State Farm Fire and Cas. v. Aquila Inc., No. A04-1816.

• Decision Date: 03 August 2006
• Docket Number: No. A04-1816.
• Citation: 718 N.W.2d 879
• Parties: STATE FARM FIRE AND CASUALTY, et al., Respondents, v. AQUILA INC. d/b/a People's Natural Gas, f/k/a UtiliCorp United Inc., d/b/a People's Natural Gas/Energy One, Appellant, Northern Pipeline Construction Company, Defendant, Robert Sauer, et al., Defendants, George Rucker, et al., Nominal Defendants.
• Court: Minnesota Supreme Court

718 N.W.2d 879

STATE FARM FIRE AND CASUALTY, et al., Respondents, v. AQUILA INC. d/b/a People's Natural Gas, f/k/a UtiliCorp United Inc., d/b/a People's Natural Gas/Energy One, Appellant Northern Pipeline Construction Company, Defendant Robert Sauer, et al., Defendants George Rucker, et al., Nominal Defendants.

No. A04-1816.

Supreme Court of Minnesota.

August 3, 2006.

COPYRIGHT MATERIAL OMITTED

Charles E. Lundberg, Dale M. Wagner, Bassford Remele, Minneapolis, MN, Martin M. Loring, Jason R. Scheiderer, Kansas City, MO, for Appellant.

Bradley J. Ayers, Robert W. Vaccaro, Daniel B. Strunk, Flynn, Gaskins & Bennett, LLP, Minneapolis, MN, for Respondent State Farm and Auto Owners.

Jeremy R. Stevens, Bird Jacobsen & Stevens, Rochester, MN, for Respondent Joan Hernlem.

Heard, considered, and decided by the court en banc.

OPINION

ANDERSON, G. BARRY, Justice.

Respondents, State Farm Fire and Casualty (State Farm), Auto Owners Insurance Company (Auto Owners), and Joan Hernlem brought suit against appellant, Aquila, Inc. (Aquila), defendant Northern Pipeline Construction Company (Northern Pipeline), and other defendants for damages that were caused by a natural gas leak from a pipeline system that is owned and operated by Aquila and was installed by Northern Pipeline. The district court granted summary judgment in favor of Aquila and Northern Pipeline, concluding that Minn.Stat. § 541.051 (2004) barred respondents' claims. Respondents appealed, and the court of appeals, in a split decision, affirmed summary judgment for Northern Pipeline, reversed summary judgment for Aquila, and remanded the matter to the district court. State Farm Fire & Casualty v. Aquila Inc., 697 N.W.2d 636 (Minn. App.2005). We reverse and reinstate summary judgment for Aquila.

Aquila owns and operates natural gas pipelines in the United States. Hallmark Terrace Trailer Park (Hallmark Terrace) is a mobile home park located in Rochester, Minnesota. Prior to 1990, Aquila owned and operated a steel pipeline-gas system that serviced the residences at Hallmark Terrace.

In 1990, Aquila decided to replace the gas system. Aquila hired Northern Pipeline to build and install the new natural gas system using polyethylene pipelines. The work order for the project stated that the new system was to be installed because of the hazardous location of the existing steel pipelines. The cost of installing the new system exceeded $21,000 and was completed in December 1990. Unknown to the parties, during the installation a section of the new polyethylene pipeline was mistakenly pushed through a section of an existing clay tile sewer line. Aquila abandoned the steel pipeline system upon the completion of the new system. No maintenance or repairs were performed on the natural gas system prior to the incident that prompted this lawsuit.

In early 2002 Hallmark Terrace hired Robert Sauer to repair sewer drains that were blocked by tree roots. On February 13, 2002, Sauer used a trap-and-drain auger to unclog the sewer pipes. During the process, the auger struck and ruptured the intersecting natural gas line, causing natural gas to escape through the sewer pipes and into several homes. The gas accumulated and ignited, resulting in an explosion and ensuing fire that damaged the real and personal property of several Hallmark Terrace residents.

Respondents brought an action, claiming that Aquila and Northern Pipeline "failed to exercise reasonable care and [were] negligent in the inspection, maintenance, repair and/or installation of the natural gas system at Hallmark Terrace." Respondents also claimed that Aquila and Northern Pipeline were negligent per se for violating "applicable codes and standards regarding the inspection, maintenance, repair and/or installation of the natural[-]gas system."

