NORTH DAKOTA CONSTRUCTION CLAIMS RESOURCES
1 Construction Claims
- 1.1 Limitations & Repose Periods
- 1.2 Right to Repair Laws and/or Pre-Suit Statutory Procedures
- 1.3 Indemnity and Contribution
- 1.4 Certificate of Merit: Experts
- 1.5 Economic Loss Doctrine
- 1.6 Contractor Licensing Requirements
- 1.7 Common Law & Statutory Claims
- 2 Construction Damages
3 Trigger of Coverage
- 3.1 Definition of an Occurrence
- 3.2 Duty to Defend
- 3.3 Anti-Indemnity Statutes
3.4 Additional Insureds
- 3.4.1 Coverage for AI’s own negligence vs. vicarious liability for Named Insured
- 3.4.2 Determining Primary and Non-Contributory vs. Excess Position
- 3.4.3 AI carrier’s rights to reimbursement for defense expenses from other, co-primary carriers
- 3.4.4 Insureds Right to Independent Counsel and Consequences of Rejecting a Defense
- 3.5 Coverage Defenses
- 3.6 Choice of Law (Forum Selection Clauses)
- 3.7 Targeted Tenders
- 3.8 Consent Judgments
Limitations & Repose Periods
Statute of Limitations
The following actions potentially pertaining to construction claims must be commenced within six (6) years after the claim for relief has accrued (N.D. Cent. Code Ann. § 28-01-16):
- An action upon a contract, obligation, or liability, express or implied
- An action upon a liability created by statute, other than a penalty or forfeiture, when not otherwise expressly provided.
- An action for taking, detaining, or injuring any goods or chattels, including actions for the specific recovery of personal property.
- An action for criminal conversation or for any other injury to the person or rights of another not arising upon contract, when not otherwise expressly provided.
- An action for relief on the ground of fraud in all cases both at law and in equity, the claim for relief in such case not to be deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud.
The following actions potentially pertaining to construction claims must be commenced within three (3) years after the claim for relief has accrued (N.D. Cent. Code Ann. § 28-01-17):
- An action for the foreclosure of a construction lien.
The following actions potentially pertaining to construction claims must be commenced within two (2) years after the claim for relief has accrued (N.D. Cent. Code Ann. § 28-01-18):
- An action for the recovery of damages resulting from malpractice
- An action for injuries done to the person of another, when death ensues from such injuries, and the claim for relief must be deemed to have accrued at the time of the death of the party injured
All actions not specifically provided for must be commenced within ten (10) years after the claim for relief has accrued (N.D. Cent. Code Ann. § 28-01-22)
In actions involving fraudulent concealment, an action may be commenced within one (1) year from the time the claim for relief is discovered or might have been discovered in the exercise of due diligence (N.D. Cent. Code Ann. § 28-01-24)
An action founded upon an error or omission in an abstract may be commenced against an abstracter at any time within twenty (20) years after the date of the certificate of the abstract (N.D. Cent. Code Ann. § 28-01-45)
Statute of Repose
No action, whether in contract, oral or written, in tort or otherwise, may be brought against any person performing or furnishing the design, planning, supervision, or observation of construction, or construction of such an improvement more than ten (10) years after substantial completion of such an improvement to recover damages for the following (N.D. Cent. Code Ann. § 28-01-44(1.)):
- For any deficiency in the design, planning, supervision, or observation of construction or construction of an improvement to real property;
- For injury to property, real or personal, arising out of any such deficiency; or
- For injury to the person or for wrongful death arising out of any such deficiency,
In the case of such an injury to property or the person or such an injury causing wrongful death, which injury occurred during the tenth year after such substantial completion, an action in tort to recover damages for such an injury or wrongful death may be brought within two (2) years after the date on which such injury occurred, irrespective of the date of death, but in no event may such an action be brought more than twelve (12) years after the substantial completion of construction of such an improvement. N.D. Cent. Code Ann. § 28-01-44(2.)
The statute is “intended to protect architects, contractors, and engineers, but not materialmen, manufacturers, or suppliers of products used in an improvement to real property.” Blikre v. ACandS, Inc., 1999 ND 96, ¶ 7, 593 N.W.2d 775, 778.
