NEBRASKA 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 Common Law & Statutory Claims
- 2 Construction Damages
3 Trigger of Coverage
- 3.1 Definition of an Occurrence
- 3.2 Duty to Defend
- 3.3 Coverage Defenses
- 3.4 Targeted Tenders
- 3.5 Consent Judgments
Limitations & Repose Periods
Statutes of Limitations
Nebraska’s statute of limitations for actions based on written contracts is five years. Neb. Rev. St., §25-205. The period for actions based on a contract not in writing is four years. Neb. Rev. St., §25-206. Actions based in tort must be brought within four years. Neb. Rev. St., §§ 25-207, 25-212.
A statute of limitations begins to run as soon as a claim accrues, and an action in tort accrues as soon as the act or omission occurs. Rania K. Shlien v. The Bd. of Regents of the Univ. of Neb., 640 N.W.2d 643, 650 (Neb. 2002). In certain categories of cases, the statute of limitations begins to run on the date when the party holding the claim discovers or, in the exercise of reasonable diligence, should have discovered the existence of the injury. Alston v. Hormel Foods Corp., 730 N.W.2d 376, 381 (Neb. 2007).
Statute of Limitations Regarding Alleged Construction Defects
Statute of Limitations Regarding Alleged Construction Defects
Any action to recover damages based on any alleged breach of warranty on improvements to real property or based on any alleged deficiency in the construction of an improvement to real property shall be commenced within four years after any alleged act or omission constituting such breach of warranty or deficiency. Neb. Rev. St. §25-223. The statute runs from the date of substantial completion of the project. If such cause of action is not discovered and could not be reasonably discovered within such four-year period, or within one year preceding the expiration of such four-year period, then the cause of action may be commenced within two years from the date of such discovery or from the date of discovery of facts which would reasonably lead to such discovery, whichever is earlier. Id. This section, as a special statute of limitations concerning negligent construction of an improvement on real estate, applies only to actions, whether based on negligence or breach of warranty, brought against contractors and builders. Murphy v. Spelts-Schultz Lumber Co., 481 N.W.2d 422 (Neb. 1992).
Statute of Limitations of a Claim Brought Pursuant to the Uniform Deceptive Trade Practices Act
A civil action arising under the Uniform Deceptive Trade Practices Act must be brought within four years from the date of the purchase of goods or services. Neb. Rev. St. §87-303.10. See also Meyer Bros. v. Travelers Ins. Co., 551 N.W.2d 1, 4 (Neb. 1996).
Statute of Limitations of a Claim Brought Pursuant to Breach of Implied Warranty of Habitability
Any action to recover damages based on any alleged breach of warranty on improvements to real property shall be brought within four years. Neb. Rev. St., §25-223.
Statute of Limitations of a Claim Brought Pursuant to Breach of Express Warranty
Any action to recover damages based on any alleged breach of warranty on improvements to real property shall be brought within four years. Neb. Rev. St., §25-223.
Statute of Limitations of a Claim Based on Fraud
A civil action arising under fraud must be brought within four years from the date the fraud is discovered. Neb. Rev. St. §25-207. See also Meyer Bros. v. Travelers Ins. Co., 551 N.W.2d 1, 4 (Neb. 1996).
The Discovery Rule in Relation to Tolling the Statute of Limitations in Actions Involving Construction Defects
This state has adopted a “discovery rule” which states that the statute of limitations does not begin to run until the claimant discovers, or reasonably should have discovered, the existence of the cause of action. Neb. Rev. St., §25-223. Under Nebraska law, the discovery rule simply provides an exception to a statute of limitations for a claim that would otherwise be outside the statutory period. The statute of limitations for an action based on alleged deficiencies in improvements to real property does not run during the time when the plaintiff reasonably could not discover the existence of the cause of action. Grand Island Sch. Dist. #2 v. Celotex Corp., 279 N.W.2d 603 (1979). The discovery rule is best understood as a “tolling doctrine.” Alston v. Hormel Foods Corp., 730 N.W.2d 376 (2007).
Statute of Repose:
Nebraska’s statute of repose bars claims brought to recover damages for an alleged breach of warranty on improvements to real property or deficiency in the construction of an improvement to real property which are brought more than ten years beyond the time of the act giving rise to the cause of action. Neb. Rev. St. §25-223. The Nebraska Supreme Court has also made clear that period of repose does not begin to run until construction is completed when the contractor had a duty to inspect throughout the entirety of construction. Williams v. Kingery Constr. Co., 225 Neb. 235, 404 N.W.2d 32 (1987).
