The Subrogation Strategist

In Damon v. Vista Del Norta Dev., LLC, -- P.3d --, 2016-NMCA-083, 2016 N.M. App. Lexis 52 (N.M. Ct. App.), the Court of Appeals of New Mexico addressed the trigger date for the ten-year statute of repose for a physical improvement of real property. Adopting a nuanced approach to interpreting the statute’s three-prong trigger test, the court made it clear that the type of “improvement” at issue is specific to each defendant. Thus, there can be separate statute of repose accrual dates for each different defendant.

In Damon, Defendant Vista Norta Dev., LLC (Vista) entered into an Agreement with the City of Albuquerque (the City) to construct public subdivision improvements for a subdivision called “The Estates at Vista del Norte.” Vista subsequently sold the subdivision to Stillbrooke Homes, Inc. (Stillbrooke) but remained responsible for completing the subdivision infrastructure improvements to the lots. On February 26, 2002, the City issued Vista a Certificate of Completion and Acceptance and, on July 25, 2003, Vista conveyed Lot 17 in the subdivision to Stillbrooke. Stillbrooke then sold the lot to defendants Brian and Janelle McGill (the McGills) in February of 2004 and on June 11, 2016, the plaintiffs in the case, Jason B. Damon and Michelle T. Damon (the Damons), purchased the home from the McGills.

The Damons eventually began to notice signs of structural failure in their home. Among other issues, their engineering studies concluded that the home had “improper subsurface preparation” and “excessive post-construction movement of the post-tensioned structural slab.” Additionally, the Damons discovered water infiltration in the soils beneath and around the residence. On December 7, 2012, the Damons filed suit against several defendants, including Vista.

Vista filed a motion for summary judgment, claiming that the Damons filed their suit after the ten-year statute of repose period set forth in N.M. Stat. Ann. 37-1-27 (1967) had run. The statute bars actions filed ten years after the date of substantial completion of a physical improvement and defines the date of substantial completion as: “(1) the date when construction is sufficiently completed so that an owner can occupy or use the improvement for the purposes for which it was intended; (2) the date on which the owner does so occupy or use the improvement; or (3) the date established by the contractor as the date of substantial completion, whichever date occurs last.” The District Court granted summary judgment in Vista’s favor, finding that the statute began to run on the date on which the Certificate of Completion was issued: February 26, 2002. Thus, because ten years had passed when the Damons filed suit in December of 2012, their cause of action was barred.

On appeal, the Damons argued, under the second alternative, that the trigger date for the statute was 2004, when the home was sold to the McGills as that is when an owner actually occupied the home, using it for its intended purpose. Vista claimed that, under the first alternative, the trigger date was the date of substantial completion, February 26, 2002, when Vista was able to use the improvements for their intended purpose, to sell the lots to builders. The Court of Appeals agreed with Vista.

In ruling in Vista’s favor, the court found that Vista’s infrastructure work was an “improvement to real property” and noted that, on a construction project such as the one at issue, there may be different types of physical improvements made by different parties. Since the only improvement made by Vista was to the infrastructure and that was separate and apart from construction of the house, actual occupancy of the house was irrelevant to the Damons’ claims against Vista. Thus, the court held that the statute triggered when the City certified completion to Vista in February of 2002. That is the date when the improvement added value to the property and was able to be used for its intended purpose. The court’s ruling makes clear that the type of “improvement” at issue is specific to each defendant and, where more than one party is involved in the construction of a home, the analysis of the statute of repose trigger date focuses on the defendant’s specific improvement.

Although Damon only applies to the New Mexico statute of repose and its specific application for determining when the statute of repose runs for improvements to real property, the court’s analysis provides a valuable, cautionary lesson for interpreting statutes of repose across the country. While there may be a clear and definable trigger point for a statute of repose as it relates to one defendant, that point may be different for other defendants depending on their involvement in the underlying work. Therefore, when conducting an investigation in construction defect cases, especially cases with multiple parties, subrogating insurers should look at the specific statute’s language related to triggering events and the degrees of involvement for potential defendants, keeping in mind that a statute of repose may begin to run at different times for each party.