Right to Repair Laws and/or Pre-Suit Statutory Procedures
Warranty Repairs – Required Notice
N.D. Cent. Code Ann. § 43-07-26:
Before undertaking any repair, other than emergency repair, or instituting any action for breach of warranty in the construction of a one-family or two- family dwelling, or an improvement with a value exceeding two thousand dollars to a dwelling, the purchaser or owner shall give the contractor written notice by mail, within six (6) months after knowledge of the defect, advising the contractor of any defect and giving the contractor a reasonable time to comply with this section.
Within a reasonable time after receiving the notice, the contractor shall inspect the defect and provide a response to the purchaser or owner, and, if appropriate, remedy the defect within a reasonable time thereafter.
The contractor shall provide the purchaser or owner written notice of the requirements of this section at the time of closing for the property or, in the case of an improvement, at the time of completion of the improvement.
For the purposes of this section, “reasonable time” means within thirty business days after the notice is mailed or any shorter period of time as may be appropriate under the circumstances.
Indemnity and Contribution
A right of indemnity may arise by express agreement or by implication. Grinnell Mut. Reinsurance Co. v. Ctr. Mut. Ins. Co., 2003 ND 50, ¶ 40, 658 N.W.2d 363, 378.
Indemnity does not require a contract, it can be implied – indemnity may be recovered if the evidence establishes an implied contract or if one party is exposed to liability by the action of another party who, in law or in equity, should make good the loss of the other. Grinnell Mut. Reinsurance Co. v. Ctr. Mut. Ins. Co., 2003 ND 50, ¶ 40, 658 N.W.2d 363, 378.
Indemnity is an equitable doctrine not amenable to hard and fast rules, and rather than using strict standards, courts must examine carefully both parties' conduct in light of general notions of justice. Nelson v. Johnson, 1999 ND 171, ¶ 20, 599 N.W.2d 246, 252.
Generally, if two or more persons become jointly or severally liable in tort for the same injury to person or property or for the same wrongful death, there is a right of contribution among them even though judgment has not been recovered against all or any of them. N.D. Cent. Code Ann. § 32-38-01 (1).
No tort-feasor is compelled to make contribution beyond that tort-feasor's own pro rata share of the entire liability. N.D. Cent. Code Ann. § 32-38-01(2).
Right to contribution generally does not apply to settlements or a tort-feasor’s intentional acts contributing to the injury. N.D. Cent. Code Ann. § 32-38-01(3) and (4).
The right to indemnity is not superseded by a right to contribution. N.D. Cent. Code Ann. § 32-38-01(6).
North Dakota is a modified comparative fault state:
Contributory fault does not bar recovery in an action by any person to recover damages for death or injury to person or property unless the fault was as great as the combined fault of all other persons who contribute to the injury, but any damages allowed must be diminished in proportion to the amount of contributing fault attributable to the person recovering. N.D. Cent. Code Ann. § 32-03.2-02.
Certificate of Merit: Experts
In North Dakota, it appears there is no requirement for filing a certificate or affidavit of merit for claims against design or construction professionals.
Economic Loss Doctrine
Under the economic loss doctrine in North Dakota, economic loss resulting from damage to a defective product, as distinguished from damage to other property or persons, may be recovered in a cause of action for breach of warranty or contract, but not in a tort action. Leno v. K & L Homes, Inc., 2011 ND 171, ¶ 17, 803 N.W.2d 543, 550.
Contract law, and not products liability tort law, governs actions of persons seeking redress for damages when the injury is confined to the defective product itself, and neither persons nor other property are damaged. Leno v. K & L Homes, Inc., 2011 ND 171, ¶ 17, 803 N.W.2d 543, 550.
The Supreme Court of North Dakota has never declared that a house affixed to real property is a product subject to a products liability action. Leno v. K & L Homes, Inc., 2011 ND 171, ¶ 17, 803 N.W.2d 543, 550.
Contractor Licensing Requirements
A person may not engage in the business nor act in the capacity of a contractor within North Dakota when the cost, value, or price per job exceeds the sum of four thousand dollars ($4,000) nor may that person maintain any claim, action, suit, or proceeding in any court of North Dakota related to the person's business or capacity as a contractor without first having a license. N.D. Cent. Code Ann. § 43-07-02(1).