As for contribution and indemnification claims, Nebraska law holds that “a claim for indemnity accrues at the time the indemnity claimant suffers loss or damage.” Wood River v. Geer-Melkus Constr. Co., 233 Neb. 179, 188, 444 N.W.2d 305, 311 (1989). Further, “an action for contribution does not accrue until a co-obligor has paid more than his or her proportionate share of the debt as a whole.” Cepel v. Sntalkomb, 261 Neb. 934, 941, 628 N.W.2d 654, 660 (2001).
Right to Repair Laws and/or Pre-Suit Statutory Procedures
There is no Nebraska law requiring any kind of pre-suit notice or opportunity to cure in a non-UCC context. The contract between the parties will be the sole source of law on the matter.
Indemnity and Contribution
Neb. Rev. St. § 25-21, 187 provides that any public or private construction contract that contains a provision to indemnify or hold another person harmless from that person’s own negligence is void as against public policy. Id. § 25-21, 187(1). This provision, however, does not apply to construction bonds or insurance contracts. Id. Further, no professional architect, engineer or land surveyor retained to perform professional services on a construction project shall be liable in tort for any case of personal injury to or death of any employee working on a construction project occurring as a result of a third party’s violation of a safety practice, unless the professional has assumed responsibility for supervision of safety practices by contract or other conduct. Id. § 25-21, 187(2).
Even if a party to a construction contract holds the other harmless for the other’s own negligence, which is prohibited under Section 25-21, 187, the entire indemnification clause is not rendered void and unenforceable; rather, only the portion of the contract prohibited by statute is stricken from the indemnification clause, and the language may be interpreted to impose liability on the indemnitor. Day v. Toman, 266 F.3d 831, 835 (8th Cir. 2001) (interpreting Nebraska law).
The Court has also recognized that the obligation to indemnify may be implied, if an express obligation is lacking. Hiway 20 Terminal, Inc. v. Tri-County, Agri-Supply, Inc., 232 Neb. 763, 768, 443 N.W.2d 872, 875 (1989). While indemnification normally requires the recovering party to be without fault, Nebraska law in this area draws a distinction between active wrongdoers (who cannot recover) and passive wrongdoers (who may be able to recover from an active wrongdoer). Id. at 769-70, 443 N.W.2d at 876.
Joint tortfeasors have a right to contribution. The contribution plaintiff must extinguish the liability of the joint tortfeasor from whom contribution is sought. The right to contribution becomes enforceable when one tortfeasor discharges more than his proportionate share of the judgment. Royal Indem. Co. v. Aetna Cas. & Surety Co., 229 N.W.2d 183 (Neb. 1975).
In order to recover on a claim for contribution among joint tort-feasors, the following elements must be shown: (1) There must be a common liability among the party seeking contribution and the parties from whom contribution is sought; (2) the party seeking contribution must have paid more than its pro rata share of the common liability; (3) the party seeking contribution must have extinguished the liability of the parties from whom contribution is sought; and (4) if such liability was extinguished by settlement, the amount paid in settlement must be reasonable. Estate of Powell v. Montange, 277 Neb. 846, 855-56, 765 N.W.2d 496, 504 (2009).
Certificate of Merit – Experts
Economic Loss Doctrine
Nebraska courts recognize the economic loss doctrine. See Lesiak v. Central Valley Ag Co-op, 808 N.W.2d 67 (Neb. 2012). The economic loss doctrine would not bar tort theories in cases, where either (1) the damages alleged were not solely economic losses or (2) there existed an independent tort duty alleged to be breached, which was separate and distinct from the contractual duty. Id. at 83. Nebraska law has only entertained the doctrine’s application in cases of economic losses “(1) caused by a defective product, or (2) caused by an alleged breach of a contractual duty, where no tort duty exists independent of the contract itself.” Thurston v. Nelson, 842 N.W.2d 631, 643 (Neb. 2014). In addition, the court has “define[d] economic losses as commercial losses” and stated that “[t]he phrase ‘other property’ means property other than the property that was the subject of the contract.” Id. Nebraska courts have declined to adopt a liberal approach to the doctrine, specifically declining to apply the doctrine in a dispute between local farmers and a farming cooperative using the “disappointed expectations test” application of the doctrine. Lesiak v. Cent. Valley Ag Co-op., Inc., 808 N.W.2d 67, 84 (Neb. 2012)
Common Law & Statutory Claims
In Nebraska, contribution is an equitable remedy given to the party who pays a debt that is concurrently owed by another party, and the existence of a common obligation makes the right to contribution possible. Am. Family Mut. Ins. Co. v. Regent Ins. Co., 288 Neb. 25, 846 N.W.2d 170 (2014).
