Construction projects often involve intricate designs, multiple stakeholders, and complex performance obligations. When problems surface years after completion, parties must navigate a difficult landscape that blends contract law, tort doctrines, and statutory deadlines. A recent decision from the Fourth Court of Appeals of Texas provides meaningful guidance on how courts will evaluate latent construction defect claims, the applicability of the discovery rule, and the limits of the economic loss doctrine. In Morningside Ministries v. Koontz McCombs Construction, Ltd., the court reversed summary judgment entered in favor of the general contractor and project manager, reviving the owner's claims and offering important lessons for owners, contractors, and insurers facing construction defect disputes.
Background of the Dispute
Morningside Ministries operates senior living communities across Texas. In 2012, It contracted with Koontz McCombs Construction, Ltd. (Koontz) to construct The Overlook, a significant expansion of Morningside's Menger Springs campus in Boerne. The contract required Koontz to build 100 new senior living units along with common areas and site improvements, and placed responsibility for construction quality, including the work of subcontractors, on Koontz.
To help coordinate the project, Morningside separately retained Project Control of Texas, Inc. (Project Control) under a project management agreement. That agreement expressly disclaimed liability for the acts or omissions of architects, contractors, and other service providers. Construction reached substantial completion in March 2016. Morningside signed a Certificate of Substantial Completion identifying 185 remaining punch-list items but confirming Koontz's continuing obligation to complete all work in accordance with the contract documents.
Within the next years, Morningside began receiving complaints from residents regarding leaks, cracking, drywall damage, bubbling paint, and similar issues. Initial engineering evaluations suggested primarily cosmetic problems. However, more extensive forensic investigations conducted in 2019 and 2020 revealed water infiltration, elevated moisture within building assemblies, structural decay, and construction that deviated from architectural specifications. Morningside filed a claim on October 2, 2020 alleging breach of contract, breach of express warranty, and negligence against Koontz and Project Control.
The trial court granted summary judgment for the defendants on most claims, concluding that the four-year statute of limitations had expired and that the negligence claims were barred by the economic loss doctrine.
The Discovery Rule and Inherently Undiscoverable Injuries
Generally, a cause of action accrues "when a wrongful act causes some legal injury," even if the plaintiff is unaware of the injury. Am. Star Energy & Mineral Corp. v. Stowers, 457 S.W.3d 427, 430 (Tex. 2015). Statutes of limitations exist to ensure claims are brought when evidence is fresh. In limited circumstances, however, the judicially created discovery rule defers accrual until the plaintiff discovers, or in the exercise of reasonable diligence should have discovered, the nature of the injury. Childs v. Haussecker, 974 S.W.2d 31, 40 (Tex. 1998).
The discovery rule applies only where the injury is "inherently undiscoverable" and "objectively verifiable." Gonzalez v. Vantage Bank Texas, No.04-21-00285 CV, 2022 WL 14679567 at *4. If either prong is missing, the discovery rule will not apply. Id. Courts apply this test to categories of cases, not to the specific plaintiff's circumstances. The court examined whether the "general type of injury was discoverable." Apex Towing Co. v. Tolin, 41 S.W.3d 118, 122 (Tex. 2001). Latent defects often qualify because they remain concealed despite reasonable diligence.
Texas courts have long recognized the need for the discovery rule in concealed construction defects. In Ruebeck v. Hunt, 176 S.W.2d 738 (Tex. 1943), the court held that roofing defects could not reasonably be discovered until the roof was removed, despite years of attempted repairs. More recently, courts have applied the discovery rule where specialized knowledge is required to detect design or engineering flaws. Kizer v. Meyer, Lytton, Alen &Whitaker, Inc. 228 S.W.3d 384, 389 (Tex.App. 2007). In February 2025, the court reaffirmed this principle in a case involving delayed water intrusion, holding that the contractor failed to show the discovery rule was inapplicable as a matter of law. Holiday Inn Club Vacations, Inc. v. CBRE, Inc., No. 14-23-00976-CV, 2025 WL 383161, at *9 (Tex. App-Houston[14th Dist.]).
In Morningside, the court concluded that the alleged construction defects- including improper waterproofing, deviations from architectural design, and systematic structural deficiencies, were of the type that an ordinary property owner would not likely detect until invasive testing was conducted. The court emphasized that latent injury is the "epitome" of an inherently undiscoverable condition. Accordingly, the discovery rule applied to defer limitations.
Defendants Failed to Negate the Discovery Rule
To obtain summary judgment on statute of limitations, Koontz and Project Control bore the burden to conclusively establish when the claims accrued and to negate the discovery rule. Only then would the burden shift to Morningside to raise a fact issue. Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 222-223 (Tex. 1999).