There are exceptions to this general rule for: (1) any authorized representative or representatives of the United States government, the state of North Dakota, or any county, municipality, irrigation district, reclamation district, or other political corporation; and (2) any person who furnishes any fabricated or finished product, material, or article of merchandise which is not incorporated into or attached to real property by such person so as to become affixed thereto. N.D. Cent. Code Ann. § 43-07-08.
A “contractor” is “any person engaged in the business of construction, repair, alteration, dismantling, or demolition of bridges, highways, roads, streets, buildings, airports, dams, drainage or irrigation ditches, sewers, water or gas mains, water filters, tanks, towers, oil, gas, or water pipelines, and every other type of structure, project, development, or improvement coming within the definition of real or personal property, including the construction, alteration, or repair of property to be held either for sale or rental, and shall include subcontractor, public contractor, and nonresident contractor.” N.D. Cent. Code Ann. § 43-07-01(1).
Acting as a contractor without a license is a misdemeanor. N.D. Cent. Code Ann. § 43-07-02(2).
Contractor licensing procedure (N.D. Cent. Code Ann. § 43-07-04):
- To obtain a license, an applicant who is eighteen years of age or older must submit, on forms the registrar prescribes, an application under oath containing a statement of the applicant's experience and qualifications as a contractor
- A copy of a certificate of liability insurance must be filed with the application
- The contractor must submit a statement from North Dakota workforce safety and insurance that the contractor has secured workforce safety and insurance coverage satisfactory to workforce safety and insurance
- If the registrar deems it appropriate or necessary, the registrar may require any other information to assist the registrar in determining the applicant's eligibility to act in the capacity of a contractor, including, at the expense of the applicant, criminal history record information of the applicant or the officers, members, or partners of the applicant which is held or maintained by the bureau of criminal investigation or a similar entity in another state
- The application must contain a statement that the applicant desires the issuance of a license under N.D. Cent. Code Ann. § 43-07 and must specify the class of license sought.
Any administrative body or governing body, agency, or commission having power to enter into public contracts may impose reasonable requirements and conditions as conditions precedent to the awarding of a contract for the construction or reconstruction of public works in addition to the requirements imposed by N.D. Cent. Code Ann. § 43-07. N.D. Cent. Code Ann. § 43-07-06.
Common Law & Statutory Claims
Construction Fraud (N.D. Cent. Code Ann. § 43-07-02(3)-(5)):
A person commits construction fraud if:
The person receives payment for a construction project by intentionally using deception
The person receives payment for the purchase of materials or supplies and willfully fails to pay the supplier for the goods received.
The person willfully abandons a construction project after receiving payment for services or materials. Abandonment under this subdivision arises if:
i. A contractor fails substantially to commence any work agreed upon:
- Within sixty days of a starting date agreed upon in writing; or
- Within ninety days of the contract date if no starting date is agreed upon in writing; or
ii. A contractor fails to complete any work agreed upon in writing within ninety days of a completion date agreed upon in writing, or within one hundred eighty days of the contract date if no completion date is agreed upon in writing.
It is a defense to prosecution if:
The person returned all of the payment received for work not performed or materials not supplied.
- If the person provided materials to the jobsite but did not pay suppliers for those materials, this defense does not apply.
- This defense is only valid if the payment was provided before criminal charges were filed.
The person had a legitimate legal excuse for nonperformance.
The person was not able to begin or complete the project because there were factors outside of the person's control and the person made substantial efforts to resolve any dispute.
The grade of the offense for construction fraud is based on the amount of payment received.
Payment of under ten thousand dollars is a class C felony; more than ten thousand dollars but not more than fifty thousand dollars is a class B felony; and more than fifty thousand dollars is a class A felony.
Breach of Contract
The elements of a prima facie case for breach of contract are:
(1) the existence of a contract; (2) breach of the contract; and
(3) damages which flow from the breach. Serv. Oil, Inc. v. Gjestvang, 2015 ND 77, ¶ 15, 861 N.W.2d 490, 496.
A party asserting a claim for breach of contract has the burden to prove these elements. Id.
No damages can be recovered for a breach of contract if they are not clearly ascertainable in both their nature and origin. N.D. Cent. Code Ann. § 32-03-09.
In a negligence action, the plaintiff must prove (1) duty; (2) breach of that duty; (3) causation and (4) damages. Chegwidden v. Evenson, 2015 ND 131, ¶ 18, 863 N.W.2d 843, 848–49.