The measure of damages under Nebraska law can be daunting. See Omaha Public Power District v. Darin & Armstrong, Inc., 205 Neb. 484, 288 N.W.2d 467 (1980). When a breach of contract occurs, the plaintiff is generally entitled to the full profit he would have realized under the contract. See Wiebe Constr. Co. v. School Dist. of Millard, 198 Neb. 730, 255 N.W.2d 413 (1977). In Nebraska, damages for defects in materials, construction, or workmanship are measured by the cost of remedying the defects. Moss v. Speck, 209 Neb. 46, 48, 306 N.W.2d 156, 157 (1981). However, where the defects cannot be remedied without material injury to or reconstruction of a substantial portion of the building, the damages are measured by the difference between the value of the structure as constructed and the value of the structure if it had been constructed according to the contract. Id. There is case law in Nebraska supporting an award of damages for lost profits. See El Fredo Pizza, Inc. v. Roto-Flex Oven Co., 199 Neb. 697, 261 N.W.2d 358 (1978); Neb. Nutrients, Inc. v. Shepherd, 261 Neb. 723, 766, 626 N.W.2d 472, 508 (2001).
Diminution in Value/Cost of Repair/Stigma Damages
No damages for delay clauses generally are enforceable in Nebraska. Roberts Constr. Co. v. State, 111 N.W.2d 767, 771 (Neb. 1961) (holding that a contractor may recover delay damages “in the absence of a ‘no damage clause’ or other provision to the contrary in the contract”); see also Siefford v. Housing Authority of Humboldt, 192 Neb. 643, 655 (Neb. 1974) (recognizing that a contractor may be precluded, by virtue of a specific contractual provision eliminating damages for delay or hindrance, from recovering damages for delay caused by the hiring party). Nebraska case law does not specifically provide for a stigma damages claim. However, there is case law allowing diminution in value damages for claims of negligence in construction. See Hiway 20 Terminal, Inc. v. Tri-Country Agri-Supply, Inc., 232 Neb. 763, 443 N.W.2d 872 (1989)
Under Nebraska law, punitive or exemplary damages with respect to state causes of action are prohibited by the Constitution of the State of Nebraska. Ayres v. AG Processing, Inc., No. 04-2060-DJW, 2005 U.S. Dist. LEXIS 15332, at *10 (D. Kan. July 22, 2005); NEB. CONST. art. VII, § 5.
The rule in Nebraska is that attorney’s fees and expenses are not available unless specifically provided for by statute or a uniform course of procedure. Quinn v. Godfather’s Investments, Inc., 217 Neb. 441, 444 (1984). Contracting parties cannot override this rule, either—a provision that seeks to make a breaching party liable for attorney’s fees is void. Id.
Where a statute speaks only to attorney’s fees and costs, a party may recover (1) attorney’s fees, (2) the costs of the filing of the action, and (3) any other expenses that are specifically delineated as taxable costs by statute (not litigation expenses). McGill v. Lion Place Condo Ass’n, 291 Neb 70, 95 (2015).
Joint and Several Liability (specific to construction)
Joint and Several liability exists in Nebraska, but in a modified form. Distinctions are drawn between economic and non-economic damages and whether the defendants were acting as part of a “common enterprise.” Thus, according to Nebraska statute, “in an action involving more than one defendant when two or more defendants as part of a common enterprise or plan act in concert and cause harm, the liability of each such defendant for economic and non-economic damages shall be joint and several.” Neb. Rev. Stat. § 25-21,185.10 (emphasis added).
Nebraska courts also follow the rule that under joint and several liability, either defendant may be held liable for the entire damage, and a plaintiff need not join all tortfeasors as defendants in an action for damages. Tadros v. City of Omaha, 273 Neb. 935, 938, 745 N.W.2d 377, 380 (2007).
If the damages arising from faulty workmanship can be easily remediated, then the damages are measured by the “reasonable cost of remedying the defects.” Lis v. Moser Well Drilling & Sere, 221 Neb. 349, 352 (1985). But if the substantial reconstruction would be required to remedy the defect, then “the damages are measured by the difference between the value of the building as constructed compared to what its value would have been if constructed according to the contract.” Id.
