Minnesota Clarifies the “Machinery/Equipment” Exception to the Statute of Repose for Improvements to Real Property and Adopts Test for Establishing a Post-Sale Duty to Warn

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In a recent decision, Great Northern Ins. Co. v. Honeywell Int’l, Inc., 2018 Minn. LEXIS 236, the Supreme Court of Minnesota addressed two important legal questions: (1) did the “machinery and equipment” exception to Minnesota’s statute of repose for improvements to real property allow the plaintiff to bring claims against the manufacturer of a component part used in a home’s heat-recovery ventilator; and (2) did the defendant have a post-sale duty to warn the plaintiff? In answering the first question, the court clarified the meaning of the term “machinery” as used in Minnesota’s statute of repose. In answering the second question, the court adopted a test to apply to determine the circumstances under which a defendant in a product’s chain of distribution has a post-sale duty to warn.

This case arises from a fire at the home of Scott and Leah Rued, who were insured by Great Northern Insurance Company. The fire occurred in May of 2012, approximately 16 years after the home’s original construction. As a result of the fire, Great Northern filed suit against the manufacturers of the HVAC system’s component parts, including the motor manufacturer for the HVAC’s heat-recovery ventilator, McMillan Electric. The district court dismissed the case against McMillan Electric as it found that: (1) Minnesota’s 10-year statute of repose applied; and (2) McMillian Electric did not have a post-sale duty to warn the plaintiff.

Statute of Repose

In the United States, almost all states have adopted a statute of repose in connection with improvements to real property. Similar to a statute of limitations, a statute of repose imposes a time limitation within which a plaintiff has to file suit. However, a statute of repose is different from a statute of limitations in that it can start to run even before the plaintiff’s claim arises. Accordingly, a plaintiff’s claim may be barred by a statute of repose before the plaintiff is even aware of the latent construction defect giving rise to the claim.

In Minnesota, there is a 10-year statute of repose for claims brought in connection with an improvement to real property. Although the statute applies to the materials used for the improvement, under subsection (e) of the statute there is an exception for any “equipment or machinery installed upon the property.” In looking at the plain meaning of the term “machinery,” the court concluded that, because it “transmitted mechanical energy,” the heat-recovery ventilator containing McMillan Electric’s motor was machinery. Thus, the court held that the exception applied and exempted the plaintiff’s product liability, breach of warranty and negligence claims against McMillan Electric from the statute of repose.

Post-Sale Failure to Warn

In discussing whether the defendant owed the plaintiff a post-sale duty to warn, the court recognized that one method for pursuing a product defect claim against parties in the product’s chain of distribution, such as the product’s designers, manufacturers, distributors and sellers, is to establish that the defendant failed to warn the plaintiff of safety hazards. Although Minnesota’s Supreme Court previously concluded there may be a duty to warn of a safety hazard discovered after the time of sale, it had yet to define when such a duty exists.

To establish when a duty exists, the court adopted the test set forth in Section 10 of the Restatement (Third) of Products Liability. Under the court’s adopted test, a defendant has a post-sale duty to warn of product defects when all four of the following factors exist:

(1) The seller knows or reasonably should know that the product poses a substantial risk of harm to persons or property; and

(2) those to whom a warning might be provided can be identified and can reasonably be assumed to be unaware of the risk of harm; and

(3) a warning can be effectively communicated to and acted on by those to whom a warning might be provided; and

(4) the risk of harm is sufficiently great to justify the burden of providing a warning.

However, in applying the factors to the facts at issue, the court determined that, because the McMillan Electric’s motors were incorporated into the Nutech ventilators and then sold by both Nutech and Honeywell to other companies and people, McMillan Electric was not adequately situated to reasonably predict where and by whom the ventilators containing the motors would be purchased or used. Accordingly, the court concluded that McMillan Electric had no post-sale duty to warn.

This case is a good reminder to review a statute of repose for any possible exception that may apply to your case. Also, when dealing with a product claim in Minnesota, under the right circumstances, you may have a viable post-sale failure-to-warn claim.

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