An independent contractor or subcontractor may be liable for its own negligence to all who may be foreseeably injured by the conditions at a construction site during construction. Grewal v. N. Dakota Ass'n of Ctys. & Nw. Contracting, Inc., 2003 ND 156, ¶ 20, 670 N.W.2d 336, 342.
“For the breach of an obligation not arising from contract, the measure of damages, except when otherwise expressly provided by law, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.” N.D. Cent. Code Ann. § 32-03-20.
Breach of Warranty
North Dakota law recognizes an implied warranty of fitness for the purpose in construction contracts. Leno v. K & L Homes, Inc., 2011 ND 171, ¶ 10, 803 N.W.2d 543, 547.
The implied warranty of fitness for the purpose in construction contracts is recognized where:
(1) the contractor holds himself out, expressly or by implication, as competent to undertake the contract; and the owner (2) has no particular expertise in the kind of work contemplated; (3) furnishes no plans, designs, specifications, details, or blueprints; and (4) tacitly or specifically indicates his reliance on the experience and skill of the contractor, after making known to him the specific purposes for which the building is intended. Id.
The existence of an implied warranty of fitness for the purpose in a construction contract, and the breach of the warranty, are findings of fact. Id.
Fault and modified comparative fault statutes do not apply to purchasers' action against home builder(s) for breach of construction contract and breach of implied warranty of fitness for purpose in construction contracts. Id.
Misrepresentation and Fraud
A tort action for fraud requires (See N.D. Cent. Code Ann. § 9-03-08; Northstar Founders, LLC v. Hayden Capital USA, LLC, 2014 ND 200, ¶ 27, 855 N.W.2d 614, 626):
- a contract between the parties;
- a misrepresentation of facts, suppression of facts, misleading another, or promising without an intent to perform;
- reliance on the false or misleading representation; and
- proof of actual damages proximately caused by the misrepresentation or nondisclosure.
One who willfully deceives another with intent to induce that person to alter that person's position to that person's injury or risk is liable for any damage which that person thereby suffers. N.D. Cent. Code Ann. § 9-10-03.
A deceit within the meaning of section (9-10-03 is N.D. Cent. Code Ann. § 9-10-02):
- The suggestion as a fact of that which is not true by one who does not believe it to be true;
- The assertion as a fact of that which is not true by one who has no reasonable ground for believing it to be true;
- The suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; or
- A promise made without any intention of performing.
Under North Dakota law, a promise made without any intention of performing it which does not meet the requirements of a contract between the parties may nevertheless satisfy the requirements of deceit, and the victim of that deceit may recover for any damage suffered. Macquarie Bank Ltd. v. Knickel, 723 F. Supp. 2d 1161 (D.N.D. 2010), aff'd, 793 F.3d 926 (8th Cir. 2015).
Constructive fraud consists:
i. In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault or anyone claiming under that person, by misleading another to the other's prejudice or to the prejudice of anyone claiming under the other; or
ii. In any such act or omission as the law specially declares to be fraudulent without respect to actual fraud.
iii. N.D. Cent. Code Ann. § 9-03-09.
Constructive fraud requires the existence of a contract. Clausen v. Nat'l Geographic Soc., 664 F. Supp. 2d 1038, 1053 (D.N.D. 2009), aff'd sub nom., Clausen v. Nat'l Geographic Soc'y, 378 F. App'x 595 (8th Cir. 2010).
Constructive fraud is generally used to characterize a misrepresentation made without knowing it is false. Id.
Constructive fraud arises from a breach of a duty which is owed ordinarily because of a fiduciary or confidential relationship between the parties. Id.
N.D. Cent. Code Ann. § 32-03-09:
For the breach of an obligation arising from contract, the measure of damages, except when otherwise expressly provided by the laws of this state, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby or which in the ordinary course of things would be likely to result therefrom. No damages can be recovered for a breach of contract if they are not clearly ascertainable in both their nature and origin.
N.D. Cent. Code Ann. § 32-03-20:
For the breach of an obligation not arising from contract, the measure of damages, except when otherwise expressly provided by law, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.
