INSIGHTS & NEWS

Court of Appeals Renews Attack on the Written Notice Requirement for Statutory Warranty Claims

By Charles (C.J.) Schoenwetter and William N.G. Barron IV

Earlier this year, the Peterson decision disappointed builders by holding that a homeowner's Summons and Complaint could constitute written notice under the Notice and Opportunity to Repair Law (NOR).[1] Unfortunately, the Court of Appeals has again weakened the statutory requirement that all homeowners must provide builders written notice in order to enforce Minnesota's statutory warranties.

In its July 17th, 2007 decision in Dang v. Crist, the court determined a builder may have waived both his right to receive written notice from the owner and his substantial lack of notice defense because the builder submitted a claim to his insurer and the insurer then notified the owner in writing that it had received a claim.[2] This latest decision further eviscerates the lack of written notice defense used by builders and puts builders between a rock and a hard place with respect to making insurance claims. This article will summarize the Dang decision and outline the consequences for builders.

The Pre-Dang Benefits of the Written Notice Requirement
Before Dang v. Crist, homeowners were always required to give the builder or remodeler written notice if the owner wished to enforce one of Minnesota's statutory implied warranties.[3] Written notice had to be given within 6 months after the owner discovered, or should have discovered, the alleged loss or damage.[4] Written notice was intended to serve as the builder's cue to inspect the property and offer repair.[5] If the owner waited more than 6 months to provide written notice, then there would no longer be any liability under Minnesota's statutory warranties.[6] Failure to provide written notice was a powerful legal defense used by builders.

The benefits of this written notice procedure are two fold. First, written notice provides the builder a record of the owner's particular complaint. This saves the builder time as he can then inspect the specific area of the property at issue and, if need be, make a specific offer to repair under NOR. Second, the 6 month limitation provides for faster and more economical resolution of claims. This frees builders to continue doing what they do best-build houses-instead of constantly having to resolve expensive claims which could have been resolved inexpensively if brought to the builder's attention earlier. The Dang decision, however, limits the benefits of the notice requirement because the court held owners can fulfilled their notice requirement under certain circumstances even though no "written" notice is provided to the builder in a timely manner.[7]

The Dang Interpretation of the Notice Requirement
In Dang, the owner gave the builder a general, oral notice in 2002 (8-years after the house was built) that water damage had occurred due to moisture intrusion.[8] The builder, having ceased business operations after building the home in 1994, did not offer to fix the problem and instead notified his insurer of a claim.[9] The insurer processed the claim and then, in October of 2002, wrote a letter to the owner explaining the builder had filed a claim relating to the home.[10] In August 2003, the owner retained a third party inspection which revealed structural damage to the home.[11] The owner never gave written notice to the builder of any alleged structural damage at anytime. In March 2005-two-and-a-half years after providing only a general, oral notice to the builder-the homeowner initiated the lawsuit which led to the Dang opinion.[12]

Under the facts of the Dang case, the homeowner clearly knew structural damage existed 18 months before filing a complaint. This means the statutory written notice requirement was at least 12 months too late. In spite of this, the Court of Appeals found the owner could still make a statutory warranty claim because the builder may have "waived" his right to receive written notice when he submitted a claim to his insurer and the insurer sent the owner a letter.[13] Written notice was not delivered to the builder until the complaint was filed in 2005-11 years after the home was built. Based upon the insurance company's actions, the court further determined the builder may have intentionally waived his legal right to enforce the written notice requirement that otherwise would have required dismissal of the owner's statutory warranty claims.

In sum, Dang establishes a double standard. It punishes the builder for complying with the notice requirements of its insurance policy, but rewards the owner despite the owner's failure to provide the builder with written notice required under the statutes. The written notice requirement imposed by the statute and pre-existing case law is slowly being eroded by the Court of Appeals' decisions in Dang.[14]

Potential Consequences of the Dang Decision
While there are problems with the Dang decision on several levels, the bottom line for builders is that this is yet another holding by the courts which diminishes the protection offered to builders by the Legislature which clearly requires written notice. In the post-Dang world, builders should be aware of the following:

• First, builders should know that giving notice to their insurance carriers of a potential claim may, in some circumstances, be viewed as a waiver of the owner's statutory written notice requirement if the insurance carrier then contacts the owner in writing regarding the claim.
• Second, builders are now in a tricky position with regard to making insurance claims. On one hand, if the homeowner has not yet given written notice, then making an insurance claim may result in a waiver of a potentially valuable defense. On the other hand, by delaying notice to the insurer of a potential claim, the builder may risk losing coverage for the occurrence. If faced with this dilemma, builders should seek legal counsel before proceeding.
• Lastly, although the Dang and Peterson decisions negatively impact builders' rights to receive timely written notice before an owner initiates litigation, builders may still choose to make an offer to repair even if they only receive oral notice (Dang) or written notice in the form of a Summons and Complaint (Peterson). However, choosing to repair after receiving such notice may waive other legal rights and it is again important to seek counsel before acting.

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Charles (C.J.) Schoenwetter, author, is a partner with the law firm of Bowman and Brooke LLP, where he concentrates on construction, general commercial and product liability litigation. C.J. can be reached at 612.656.4037 or cj.schoenwetter@bowmanandbrooke.com

Bowman and Brooke's Construction Law e-newsletter is designed to provide quick, current and newsworthy information to today's construction professional. This newsletter does not provide legal advice.

[1] Peterson v. Johnson, No. A06-1830 (Minn. Ct. App., June 26, 2007).
[2] Dang v. Crist, No. C4-05-5723 (Minn. Ct. App., July 17, 2007).
[3] Minn. Stat. §327A.03(a).
[4] Id.
[5] Minn. Stat. §327A.02, Subd. 4(a-b).
[6] Collins v. Buus, A05-1771 (Minn Ct. App., July 18, 2006) (holding actual notice insufficient under the statute); Fuhr v. D.A. Smith Builders, Inc., A04-2457 (Minn. Ct. App. Dec. 13, 2005) (holding actual notice insufficient under the statute) ("Written notice from other parties is not sufficient under the language of the statute, "which requires that the damage be reported "by the vendee or the owner to the vendor or the home improvement contractor."); Hoffman v. Van Hook, A-06-1213 (Minn. Ct. App. April 10, 2007) (holding failure to provide timely written notice under statute bars warranty claims as a matter of law); see also Vlahos v. R&I Construction of Bloomington, Inc., 676 N.W.2d 672, 681 (Minn. 2004) (citing Minn. Stat. § 327A.03(a) and noting, in dicta, that "the owner cannot recover if the owner fails to report the loss or damage to the vendor in writing within [6] months of discovery.").
[7] Dang, No. C4-05-5723 (Minn. Ct. App., July 17, 2007).
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Minn. Stat. § 327A.03(a); Collins, A05-1771 (Minn Ct. App., July 18, 2006); Fuhr, A04-2457 (Minn. Ct. App. Dec. 13, 2005).