At least one Nebraska court has directly addressed the enforcement of a waiver of consequential damages in the construction context. In 9th Street Apt. L.L.C. v. DRA Anderson Constructors Co., 2009 WL 3260661 (Neb. Ct. App. 2009), the court enforced a provision in which the contractor and owner mutually waived their respective rights to seek consequential damages, despite the owner’s claim that the contractor was grossly negligent in allowing a fire to start in the building. In reaching this conclusion, the court determined that the waiver of consequential damages clause in the parties’ contract was more akin to a waiver of subrogation clause than an exculpatory clause, because the waiver was mutual and both parties waived their rights against the other for certain damages. Id. at *5.
Loss of Use
Currently there do not appear to be any Nebraska cases addressing whether a plaintiff may recover loss of use damages in a construction case.
Trigger of Coverage
Nebraska courts strictly interpret contracts. In Nebraska, the intent of parties to a written contract must be determined from the documents alone. Lueder Constr. Co. v. Lincoln Elec. Sys., 424 N.W.2d 126, 129 (Neb. 1988)(parties’ contractual intent is determined exclusively from the documents and is not subject to construction and interpretation unless an objective basis for finding an ambiguity exists). The courts must first determine as a matter of law whether the contract is ambiguous. Davenport Ltd. P’ship v. 75th & Dodge I, L.P., 780 N.W.2d 416, 422 (Neb. 2010). If the contract is clear and unambiguous, the language of the contract is not subject to interpretation or construction and it must be enforced as written. Id. However if the contract is ambiguous, extrinsic evidence may be used to determine the meaning of the contract. Id. at 423.
Definition of an Occurrence
Consistent with the majority of courts, the Nebraska Supreme Court has concluded that faulty workmanship is not an occurrence covered under a standard commercial general liability policy (“CGL policy”). Auto-Owners Insurance Company v. Home Pride Companies, Inc., 268 Neb. 528, 684 N.W.2d 571 (2004). The Nebraska Supreme Court concluded that although the term “accident” was not defined in the policy, an accident includes any event which takes place without the foresight or expectation of the person acted upon or affected thereby. Id. Faulty workmanship is not an accident and, therefore, not an occurrence. Id. The court went on to state, however, although faulty workmanship, standing alone, is not an occurrence under a CGL policy, an accident caused by faulty workman is a covered occurrence. Id. See also, Drake-Williams Steel, Inc. v. Continental Cas. Co., 294 Neb. 386 (2016).
Duty to Defend
An insurer’s duty to defend is broader than its duty to indemnify. Peterson v. Ohio Cas. Group, 272 Neb. 700, 724 N.W.2d 765 (2006). The duty to defend is usually a contractual duty, rather than one imposed by law. Chief Industries, Inc. v. Great Northern Ins. Co., 268 Neb. 450, 683 N.W.2d 374 (2004). The nature of the duty to defend is defined by the insurance policy. Id.
In determining its duty to defend, an insurer must look to the petition or complaint filed against its insured and ascertain the relevant facts from all available sources. Peterson v. Ohio Cas. Group, 272 Neb. 700, 724 N.W.2d 765 (2006). Insurers are obligated to defend if: (1) the allegations of the complaint, if true, would obligate the insurer to indemnify, or (2) a reasonable investigation of the actual facts by the insurer discloses facts that would obligate the insurer to indemnify. Mapes Indus. v. United States F. & G. Co., 252 Neb. 154, 560 N.W.2d 814 (1997). An insurer has a duty to defend the insured if there is any potential that any claim asserted against the insured is covered by the policy. John Markel Ford, Inc. v. Auto-Owners Ins. Co., 249 Neb. 286, 543 N.W.2d 173 (1996).
Accordingly, insurers are obligated to defend all suits against the insured, even if groundless, false, or fraudulent. Peterson v. Ohio Cas. Group, 272 11 Neb. 700, 724 N.W.2d 765 (2006). However, insurers are not bound to defend a suit based on a claim that is outside the coverage of the policy. Id. The burden of proving whether an exclusionary clause applies rests on the insurer. Id. Where coverage is denied, the insured carries the burden of proving coverage under an insurance policy. Pogge v. American Family Mut. Ins. Co., 13 Neb.App. 63, 688 N.W.2d 634 (2004).
In Graham Constr., Inc. v. Markel American Ins. Co., 180 F. Supp. 3d 626 (D. Neb. 2016), the court was faced with determining whether a general contractor was an additional insured under a subcontractor’s insurance policy and, therefore, whether the subcontractor was obligated to indemnify and defend the general contractor. The subcontractor’s additional insured endorsement stated that the general contractor was an additional insured only to the extent that the subcontractor was “held liable” and coverage was limited to the extent of the subcontractor’s negligence. Id. at 634. The court found that this provision precluded coverage for the general contractor for the underlying action brought after the subcontractor’s employee suffered injuries on the project because the subcontractor could not be “held liable” in the underlying action pursuant to the Nebraska Workers’ Compensation Act. Id. at 634-38. Thus, the subcontractor had no obligation to indemnify or defend the general contractor.