Cost of Repair
Dobler v. Malloy, 214 N.W.2d 510, 518 (N.D. 1973):
There are two possible measures of damages:
If the contract is substantially performed, and the breach of contract can be remedied without taking down and reconstructing a substantial portion of the building, the amount of damages is the cost of making the work conform to the contract.
Or, where the defects cannot be remedied without reconstruction of a substantial portion of the work, the measure of damage is the difference in value between what it would have been if built according to contract and what was actually built.
Measure of damages for injury to property not arising from contract (N.D. Cent. Code Ann. § 32-03-09.1.):
The measure of damages for injury to property caused by the breach of an obligation not arising from contract, except when otherwise expressly provided by law, is presumed to be the reasonable cost of repairs necessary to restore the property to the condition it was in immediately before the injury was inflicted and the reasonable value of the loss of use pending restoration of the property, unless restoration of the property within a reasonable period of time is impossible or impracticable, in which case the measure of damages is presumed to be the difference between the market value of the property immediately before and immediately after the injury and the reasonable value of the loss of use pending replacement of the property. Restoration of the property shall be deemed impracticable when the reasonable cost of necessary repairs and the reasonable value of the loss of use pending restoration is greater than the amount by which the market value of the property has been diminished because of the injury and the reasonable value of the loss of use pending replacement.
“The thrust of § 32-03-09.1, N.D.C.C., is that either the cost to repair or the diminution in value, whichever is lower, is the measure which should be applied. The diminution in value method is applicable only when restoration is impossible or impracticable.” Swain v. Harvest States Cooperatives, 469 N.W.2d 571, 573 (N.D. 1991) (quoting Roll v. Keller, 356 N.W.2d 154 (N.D. 1984)).
Cost to repair home was correct method for measuring damages in breach of contract action, even though cost for repairing home was not insubstantial amount, where cost to repair house was lower than diminution in value so that restoration of house was neither impracticable nor impossible. Swain v. Harvest States Cooperatives, 469 N.W.2d 571 (N.D. 1991).
Diminution in Value
The diminution in value method is applicable only when restoration is impossible or impracticable. Roll v. Keller, 356 N.W.2d 154, 157 (N.D. 1984); Swain v. Harvest States Cooperatives, 469 N.W.2d 571, 573 (N.D. 1991).
Diminution in value is the appropriate measure of damages where a contractor's violation of a building contract results in defects which cannot be remedied without reconstruction of, or material injury to, a substantial portion of the building. Storebo v. Foss, 325 N.W.2d 223, 225 (N.D. 1982).
Punitive damages are not available for actions based upon breach of contract. N.D. Cent. Code Ann. § 32-03.2-11.
In order to be awarded punitive damages a defendant must be found “guilty by clear and convincing evidence of oppression, fraud, or actual malice” N.D. Cent. Code Ann. § 32-03.2-11.
A party does not need to plead punitive damages at the commencement of an action, but may make a motion to amend the pleadings to seek punitive damages after the commencement of an action. N.D. Cent. Code Ann. § 32-03.2-11.
In civil actions the court shall, upon a finding that a claim for relief was frivolous, award reasonable actual and statutory costs, including reasonable attorney's fees to the prevailing party. Such costs must be awarded regardless of the good faith of the attorney or party making the claim for relief if there is such a complete absence of actual facts or law that a reasonable person could not have thought a court would render judgment in that person's favor, providing the prevailing party has in responsive pleading alleged the frivolous nature of the claim. This subsection does not require the award of costs or fees against an attorney or party advancing a claim unwarranted under existing law, if it is supported by a good-faith argument for an extension, modification, or reversal of the existing law. N.D. Cent. Code Ann. § 28-26-0(2.).
“[I]n the absence of express statutory or contractual authorization, attorney fees incurred by a plaintiff in litigation are not recoverable as an item of damages, because attorney fees are not a legitimate consequence of the tort or breach of contract.” Danzl v. Heidinger, 2004 ND 74, ¶ 6, 677 N.W.2d 924, 926.
Joint and Several Liability (specific to construction)
North Dakota is a modified comparative fault state:
Modified comparative fault (N.D. Cent. Code Ann. § 32-03.2-02.):
Contributory fault does not bar recovery in an action by any person to recover damages for death or injury to person or property unless the fault was as great as the combined fault of all other persons who contribute to the injury, but any damages allowed must be diminished in proportion to the amount of contributing fault attributable to the person recovering. The court may, and when requested by any party, shall direct the jury to find separate special verdicts determining the amount of damages and the percentage of fault attributable to each person, whether or not a party, who contributed to the injury. The court shall then reduce the amount of such damages in proportion to the amount of fault attributable to the person recovering.
