Tennessee Looks to Define Improvements to Real Property

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For subrogation practitioners dealing with an installation-based statute of repose, knowing what is an improvement to real property is the first battle in what can, but does not have to be, a long fight. Like many other states, Tennessee’s statute of repose bars claims based on improvements to real property. Tennessee’s statute of repose runs four years after substantial completion of the improvement. See Tennessee Code Ann. § 28-3-202. In the case of Maddox v. Olshan Found. Repair & Waterproofing Co. of Nashville, L.P., E A, 2019 Tenn.App. LEXIS 464, 2019 WL 4464816, the Court of Appeals of Tennessee examined whether or not the work done by the defendant, Olshan Foundation Repair & Waterproofing Co. of Nashville, L.P., E.A. (Olshan) — which addressed bowing walls, cracks in the foundation and walls and water intrusion — qualified as improvements to real property for the purposes of the statute of repose. The court held that the work by Olshan essentially amounted to repairs, and did not qualify as improvements to real property.

In Maddox, the plaintiff, Rachel Maddox (Maddox), noticed cracking in her home in 2005 and hired Olshan to assess the issue and conduct necessary repairs. Olshan made several recommendations and the parties agreed on Olshan’s proposal for the price of $27,000. From their initial work in 2005 until late 2011, Olshan visited the property several times to address ongoing structural issues with the home. Eventually, eight months after Olshan told Maddox they could not fix the house and failed to return her phone calls, Maddox filed suit, alleging fraud against the company.

After a three-day bench trial, the trial court found in favor of the plaintiff for $187,000, plus $15,0000 in punitive damages. Among other holdings, the court rejected Olshan’s statute of repose defense. Olshan appealed, raising the statute of repose issue again.

In determining whether the statute of repose applied, the court focused on the nature of the work. It highlighted the difference between true improvements to real property and work that simply amounts to repairs or replacement. While the former triggers the statute of repose, the latter does not.

The court examined two general tests for determining whether construction amounts to an improvement to real property. The first, the “common law” test, focuses on precedent. The second, the “common sense” approach, focuses on whether the work added to the property’s value, involved labor or money and was designed to make the property more useful or valuable. The court reasoned that it need not adopt one approach over the other, but could use both as tools for analyzing the facts of a particular case.

In this case, the court held that Olshan’s actions in ameliorating the deteriorating condition of the home were repairs and not improvements to property. Its work on the home was corrective and not intended to “enhance its value, beauty or utility or to adopt it for new or further purposes.” The court even used Olshan’s representative’s description of Olshan as a “remedial repair contractor” as support for its finding.

This case is important because, as all subrogation professionals know, dealing with a statute of repose can be a dicey proposition. If the facts of your case fall within the terms of the statute, the statute of repose bars a subrogating insurer from pursuing its claim. However, if there is a way to avoid the statute, it can give new life to a case that would otherwise be dead in the water.

Maddox is a good reminder that the statute of repose fight does not always have to be centered around dates and the timing of work. If you can argue that the work falls outside of the definition of an improvement to real property, there is no need to fight about dates. This case also highlights the importance of knowing how evidence can have unintended consequences. Although Maddox would still have likely prevailed on the statute repose defense, having the defendant’s own statements to use against them may have pushed it over the top.

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