The Subrogation Strategist

In Morningside Ministries v. Koontz McCombs Construction, Ltd., No. 08:23-00332-cv, 2025 Tex. App. Lexis 3584 (Morningside), the Court of Appeals of Texas (Court of Appeals) considered whether the plaintiff’s construction defect claims were “inherently undiscoverable,” thereby tolling the applicable limitations period under the discovery rule. The lower court granted the defendants’ summary judgment motions, finding that the plaintiff’s breach of contract and breach of express warranty claims were brought outside of the four-year limitations period. On appeal, the plaintiff argued that the alleged defects were “inherently undiscoverable” as a matter of law, which tolled the applicable limitations period. The Court of Appeals reversed the lower court’s ruling, finding that the alleged defects were “inherently undiscoverable” and the defendants failed to conclusively negate the application of the discovery rule.  

The plaintiff owned and operated several senior living facilities and, in 2012, hired defendant Koontz McCombs Construction, Ltd. (Koontz) to construct a 100-apartment addition to one of their facilities. The plaintiff also retained defendant Project Control of Texas, Inc. (Project Control) as the project manager. The defendants substantially completed their work in 2016 and, thus, the certificate of substantial completion was executed on March 31, 2016. 

Between February 2017 and March 2019, the plaintiff’s personnel became aware of sheetrock damage, roof leaks, PVC leaks, and several other defects in the construction. In October 2020, the plaintiff filed a complaint against defendants Koontz and Project Control, alleging breach of contract, breach of express warranty and negligence claims. The defendants moved for summary judgment on grounds that the plaintiff’s claims were barred by the applicable limitations period. 

The defendants argued that the contract claims were barred by the four-year statute of limitations because the limitations period began to run on March 31, 2016, when the certificate of substantial completion was executed. Regarding the breach of warranty claim, the defendants argued that the claim was barred by UCC’s four-year limitations period. The plaintiff argued before the trial court that the limitations periods were subject to the discovery rule because the structural and design deviation defects were not the type of injury ordinarily discoverable either at or soon after project completion despite due diligence.   

The Court of Appeals acknowledged that the discovery rule is a judicially crafted, limited exception deferring accrual of a cause of the action until the plaintiff discovers, or through exercise of reasonable care, should discover the nature of the injury. The court noted that the discovery rule applies when the nature of the injury incurred is inherently undiscoverable and the evidence of the injury is objectively verifiable. An injury is inherently undiscoverable if it is, by its nature, unlikely to be discovered within the prescribed limitations period despite due diligence. This determination is made on a categorical basis and not on the facts of the individual case. 

The Court of Appeals considered several prior Texas cases where the discovery rule was invoked and found that the common thread in these cases was a finding that the wrong and the injury were either unknown or very difficult to ascertain because of their very nature. Here, the court found that many of the defects alleged by the plaintiff were structural, geo-technical and/or within the exterior grading. These types of defects were consistent with the common thread favoring the application of the discovery rule. The Court of Appeals concluded that the plaintiff’s claims were inherently undiscoverable, thereby tolling the limitations period. In addition, the court found that the defendants failed to establish, as a matter of law, that the plaintiff had reliable and conclusive notice of many of the alleged defects. Further, the Court of Appeals held that since the contract claims were the actual or predominant subject matter of the lawsuit – i.e., the construction of buildings and related support spaces rather than the sale of goods - the UCC’s contractual limitations period was inapplicable.

The Morningside case confirms that, in Texas, the discovery rule is alive and well and must be considered as a possible argument to overcome the application of the statute of limitations. While the statute of limitations typically runs at substantial completion, if the alleged construction defects were latent or difficult to find, despite reasonable care, the limitations period may be deferred until the point the defects were definitively discovered. Subrogation professionals handling construction defect claims in Texas should consider the discovery rule when deciding whether to proceed.