When two or more parties are found to have contributed to the injury, the liability of each party is several only, and is not joint, and each party is liable only for the amount of damages attributable to the percentage of fault of that party, except that any persons who act in concert in committing a tortious act or aid or encourage the act, or ratifies or adopts the act for their benefit, are jointly liable for all damages attributable to their combined percentage of fault. Under this section, fault includes negligence, malpractice, absolute liability, dram shop liability, failure to warn, reckless or willful conduct, assumption of risk, misuse of product, failure to avoid injury, and product liability, including product liability involving negligence or strict liability or breach of warranty for product defect.
There is a right to contribution for joint and severally liable tort-feasors (N.D. Cent. Code Ann. § 32-38-01):
- Except as otherwise provided in this chapter, if two or more persons become jointly or severally liable in tort for the same injury to person or property or for the same wrongful death, there is a right of contribution among them even though judgment has not been recovered against all or any of them.
- The right of contribution exists only in favor of a tort-feasor who has paid more than that tort-feasor's pro rata share of the common liability, and that tort-feasor's total recovery is limited to the amount paid by that tort-feasor in excess of that tort-feasor's pro rata share. No tort-feasor is compelled to make contribution beyond that tort-feasor's own pro rata share of the entire liability.
- There is no right of contribution in favor of any tort-feasor who has intentionally (willfully or wantonly) caused or contributed to the injury or wrongful death.
- A tort-feasor who enters into a settlement with a claimant is not entitled to recover contribution from another tort-feasor whose liability for the injury or wrongful death is not extinguished by the settlement nor in respect to any amount paid in a settlement which is in excess of what was reasonable.
- A liability insurer, who by payment has discharged in full or in part the liability of a tort-feasor and has thereby discharged in full its obligation as insurer, is subrogated to the tort-feasor's right of contribution to the extent of the amount it has paid in excess of the tort-feasor's pro rata share of the common liability. This provision does not limit or impair any right of subrogation arising from any other relationship.
- This chapter does not impair any right or indemnity under existing law. If one tort-feasor is entitled to indemnity from another, the right of the indemnity obligee is for indemnity and not contribution, and the indemnity obligor is not entitled to contribution from the obligee for any portion of the obligor's indemnity obligation.
- This chapter shall not apply to breaches of trust or of other fiduciary obligation.
“Fault and modified comparative fault do not apply where the cause of action arises solely out of the contract between the parties, and the damages sought are for the loss of the expected bargain only.” Leno v. K & L Homes, Inc., 2011 ND 171, ¶ 19, 803 N.W.2d 543, 551.
Fault and modified comparative fault statutes applicable to claims for breach of warranty and breach of warranty for product defect applied to actions in tort, and not to purchasers' action against home builder for breach of construction contract and breach of implied warranty of fitness for purpose in construction contract, and therefore, purchasers' alleged comparative fault for damage to home was not relevant to any issue. Leno v. K & L Homes, Inc., 2011 ND 171, 803 N.W.2d 543.
“Under North Dakota law, when two or more tortfeasors contribute to a plaintiff's injury, their liability is several only, unless they acted in concert. Since liability is several, a plaintiff may not recover more than the percentage of fault attributed to a single tortfeasor. Thus, if a jury attributes fault to a party the plaintiff has not sued, then the plaintiff cannot recover that portion of the judgment from the named defendants. A party is only liable for its own fault, and claims for contribution among tortfeasors are generally foreclosed.” Chapman v. Hiland Partners GP Holdings, LLC, 49 F. Supp. 3d 649, 652 (D.N.D. 2014).
Cost Incurred to Access Repair Areas
No apparent authority on the issue.
“There is a clear distinction between the two theories of recovery in that damages not even anticipated are recoverable in tort, while only such damages as were reasonably contemplated by the parties at the time of entering into the agreement are recoverable for a breach of contract.” Merrill Iron & Steel, Inc. v. Minn-Dak Seeds, Ltd., 334 N.W.2d 652, 656 (N.D. 1983).