Following discovery, Aquila and Northern Pipeline filed motions for summary judgment, arguing that respondents' claims were barred by Minn.Stat. § 541.051, which imposes a 10-year repose period on all causes of actions "arising out of the defective and unsafe condition of an improvement to real property." Minn. Stat § 541.051, subd. 1(a) (2004). Respondents filed a cross-motion for summary judgment, arguing Minn.Stat. § 541.051 did not apply to their claims because the natural gas pipeline system was merely an addition to the existing natural gas distribution system, and not an improvement to real property. Respondents further argued that, even if the natural gas pipeline system was an improvement to real property, Aquila and Northern Pipeline were not entitled to the protections afforded by the statute because Minn.Stat. § 541.051, subd. 1(c), provides an exception for claims arising out of the "actions for damages resulting from negligence in the maintenance, operation or inspection of the real property improvement against the owners or other persons in possession."

The district court granted Aquila and Northern Pipeline's motions for summary judgment and dismissed respondents' claims against Aquila and Northern Pipeline. In concluding that Minn.Stat. § 541.051 applied to bar respondents' claims, the court held that the natural gas pipeline system constituted an improvement to real property and respondents' injuries arose out of the defective and unsafe condition of the pipeline. Further, the court concluded that respondents failed to present evidence that Aquila was negligent in the maintenance, operation, or inspection of the pipelines, and therefore, the Minn.Stat. § 541.051, subd. 1(c), exception did not apply. As to Northern Pipeline, the court ruled that the exception also did not apply because Northern Pipeline relinquished all control over the natural gas pipeline system after the installation and never owned or possessed the system.

Respondents appealed, and the court of appeals affirmed in part, reversed in part, and remanded the matter to the district court. State Farm, 697 N.W.2d at 645. The court unanimously affirmed the district court's decision to grant summary judgment in favor of Northern Pipeline. Id. The majority opinion, however, held that the district court erred in granting summary judgment to Aquila because (1) the natural gas pipeline system is not "an improvement to real property under Minn. Stat. § 541.05, but an addition to the utility's distribution system," and (2) a prima facie case of negligence exists where an explosion is caused by a natural gas leak from a line owned by the utility, notwithstanding an absence of notice of the leak. Id. at 642-45. We subsequently granted Aquila's petition for further review.

On appeal, Aquila argues the court of appeals erred in concluding that (1) the natural gas pipeline system is not "an improvement to real property" for the purpose of applying the 10-year statute of repose in Minn.Stat. § 541.051 and (2) the Minn.Stat. § 541.051, subd. 1(c), exception applied to respondents' claims because a prima facie case of negligence against Aquila had been established.

I.

Summary judgment is proper where there are no genuine issues of material fact, and either party is entitled to judgment as a matter of law. Minn. R. Civ. P. 56.03. In so determining, this court views the evidence in the light most favorable to the party against whom summary judgment was granted. Offerdahl v. Univ. of Minn. Hosps. & Clinics, 426 N.W.2d 425, 427 (Minn.1988). In addition, the construction and applicability of a statute of limitation or repose is a question of law subject to de novo review. See Benigni v. County of St. Louis, 585 N.W.2d 51, 54 (Minn.1998).

Minnesota Statutes § 541.051, subd. 1, provides, in pertinent part:

(a) Except where fraud is involved, no action by any person in contract, tort, or otherwise to recover damages for any injury to property * * * 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 or against the owner of the real property more than two years after discovery of the injury * * * nor, in any event shall such cause of action accrue more than ten years after the substantial completion of the construction.

* * * * (c) Nothing in this section shall apply to actions for damages resulting from negligence in the maintenance, operation or inspection of the real property improvement against the owner or other person in possession.

We turn first to the issue of whether the pipeline system constitutes an "improvement to real property" for purposes of applying repose periods in Minn.Stat. § 541.051, subd. 1(a). This court has adopted a common-sense interpretation of the phrase "improvement to real property." See Sartori v. Harnischfeger Corp., 432 N.W.2d 448, 451 (Minn.1988); Pacific Indemnity Co. v. Thompson-Yaeger, Inc., 260 N.W.2d 548, 554 (Minn.1977). In Pacific Indemnity Co., our court considered a dictionary definition of the phrase and defined an improvement as "a permanent addition to or betterment of real property that enhances its capital value and that involves the expenditure of labor or money and is designed to make the property more useful or valuable as distinguished from ordinary repairs." 260 N.W.2d at 554.

After carefully reviewing the record, we conclude that the natural gas pipeline system in question qualifies as "improvement to real property" as described by Pacific Indemnity Co. and Sartori.

First, the installation of the system involved more than 4,075 feet of new pipeline, valves, and fixtures, at a cost of more than $21,000, easily qualifying as a project involving "the expenditure of labor or money." Second, the complete abandonment of the existing propane steel pipeline system and the installation of a new natural gas polyethylene pipeline system that provided more than 10 years of maintenance-free service prior to the incident is not ...