Article courtesy of Michael Robson (Greenberg Traurig)
American Family Insurance Co. v. NB Electric, Inc., et al., Case No. A24-0377 (Minn. App. Jan. 21, 2025)
In February 2020, a homeowner, insured by American Family Insurance Company (“American Family”), hired Morningstar Remodeling LLC (“Morningstar”) to serve as general contractor for a residential project. Morningstar in turn retained NB Electric Inc. (“NB Electric”) to act as subcontractor for the electrical work. In July 2020, a fire damaged the homeowner’s residence. Although work continued on the project after the fire, NB Electric did not participate. The homeowner terminated Morningstar in April 2021 and hired a new general contractor, who substantially completed the project in July 2021. In July 2023, American Family filed a complaint against Morningstar and NB Electric for defective construction. Morningstar and NB Electric moved to dismiss the complaint, arguing that the claim was time barred by a two-year statute-of-limitations period. The district court granted the motion to dismiss and American Family appealed. On appeal, American Family argued that the statute was ambiguous as to when a cause of action accrues, and that a proper interpretation would show the statute of limitations had not expired when American Family filed suit.
Minn. Stat. § 541.051 prevents the recovery of damages for injuries to property that result from the defective and unsafe condition of improvements to real property more than two years after the cause of action has accrued. The statute further provides that such causes of action do not accrue “earlier than substantial completion, termination, or abandonment of the construction or the improvement to real property.” On appeal, all parties agreed that the accrual date was not triggered by discovery of the injury. However, American Family asserted that the words “of the construction or the improvement to real property” in the statute were ambiguous, and it urged the court to examine the law’s legislative history to interpret the text. According to American Family, this analysis would show that the phrase refers to the completion of an entire construction project, rather than the completion or termination of work by a single contractor. The appellate court instructed that a statute is ambiguous if its plain text is susceptible to more than one reasonable interpretation. If there is only one reasonable interpretation, however, the court must enforce the plain text without considering the spirit or purpose of the law. In its analysis, the court focused on the disputed statutory language: “earlier than substantial completion, termination, or abandonment of the construction or the improvement to real property.”
Because the statute does not define “construction,” the court turned to the dictionary and case law for guidance. In one precedent case, a homeowner hired a contractor to remove an asbestos-insulated boiler and asbestos-lined piping from his home. The contractor completed these removals before hiring a subcontractor to install the replacement boiler and replacement piping. Two years later, the homeowner discovered asbestos remained in his home and he sued the original contractor for injury to property. The lower court held that the claim was time-barred and the appellate court affirmed, reasoning that the removal of the asbestos-insulated boiler and piping constituted “construction” under the statute. The court in that case considered both the dictionary definition of “construction” and the context of the homeowner’s project to interpret the statute. It concluded that “construction” includes “actions that are necessary to move a construction project toward completion,” and the removal of the asbestos-affected items was an essential step in progressing the project. As a result, the statute of limitations began to run as soon as the first contractor removed the boiler and piping.
Incorporating this reasoning, while also recognizing the plain meaning of the statute, the court in the present case interpreted “construction” to encompass the entire project, not just the work of an individual contractor. Morningstar and NB Electric disagreed, contending instead that the statute of limitations was triggered when the contract between themselves (as individual contractors) and the homeowner was terminated. The court disagreed and held that interpreting the statute as Morningstar and NB Electric suggested required reading beyond the plain language of the law. Morningstar and NB Electric further argued that “termination” is an industry-specific term and should be understood on a contract-by-contract basis. Again, the court was unpersuaded by this argument, finding instead that such an interpretation would not adhere to the statute’s plain text. Finally, Morningstar and NB Electric argued that interpreting “termination” more broadly would lead to an absurd result, as it could allow a homeowner to intentionally delay the time between contractors to circumvent the statute of limitations. The court rejected this contention though, noting that whether a delay constitutes an abandonment or termination under the statute is a separate question and does not produce an absurd outcome. The Illinois Supreme Court accordingly reversed, finding that the construction project had not been terminated, substantially completed or abandoned simply because the general contractor was replaced. As a result, the cause of action had not yet accrued, and the statute of limitations had not begun to run.
