March/April 2015 (Issue 2)

News and analysis for construction professionals, including architects, engineers, product manufacturers, owners, contractors, insurers and sureties.

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Stacks of green cubes with one missing. A lone cube sits poised near the open hole, ready to fill the empty space.
Minnesota Legislature Passes Anti-Indemnification Law to Benefit Construction Design Professionals





In 1983, the Minnesota legislature enacted Minnesota Statutes Chapter 337, commonly called the construction anti-indemnification law. The intent of the law was and is to make parties to a construction project liable only for their own respective fault and not to unfairly impose liability for another party's fault. The well-known, now revoked, saving exception to the law provided that a party may indemnify another party for that other party's fault if the contract requires the indemnifying party to procure insurance to cover the indemnified party. But members of one segment of the construction industry - design professionals - were disserved by the law because design professionals cannot procure insurance to cover their contractual indemnity obligations. The insurance simply is not available in the market place.

The problem with the law was easy to identify but the fix was not so easy, despite that all that was required was a simple piece of legislation to which no one had a fundamental objection. Six years later, we all now understand that what appears simple in concept is complex in its execution. On May 16, 2014, Governor Dayton signed into law Chapter 257, Laws of 2014, finally freeing design professionals from the burden of uninsured contractual indemnity, (codified at Minn. Stat. §604.19). Leading the effort to change the law was the American Council of Engineering Companies, Minnesota Chapter (ACEC/MN). Attorney Mark Bloomquist of Meagher & Geer was a member of the ACEC/MN team of volunteers carrying the water over the six-year journey.

The new law effects all contracts made on or after August 1, 2015. It provides that any provision contained in a design professional services contract is void and unenforceable if it requires the design professional to hold harmless or to defend another party from loss resulting from that other party's own fault. Minn. Stat. § 604.21(a). A "design professional services contract" is defined as "a contract under which some portion of the work or services is to be performed or supervised by a person licensed under section 326.02, and is furnished in connection with any actual or proposed maintenance of or improvement to real property, highways, roads, or bridges." Minn. Stat. § 604.21(b). Notably, this anti-indemnification does not apply if the design professional is able to buy insurance that would provide coverage to indemnify other party's fault - which is not generally available. Minn. Stat. § 604.21(c). This section also does not apply to construction contracts, which have their own anti-indemnification legislation as provided for in Minn. Stat. § 337.

The practical application of this new legislation is that design professionals can be required to purchase insurance to cover broad indemnification obligations, and that they must search for and purchase that coverage. However, if they are not able to purchase the insurance, then that contractual obligation to provide indemnification coverage becomes unenforceable. Design professionals, therefore, should consider taking steps to document their efforts to procure the required insurance. This will help protect a design professional from later claims by another party for breach of contract. More information on this below.

 

Legislative Update
During the week of March 6, 2015, the Minnesota Senate Tax Reform Committee introduced a bill, SF532, that would provide a refundable sales tax exemption for equipment, materials, and supplies purchased by a contractor, subcontractor, or builder for certain projects involving tax exempt entities and public infrastructure. The bill specifying the type of projects that qualify for the purchase of tax exempt materials. If passed in future legislative sessions, this bill could provide a significant amount of monetary savings to the contractor and to the entity owning or sponsoring the project.  Click here to view the bill.

Elizabeth S. Poeschl

612.337.9655

epoeschl@meagher.com

 

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In this issue
Minnesota Legislature Passes Anti-Indemnification Law
Legislative Update
Case Law Update
Recent Articles
Upcoming Construction Programs
Hand writing Did You Know with blue marker on transparent wipe board.

Elizabeth Poeschl is admitted to practice law in Minnesota, North Dakota and
Wisconsin.

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UPCOMING CONSTRUCTION PROGRAMS

MnSPE Engineers at Play! (April 28, 2015)

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Case Law Update:

The Minnesota Court of Appeals recently issued a few interesting opinions that directly impact the construction industry. Below is a brief discussion of these opinions. Please let us know if you would like any additional information about the opinions, or their impact.

(1) 328 Barry Avenue, LLC v. Nolan Properties Group, LLC a. Carciofini Company, et al., Court File #A14-0724.

This opinion is important because the Court of Appeals addressed questions related to the Minnesota two-year statute of limitations that applies to all construction projects. The construction project at issue began in 2008. In October 2009, when the construction was ongoing, the general contractor noticed water intrusion, and asked the subcontractor to fix the leak. The subcontractor made several efforts to fix the leak but water continued to seep into the building. The general contractor again noticed water infiltration in August 2010. In October 2012, the owner sued the general contractor for the construction defect. The contractors asked the District Court to dismiss the lawsuit because the owner was aware of the water infiltration in 2009, and that the owner failed to bring the lawsuit within two years. The owner opposed the dismissal, stating that it was not did not know the specific cause of the water infiltration problem in the lawsuit. The District Court disagreed with the owner and dismissed its claims. The Court of Appeals affirmed.