“Double recovery for breach of contract and negligent construction is impermissible since a party may not recover twice for the same injury simply because he has two legal theories.” Id.
Trigger of Coverage
Definition of an Occurrence
“[F]aulty workmanship may constitute an ‘occurrence’ if the faulty work was ‘unexpected’ and not intended by the insured, and the property damage was not anticipated or intentional, so that neither the cause nor the harm was anticipated, intended, or expected.” K & L Homes, Inc. v. Am. Family Mut. Ins. Co., 2013 ND 57, ¶ 26, 829 N.W.2d 724, 736.
“[P]roperty damage caused by faulty workmanship is a covered occurrence to the extent the faulty workmanship causes bodily injury or property damage to property other than the insured's work product.” ACUITY v. Burd & Smith Const., Inc., 2006 ND 187, ¶ 16, 721 N.W.2d 33, 39.
Duty to Defend
Generally, “[i]ndemnity contracts are subject to the same rules of contract interpretation as other contracts.” Chapman v. Hiland Partners GP Holdings, LLC, 49 F. Supp. 3d 649, 653 (D.N.D. 2014).
There are certain default rules for the interpretation of indemnity clauses:
N.D. Cent. Code Ann. § 22-02-07:
In the interpretation of a contract of indemnity, unless a contrary intention appears, the following rules are to be applied:
- Upon an indemnity against liability, expressly or in other equivalent terms, the person indemnified is entitled to recover upon becoming liable.
- Upon an indemnity against claims, demands, damages, or costs, expressly or in other equivalent terms, the person indemnified is not entitled to recover without payment thereof.
- An indemnity against claims, demands, or liability, expressly or in other equivalent terms, embraces the costs of defense against such claims, demands, or liability incurred in good faith and in the exercise of reasonable discretion.
- The person indemnifying is bound, on the request of the person indemnified, to defend actions or proceedings brought against the latter in respect to the matters embraced by the indemnity, but the person indemnified has the right to conduct such defense if that person chooses to do so.
- If, after request, the person indemnifying neglects to defend the person indemnified, a recovery against the latter, suffered by the latter in good faith, is conclusive in the latter's favor against the former.
- If the person indemnifying, whether that person is a principal or a surety in the agreement, has not had reasonable notice of action or proceedings against the person indemnified or is not allowed to control its defense, judgment against the latter is only presumptive evidence against the former.
- A stipulation that a judgment against the person indemnified shall be conclusive upon the person indemnifying is inapplicable if the person indemnifying had a good defense upon the merits which, by want of ordinary care, the person indemnifying failed to establish in the action.
In indemnity contracts, “[t]he lack of any requirement that customers be named as additional insureds is significant.” Chapman v. Hiland Partners GP Holdings, LLC, 49 F. Supp. 3d 649, 655 (D.N.D. 2014) (citing Barsness v. General Diesel & Equipment Co., Inc., 422 N.W.2d 819, 826 (N.D.1988) (finding an indemnity clause did not require the indemnitee be indemnified for its own negligence because the indemnity clause did not require the indemnitee to be added as an additional insured).
“Unmistakable intent is evidenced by the inclusion of both hold harmless and insurance provisions in a contract.” Id.
No general anti-indemnity statute for construction contracts.
However, there are three kinds of indemnity provisions that are specifically invalidated by statute:
- All contracts which have for their object, directly or indirectly, the exempting of anyone from responsibility for that person's own fraud or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of the law. N.D. Cent. Code Ann. § 9-08-02.
- Any provision in a construction contract which would make the contractor liable for the errors or omissions of the owner or the owner's agents in the plans and specifications of such contract is against public policy and void. N.D. Cent. Code Ann. § 9-08-02.1.
- Certain indemnity provisions in motor carrier transportation contracts. See, N.D. Cent. Code Ann. § 22-02-10.
Coverage for AI’s own negligence vs. vicarious liability for Named Insured
Coverage For Additional Insured’s Own Negligence:
- Indemnity provisions in construction contracts, when considered with an additional insured provision, can support finding that an additional insured is intended to be indemnified for its own negligence. See, Rupp v. Am. Crystal Sugar Co., 465 N.W.2d 614 (N.D. 1991).
- An additional insured is not entitled to be indemnified in an amount higher than the minimum insurance coverage required by the additional insured. See, Id.