Koontz argued that Morningside was aware of "distress" at the property as early as May 2016, based on testimony by a former executive. The court rejected this argument, finding the evidence speculative and not tied to the nature of the alleged structural injury.
The defendants also relied on a shifting series of dates- 2016, 2017, 2019, and 2020, as the alleged point of discovery. Rather than establishing a clear accrual date, the inconsistencies themselves demonstrated factual disputes inappropriate for summary judgment. Because the record did not conclusively show that Morningside discovered the nature of the defects more than four years before suit was filed, the court held that limitations did not bar the claims as a matter of law.
Limits on the Economic Loss Doctrine in Construction Litigation
The economic loss rule restricts plaintiffs to contractual remedies when the loss alleged arises solely from the subject matter of the contract. Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.w.3d 1, 12-13 (Tex. 2007). It prevents parties from re-casting breach of contract claims as tort claims. Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). However, it does not bar all tort claims that arise in a contractual setting. Chapman Custom Homes, Inc. v. Dallas Plumbing Co., 445 S.W.3d 716, 718 9Tex. 2014).
Morningside alleged that the design and construction failures caused damage not only to the newly constructed Overlook facility, but also to surrounding pre-existing buildings within the Menger Springs development, property never contemplated in the Koontz contract. The court noted that Texas law permits negligence claims where defective work causes damages beyond the contract's scope. "The mere fact that an act is done pursuant to a contract does not shield it from the general rules of tort liability." Thomson v. Espey Huston & Assocs., 899 S.W.2d 415, 421-22 (Tex. App.- Austin 1995).
Because Koontz and Project Control did not present competent evidence demonstrating that all claimed damages were encompassed by the contract, they failed to establish the economic loss rule as a bar to negligence. Thus, the trial court's summary judgment on negligence were reversed.
Warranty Claims and UCC Inapplicability
Koontz argued that the breach of express warranty claims were governed by Article 2 of the UCC and were time-barred because warranty claims for goods expire four years after the tender of delivery. Tex. Bus. & Com. Code Ann. §2.725(a)-(b). The appellate court rejected the argument, noting Koontz provided no authority to support treating a large-scale construction agreement as a contract for the sale of goods.
Texas courts apply the UCC only where the essence of the transaction is the sale of goods. Hunsberger v. Physician Life Care Planning, LLC No. 04-20-00243-CV, 2021 WL 3057509 (Tex. App.-San Antonio 2021). Construction contracts, by contrast, are treated as service contracts, even when they involve incidental materials or equipment. Because the Koontz contract was predominately a services agreement, the UCC's limitations provisions did not apply, and summary judgment was improper.
Implications for Owners, Contractors, and Insurers
The Morningside decision holds important risk-prevention and claims handling lessons for all parties involved in construction projects:
For Owners and Developers:
- Document concerns early and maintain clear records of communications, repairs, and consultant findings. These documents help establish diligence.
- Engage qualified forensic consultants promptly when emerging issues could signal systematic defects.
- Understand that latent defects may toll limitations, but courts still examine efforts to detect problems.
For Contractors and Construction Professionals:
- Broad assertions that a contract covers all potential damages will not shield against tort liability where work causes external property damage.
- Maintain detailed records of project scope and limits to prevent later disputes over what constituted "contractual work."
- Early participation in forensic inspections can clarify liability and prevent claims from escalating into litigation.
For Insurers and Claims Professionals:
- Recognize that latent defect claims may arise years after completion, affecting coverage triggers and investigation timing.
- Early forensic engagement can preserve subrogation rights and mitigate indemnity exposure.
- Construction defect claims often require specialized expertise to distinguish cosmetic issues from structural failures- evaluation costs must be weighed against litigation risk.
Conclusion
The Fourth Court of Appeals decision in Morningside Ministries v. Koontz McCombs Construction, Ltd., reinforces that summary judgment in latent construction defect cases requires precise legal argument and competent evidence. The discovery rule remains a potent tool for plaintiffs where defects are concealed and not reasonably detectable. Likewise, the economic loss doctrine has defined limits. It cannot later bar negligence claims when property outside the contract's scope is damaged. Finally, attempts to impose UCC timeline onto service-based construction contracts are unlikely to succeed.
For stakeholders in the construction industry, the ruling underscores the value of proactive risk management, careful contract drafting, and early technical investigation when defects are suspected. As construction technologies evolve and buildings grow more complex, the legal system will continue to grapple with when and how latent defects should be addressed. The Morningside decision offers a timely reminder that legal strategy, documentation, and due diligence are essential in managing exposure across the life cycle of a construction project.
