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Great Northern Insurance Co. v. Honeywell International, Inc.

Supreme Court of Minnesota

May 9, 2018

Great Northern Insurance Company, as subrogree of Scott and Leah Rued, Respondent,
v.
Honeywell International, Inc., et al., Defendants, McMillan Electric Company, Appellant, and Honeywell International, Inc., Cross Claim Plaintiff,
v.
McMillan Electric Company, Cross Claim Defendant.

         Court of Appeals Office of Appellate Courts

          Thomas P. Kane, Cozen O'Connor, Minneapolis, Minnesota; and Anthony J. Morrone, Thaddeus C. Baria, Cozen O'Connor, Chicago, Illinois, for respondent.

          Cortney G. Sylvester, Nilan Johnson Lewis P.A., Minneapolis, Minnesota; and Webster A. Hart, Herrick & Hart, S.C., Eau Claire, Wisconsin, for appellant.

          Cheryl Hood Langel, McCollum Crowley Moschet Miller & Laak, Ltd., Minneapolis, Minnesota, for amicus curiae Minnesota Defense Lawyers Association.

         SYLLABUS

         1. Claims involving a heat-recovery ventilator fall under an exception to the 10-year statute of repose for improvements to real property because the ventilator is "machinery installed upon real property" under Minnesota Statutes section 541.051, subdivision 1(e) (2016).

         2. A manufacturer has a post-sale duty to warn of a product-related risk if (1) it knows or reasonably should know that the product poses a substantial risk of harm to persons or property; (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; (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.

         Affirmed in part, reversed in part, and remanded.

          OPINION

          CHUTICH, Justice.

         This appeal presents two issues. First, whether claims brought against the manufacturer of a component part of an improvement to real property fell under an exception to the 10-year statute of repose because the improvement was either "equipment or machinery installed upon real property." See Minn. Stat. § 541.051, subd. 1 (a), (e) (2016). Second, whether the same manufacturer had a duty to warn consumers of its product's alleged defect after the time of sale.

         Appellant McMillan Electric Company manufactured the motor in a home's heat-recovery ventilator. Sixteen years after the ventilator was installed, a fire started in the ventilator and caused substantial property damage to the home. After paying its insured's losses, respondent Great Northern Insurance Company, the insurer of the homeowners, brought this subrogation action against McMillan and others. It asserted tort, negligence, and warranty claims, including a claim for breach of a post-sale duty to warn. The district court granted summary judgment to McMillan, concluding that the 10-year statute of repose for improvements to real property barred every claim except the claim alleging a post-sale duty to warn. That claim was also dismissed upon summary judgment because the court concluded that McMillan did not have such a duty. The court of appeals reversed and remanded.

         We now affirm in part, reverse in part, and remand to the district court for further proceedings. Under the plain language of section 541.051, we conclude that the ventilator containing McMillan's motor is "machinery installed upon real property" and affirm the court of appeals' holding reinstating Great Northern's breach-of-warranty, negligence, and product-liability claims. Because we conclude that McMillan did not have a post-sale duty to warn users of the ventilator of a potential fire hazard, we reverse the court of appeals' decision on that issue.

         FACTS

         Two homeowners worked with a contractor to build a new home in Eden Prairie. A subcontractor installed two Honeywell HR200 Model 2355 ventilators into the heating, ventilation, and air conditioning ("HVAC") system in the home's original construction. The ventilators contained two fans, two air filters, a heat-exchange core, two ventilation openings, and a motor manufactured by McMillan. The owners moved into the home shortly after its completion in April 1996. The ventilators stayed in place year-round and operated continuously as part of the HVAC system.

