The Subrogation Strategist

In American Fam. Ins. Co. v. NB Elec., Inc., No. A24-0377, 2025 Minn. App. LEXIS 12, the Court of Appeals of Minnesota (Court of Appeals) considered whether an insurer’s subrogation action was time barred under Minnesota’s two-year statute of limitations period. At issue was whether the statute of limitations began to run when the insured homeowner terminated the general contractor or when construction, with a new general contractor, was complete. Because the construction project did not terminate upon the replacement of the general contractor, the Court of Appeals found that the claims were not time-barred. 

In this case, the insured homeowner hired a general contractor for a home remodeling project in February 2020. The general contractor subsequently hired a subcontractor to perform the electrical work for the project. A fire damaged the home during construction in July 2020. The homeowner terminated the original general contractor in April 2021 and shortly thereafter hired a new general contractor to complete the home remodeling project. The work was substantially completed in July 2021. 

The insurer, proceeding as subrogee of the insured homeowner, filed suit against the general contractor and the subcontractor in July 2023 to recover damages resulting from construction defects. In response, both contractors filed motions to dismiss, arguing that the statute of limitations period began to run in April 2021, when the insured homeowner terminated the general contractor and, thus, the statute of limitations barred the insurer’s claims. The trial court granted the motions to dismiss, and the insurer appealed. The issue was ultimately decided by the Court of Appeals’ determination of when the two-year statute of limitation began to run. 

As stated by the Court of Appeals, the statute of limitations applicable to the insurer’s claims is Minnesota Statute Section 541.051(a), which states that an action arising out of the construction or improvement of real property must be commenced within two years after the cause of action accrues. Minnesota Statute Section 541.051(c) states that “a cause of action accrues . . . upon discovery of the injury, but in no event does a cause of action accrue earlier than substantial completion, termination, or abandonment of the construction or improvement to real property.” 

The parties disagreed about the meaning of the phrase “of the construction or improvement to real property” and whether the triggering events of “substantial completion, termination, or abandonment” applied to an individual contractor, rather than the construction project, for purposes of determining the accrual date for the statute of limitations. The contractors argued that once a contractor is terminated, the contract between the contractor and the homeowner is terminated, which triggers the statute of limitations. The insurer argued, and the Court of Appeals agreed, that the statute applies to the entire construction project, not an individual contractor who is terminated. In reaching its decision, the Court of Appeals applied the Supreme Court of Minnesota’s determination in Moore v. Robinson Env’t, 954 N. W.2d 277 (Minn 2021) that the term “construction” encompassed the entire construction project. 

This decision highlights to subrogation professionals the importance of determining the date that triggers the accrual of the statute of limitations for claims against contractors arising from construction defects. The analysis in Minnesota includes determining whether the triggering date applies to the party being sued or the entire construction project. Knowing the timeframe in which to make claims against construction contractors is critical to obtaining a successful recovery.