This opinion is important because it confirms several aspects of Minnesota's statute of limitations case law including: (1) the two-year statute of limitations begins to run when a party discovers or should have discovered a construction defect; (2) a party does not need to be aware of the exact cause of the defect for the limitations period to begin running; and (3) construction does not need to be completed for the two-year limitation period to start.

There is one additional important aspect of this opinion that is especially important to contractors and developers in large projects. The Court of Appeals specifically found that the general contractor had a representative who was acting as the sole decision-maker for both the owner and the general contractor. As such, the knowledge learned by the representative, as the general contractor, was imputed to the owner. For future projects, this could mean that information obtained by a general contractor or design professional acting as an owner's representative will be imputed to the owner for statute of limitations purposes. This arguably puts an extra responsibility on the representative to ensure that the owner is aware of any problems so that it can determine whether to bring a lawsuit within the limited time period.

(2) Smith v. Wells Concrete Products Co., Court File #A14-0644. null

Wells Concrete Products Co. hired Plaintiff Smith as its painting subcontractor. Wells did not control or direct Smith's work. The parties agreed that she was an independent contractor. Smith fell and was injured while working on Wells' project. Smith sued Wells, arguing that Wells had a duty to protect Smith under a "retained control" rule, among other theories. The Court of Appeals disagreed, and found that Wells did not have control over the Smith.

The "retained control" rule states that a general contractor retains some liability for a subcontractor's safety if the general contractor general contractor controls the subcontractor's work. However, the general contractor does not have any duty to protect a subcontractor who independently decides (1) how to perform its work; (2) how to protect the work area; and (3) did not ask the general contractor to make any efforts to protect the work site. The general contractor's control over schedule and scope of work are insufficient to impose liability on a "retained control" theory. Here, Smith acted independently, so Wells could not be held responsible for her injuries.

This opinion provides a stark reminder to all parties on a construction project that a general contractor's efforts to control a subcontractor's work can expose the general contractor to additional liabilities. This opinion also highlights the importance of expressly allocating responsibility for safety to the proper parties. 

 

RECENT ARTICLESArticle

How a Bill Becomes a Law: What You Did Not Learn in Civics Class
The back story behind a six-year initiative to protect design professionals from uninsurable indemnity obligations.

Meagher & Geer Partner, Mark Bloomquist, is the author of the article titled, How a Bill Becomes a Law: What You Did Not Learn in Civics Class, published in the September 2014 issue of The Hennepin Lawyer.

Mark was recently recognized for his work with two others on the passing of the Indemnification bill, (HF2090, SF1757): ACEC/MN's indemnification bill makes uninsurable clauses in contracts void and unenforceable. His effort was six years in the making.

Mark provides legal services to design professionals, contractors and product manufacturers. He also represents attorneys, financial advisors, title companies, and other professionals in civil litigation and before government licensing agencies. Read the article.
  

 

UPCOMING CONSTRUCTION PROGRAMS

Elizabeth Poeschl, Mark Bloomquist and Meagher & Geer are pleased to support The Minnesota Society of Professional Engineers (MnSPE) Engineering Encounters/Engineers Week.

Sponsorship funds will be used to support the Engineering Encounter events and the April 28 historical engineering education event and reception at the Science Museum of Minnesota, "Celebrating the Past, Inspiring the Future."

In partnership with The Works Museum, MnSPE is sponsoring four Engineering Encounter outreach events in March and April 2015. Each Engineering Encounter gives students and their families access to different hands-on engineering and science activities like Straw Rockets, Catapults, Circuit Play and Crazy Cars.

To learn more, please visit the MnSPE website.

 

Established in Minneapolis in 1929, Meagher & Geer has earned a reputation as one of the leading litigation defense and insurance coverage firms in the Upper Midwest. We offer 80 lawyers in 20 practice areas. From our offices in Minneapolis, Minnesota and Phoenix, Arizona we represent businesses of all sizes, public entities, non-profit organizations, and individuals. 

 
Our nationally recognized trial lawyers have taken more than 125 cases to verdict since 2007.  During the same period, our appellate lawyers have handled more than 120 appeals in state and federal courts. At last count we represented more than 125 of the leading insurance companies in the U.S., and we also handle work for insurers based in London, Canada and Bermuda.
 

Our attorneys are licensed in many states, including Arizona, California, Georgia, Iowa, Illinois, Minnesota, Montana, Nebraska, New Jersey, New York, North Dakota, South Dakota, Texas, Virginia, and Wisconsin.

 

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