         Although the ventilators carried the name of Honeywell International, Inc., the ventilators were actually designed and manufactured by Nutech R. Holdings Inc., a Canadian company. From 1992 to 1998, Nutech contracted with McMillan to manufacture custom motors for Nutech's ventilators. Nutech distributed the ventilators to purchasers in Canada and contracted with Honeywell to distribute the ventilators under Honeywell's name in the United States. Overall, Honeywell distributed around 18, 000 Nutech ventilators containing McMillan's custom motors to American consumers, and Nutech distributed around 48, 000 of the same ventilators in Canada. The ventilators came with a warranty and had to comply with industry performance standards.

         On May 19, 2012-16 years after the construction of the home and slightly less than 2 years before Great Northern brought this action-a fire occurred in one of the home's ventilators. The fire caused substantial property damage to the home, but no one was injured. The homeowners filed an insurance claim for their losses, and Great Northern paid their claim in full. Great Northern suspected that the ventilator's motor had caused the fire.

         Great Northern, as subrogee of the homeowners, sued McMillan and others.[1] It asserted claims for product liability, breach of warranty, and negligence, including a claim for breaching a post-sale duty to warn consumers of the risk of fires in motors installed in Nutech ventilators. McMillan moved for summary judgment, arguing that the claims were barred by the 10-year statute of repose for improvements to real property under section 541.051, subdivision 1(a).[2] Great Northern, however, asserted that the statute's exception for "equipment or machinery installed upon real property" under subdivision 1(e) applied, so the claims should survive. Minn. Stat. § 541.051, subd. 1(e).

         The district court granted McMillan's motion for summary judgment. It determined that the 10-year time bar under section 541.051, subdivision 1(a), applied to Great Northern's claims of negligence, product liability, and breach of warranty, but not to its claim of a post-sale duty to warn because that claim did not relate to the construction of an improvement to real property. The district court next concluded, as a matter of law, that McMillan did not have a post-sale duty to warn.[3]

         The court of appeals reversed and remanded for further proceedings on all of Great Northern's claims, including the claim of a post-sale duty to warn. Great N. Ins. Co. v. Honeywell Int'l, Inc., 895 N.W.2d 255, 259 (Minn.App. 2017). We granted McMillan's petition for review.

         ANALYSIS

         On appeal from summary judgment, we review de novo "whether there are any genuine issues of material fact and whether the district court erred in its application of the law to the facts." Commerce Bank v. W. Bend Mut. Ins. Co., 870 N.W.2d 770, 773 (Minn. 2015). Here, we review de novo (1) the meaning of the statute of repose for improvements to real property and (2) whether a legal duty to warn exists when a product manufacturer discovers a defect after the time of sale. See Foss v. Kincade, 766 N.W.2d 317, 320 (Minn. 2009) (reviewing de novo the existence of a legal duty); State Farm Fire & Cas. v. Aquila Inc., 718 N.W.2d 879, 883 (Minn. 2006) (reviewing de novo the interpretation of a statute of repose).

         I.

         The Legislature created a statute of repose for improvements to real property to eliminate suits against those involved in constructing improvements who have "completed their work, turned the improvement to real property over to the owners, and no longer have any interest or control in it." Sartori v. Harnischfeger Corp., 432 N.W.2d 448, 454 (Minn. 1988) (recognizing that the statute protects architects, designers, and contractors); see Calder v. City of Crystal, 318 N.W.2d 838, 843 (Minn. 1982) (recognizing that the statute protects manufacturers). By creating a period of repose, the statute "helps avoid litigation and stale claims which could occur many years after an improvement to real property has been designed, manufactured and installed." Sartori, 432 N.W.2d at 454. To help eliminate problems that arise from litigating old claims, the Legislature placed "a finite period of time in which actions against certain parties may be brought." Id.

The statute of repose for improvements for real property provides in relevant part:
Subdivision 1. . . . (a) Except where fraud is involved, no action by any person in contract, tort, or otherwise to recover damages for any injury to property, real or personal, or for bodily injury or wrongful death, arising out of the defective and unsafe condition of an improvement to real property, shall be brought against any person performing or furnishing the design, planning, supervision, materials, or observation of construction or construction of the improvement to real property . . . more than two years after discovery of the ...

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