Determining Primary and Non-Contributory vs. Excess Position
A declaratory judgment action can be filed to determine priority of coverage. See, Star Ins. Co. v. Cont'l Res., Inc., 89 F. Supp. 3d 1015, 1022 (D.N.D. 2015).
“Which insurer is primary and which is excess is determined by the indemnity agreement, not the language in the policies describing the coverage as primary or excess. It is the parties' rights and liabilities to each other which determine the insurance coverage; the insurance coverage does not define the parties' rights and liabilities to one another.” Star Ins. Co. v. Cont'l Res., Inc., 89 F. Supp. 3d 1015, 1029 (D.N.D. 2015).
AI carrier’s rights to reimbursement for defense expenses from other, co-primary carriers
“An indemnitor and its insurer bear full responsibility for covered indemnification payments, even if the indemnitee has other insurance covering the same loss.” Star Ins. Co. v. Cont'l Res., Inc., 89 F. Supp. 3d 1015, 1029 (D.N.D. 2015).
Insureds Right to Independent Counsel and Consequences of Rejecting a Defense
An insured has a right to independent counsel when there is a conflict of interest with the insurer, and the court may require an insurer to “furnish independent counsel to represent the insured on the insurer's claims and defenses, or [to reimburse] the insured's reasonable attorney fees for those services.” Fetch v. Quam, 530 N.W.2d 337, 340 (N.D. 1995).
“[A]n insurer which denies coverage, refuses to defend, and abandons its insured leaves the entire control and conduct of the litigation with its insured and forfeits its right to prior notice of the settlement.” D.E.M. v. Allickson, 555 N.W.2d 596, 602 (N.D. 1996).
A defense only needs to be provided if the allegations within the complaint fall under the coverage provided by the applicable policy. See, Tibert v. Nodak Mut. Ins. Co., 2012 N.D. 81, 816 N.W.2d 31 (N.D. 2012).
“[I]f the allegations pleaded in the complaint viewed at the time of tender include any potential liability or possibility of coverage under the policy, there is a duty to defend, and the insurer cannot simply refuse to provide a defense in the hope that the facts as determined by the factfinder in the underlying lawsuit preclude coverage under a policy exclusion.” Tibert v. Nodak Mut. Ins. Co., 2012 N.D. 81, ¶ 36, 816 N.W.2d 31, 44 (N.D. 2012).
Choice of Law (Forum Selection Clauses)
Generally, forums selection clauses are prima facie valid and enforceable, unless they are unjust or invalid. See, Osborne v. Brown & Saenger, Inc., 2017 N.D. 288, ¶ 9, 904 N.W.2d 34, 37 (N.D. 2017).
N.D. Cent. Code Ann. § 28-04.1-03:
If the parties have agreed in writing that an action on a controversy may be brought only in another state and it is brought in a court of this state, the court will dismiss or stay the action, as appropriate, unless:
- The court is required by statute to entertain the action;
- The plaintiff cannot secure effective relief in the other state, for reasons other than delay in bringing the action;
- The other state would be a substantially less convenient place for the trial of the action than this state;
- The agreement as to the place of the action was obtained by misrepresentation, duress, the abuse of economic power, or other unconscionable means; or
- It would for some other reason be unfair or unreasonable to enforce the agreement.
“A forum-selection clause may be set aside if enforcement would contravene a strong public policy of the forum in which suit is brought.” Osborne v. Brown & Saenger, Inc., 2017 N.D. 288, ¶ 9, 904 N.W.2d 34, 37 (N.D. 2017).
It does not appear that North Dakota courts have addressed the targeted tender doctrine.
North Dakota permits Miller-Shugart settlement agreements. See, Wangler v. Lerol, 2003 N.D. 164, 670 N.W.2d 830 (N.D. 2003).
Under a Miller-Shugart settlement agreement, “an insured defendant may settle a plaintiff's claims and stipulate judgment may be collected only from the proceeds of an insurance policy.” Wangler v. Lerol, 2003 N.D. 164, ¶ 5, 670 N.W.2d 830, 832 (N.D. 2003).
“The stipulated judgment is not conclusive on the insurer, and the plaintiff judgment creditor has the burden of showing the settlement was reasonable and prudent.” Id.