In some states, the presence of anti-indemnity statutes has caused courts to void the contractual additional insured requirements. The Nebraska Supreme Court also recently affirmed that “even if an indemnity agreement is invalid, its invalidity does not affect the coverage extended to another party under an additional insured endorsement.” Federated Service Ins. Co. v. Alliance Construction, LLC, 282 Neb. 638, 648, 805 N.W.2d 468, 477 (2011).
Insureds Right to Independent Counsel and Consequences of Rejecting a Defense
The Nebraska Supreme Court explained in Hawkeye Cas. Co. v. Stoker, 48 N.W.2d 623 (Neb. 1951) that while an insurer may defend its insured under a reservation of rights with its insured’s consent, the insurer may not continue to defend the insured if it initiates a declaratory judgment action or other denies coverage under the policy. The existence of a conflict of interest between the insurer and the insured is not a basis upon which the insurer can refuse to defend the insured. Babcock & Wilcox Co. v. Parsons Corp., 430 F.2d 531, 537-38 (8th Cir. 1970) (applying Nebraska law).
The purpose of a notice provision in an insurance policy is to alert the insurer of a possible claim to give it the opportunity to make an investigation in order to enable it to process any future claim. Gerrard Realty Corp. v. American States Ins. Co., 89 Wis. 2d 130, 277 N.W.2d 863 (1979). Where there is no evidence of collusion and it is not shown that the insurer has been prejudiced in its handling of the claim, the failure to give timely notice is not a defense to the claim. Herman Bros. v. Great W. Cas. Co., 255 Neb. 88, 97, 582 N.W.2d 328, 334-35 (1998).
Duty to Cooperate
An insurer cannot assert a breach of the cooperation clause as a policy defense in the absence of a showing of prejudice or detriment to the insurer. MFA Mut. Ins. Co. v. Sailors, 180 Neb. 201, 204, 141 N.W.2d 846, 849 (1966). In order to escape liability or the duty to defend on account of an insured’s unreasonable and unexcused delay in giving notice of a claim, a liability insurer is required to show that it was prejudiced. See Herman Bros. v. Great W. Cas. Co., 255 Neb. 88, 97, 582 N.W.2d 328, 334 (1998).
Failure to Comply with Conditions
The breach of any condition in any contract or policy of insurance does not avoid the policy nor avail the insurer to avoid liability, unless the breach existed at the time of the loss and contributed to the loss, even if the policy contains statements to the contrary. Neb. Rev. St. § 44-358. Section 44-358 does not deny an insurer the right to rely on the conditions of its policy which the insured is required to perform as a condition of recovery after the loss has occurred. Coppi v. West Am. Ins., 247 Neb. 1, 524 N.W.2d 804 (1994)(overruled on other grounds).
Choice of Law (Forum Selection Clauses)
For choice of law questions, Nebraska generally follows the Restatement (Second) of Conflict of Laws. Fireman’s Fund v. Structural Sys. Tech., Inc., 426 F. Supp. 2d 1009, 1023 (D. Neb. 2006). Section 188 of the Restatement (Second) of Conflict of Laws states that the “rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the [general choice-of law] principles stated in § 6.” Restatement (Second) of Conflict of Laws § 188 (1971).
Nebraska courts are guided by the Restatement § 193 to determine the choice of law with respect to an insurance contract. Fireman’s Fund, 436 F. Supp. 2d at 1023. The validity of a contract of fire, surety or casualty insurance and the rights created thereby are determined by the local law of the state which the parties understood to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship to the transaction and the parties. Id. Thus, there is a presumption in favor of the law of the “state which the parties understood was to be the principal location of the insured risk during the term of the policy” with respect to casualty insurance. Id.
Not applicable in this state.
A defendant, in an action for the recovery of money only, may, at any time before the trial, serve upon the plaintiff, or his attorney, a written offer allowing judgment to be taken against him for the sum specified therein. The plaintiff has five days to accept the offer. If the plaintiff does not accept the offer, the matter proceeds to trial, and the plaintiff does not obtain judgment for more than was offered by the defendant, the plaintiff will be required to pay the defendant’s costs from the time of the offer. See Neb. Rev. St.§ 25-901 (Reissue 1995).