceable.
Change 2: Minnesota Reinstates Repose Period for Contribution and Indemnity Claims Relating to Improvements to Real Property.
The law has changed again on repose for contribution and indemnity claims for defective and unsafe conditions arising out of an improvement to real property. Repose statutes for improvements to real property extinguish certain personal injury and property damage claims after a specified period from the date of substantial completion of construction of the improvement.
The New Amendment
. The 2013 amendment to Minn. Stat. § 541.051 provides that no action for contribution or indemnity may be brought more than 14 years after the substantial completion of construction of the improvement to real property. In addition, such claims must be brought no later than two years after the claim for contribution or indemnity has accrued (i.e., the earlier of the commencement of the action against the party seeking contribution or indemnity, or the payment of a final judgment, arbitration award or settlement arising out of the claim). The amendment leaves unchanged the 10-year statute of repose for direct claims. The amendment is effective for all actions commenced on or after August 1, 2013.
The amendment reinstates a repose period for contribution and indemnity claims that had been eliminated by an amendment enacted in 2007 and made retroactive to June 30, 2006. Under that amendment, a contribution or indemnity claim could be brought within two years after the cause of action accrued, regardless whether it accrued before or after the 10-year repose period that, under the 2007 amendment, applied to direct claims only. However, in two Minnesota Supreme Court cases argued by Maslon attorneys, the Court held that the 2007 amendment did not revive contribution or indemnity liability claims that had already been extinguished by the prior repose statute.
The 2007 version of Minn. Stat. § 541.051 still applies to those cases now pending or commenced prior to August 1, 2013. The effect of these changes is that contribution and indemnity claims now fall into one of three categories: (1) claims which had been extinguished by a repose statute prior to June 30, 2006, remain extinguished; (2) claims for which the repose period had not already expired by June 30, 2006, are subject only to the two-year limitations period (and no repose period applies) if those claims are currently the subject of an action, or such an action is commenced prior to August 1, 2013; and (3) claims for which the repose period had not expired by June 30, 2006, are subject to both the two-year limitations period and the 14-year repose period for actions commenced on or after August 1, 2013.
Parties negotiating construction agreements must pay close attention to the language of their indemnification and additional insured provisions if they want them to be enforceable. Beginning on August 1, 2013, both of these provisions must be limited to the promisor's negligence or intentional acts to avoid being struck down by the new amendments to Minnesota's anti-indemnity statute. In addition, parties with an injury or property damage claim involving an improvement to real property must be alert in determining which category will apply in their case for contribution and indemnity claims. For any such claim, careful attention should be paid to the date of substantial completion and when a claim was or could be brought.
We Can Help.
Maslon's Construction and Real Estate Litigation Group partners with clients to provide legal services on all phases of construction work, from contract negotiation and drafting to claim analysis and resolution. Please contact us if you have any questions or would like more information about how these new amendments to Minnesota's indemnification laws may impact you or your business.