Construction Claims

Limitations & Repose Periods

Statutes of Limitations

Bodily Injury, Property Damage and Malpractice actions must be commenced within three (3) years. N.C. Gen.Stat. § 1-52. The statute of limitations on a claim against an architect or design professional that is essentially stated as a breach of the ordinary professional obligations has a three year statute of limitations, regardless of whether it is asserted as breach of contract or negligence.

Statute of Repose:

N.C. Gen. Stat § 1-50(a)(5) provides that “No action to recover damages based upon or arising out of the defective or unsafe condition of an improvement to real property shall be brought more than six years from the later of the specific last act or omission of the defendant giving rise to the cause of action or substantial completion of the improvement.” The purpose of statute of repose in claims arising out of improvement to real property is to protect from liability those persons who make improvements to real property. It is designed to limit the potential liability of architects, contractors, and perhaps others in the construction industry for improvements made to real property. Boor v. Spectrum Homes, Inc., 196 N.C. App. 699 (2009). Under the statute of repose applicable to claims arising out of an improvement to real property, since all liability has its genesis in the contractual relationship of the parties, an owner’s claim arising out of defective construction accrues on completion of performance no matter how a claim is characterized in the complaint, be it negligence, malpractice, or breach of contractor. Id. There is a six-year statute of repose for claims against persons who design and supervise construction buildings but a four-year state of repose for professional malpractice claims. Trustees of Rowan Technical College v. J. Hyatt Hammond Associates, Inc., 328 S.E.2d 274 (1985).

Under statute of repose for negligent construction, a plaintiff has the burden of showing that he or she brought the action within six years of either (1) the substantial completion of the construction or (2) the specific last act or omission of defendant giving rise to the cause of action. Trillium Ridge Condominium Ass’n Inc. v. Trillium Links & Village, LLC, 236 N.C. App. 478 (2014).

Right to Repair Laws and/or Pre-Suit Statutory Procedures

North Carolina does not have any pre-suit statutory procedures.

Indemnity and Contribution

Indemnity

Indemnification from contractor or other entity involved in construction project possible:

1. When a written contract for indemnification exists between parties;

Generally the entity seeking indemnification may recover in this circumstance

2. When a contract implied-in-fact exists; or
1. Stems from existence of a binding contract between two parties that necessarily implies the right. Kaleel Builders, Inc. v. Ashby, 161 N.C. App. 34 (2003)
2. Must be a contract between the person seeking indemnity and person against whom the indemnity claim is asserted
3. Typically, in construction context, a contractor will not have the appropriate relationship with another contracting entity to be successful under this theory of recovery

Right to indemnity arises in master-servant or principal-agency contractual agreements Kaleel at 40

3. When equitable concepts arising from tort theory of indemnity exist (also called implied-in-law contract)

1. Exists when one defendant is passively negligent but exposed to liability for another’s active negligence; or
2. One party is derivatively liable for negligence of another
3. Both of the above scenarios require negligence as underlying claim

Negligence typically prohibited in construction cases; remedies determined by contract Kaleel at 41-42

Contribution

Right to contribution only exists between joint tortfeasors. N.C. Gen. Stat § 1B-1

Certificate of Merit – Experts

In North Carolina, there is no requirement for filing certificate or affidavit of merit for claims against design or construction professionals.

Economic Loss Doctrine

In North Carolina, a party cannot recover for purely economic losses through a tort action. Moore v. Coachmen Industries, Inc., 129 N.C. App. 389 (1998)

Only where a defective product causes damage to property other than the defective product is the loss attributable to the defective product and recoverable in tort. Id.

Contractor Licensing Requirements

In North Carolina, Chapter 87 of the general statutes governs the licensing requirements of contractors. N.C. Gen. Stat. § 87-1 defines “general contractor” and outline the exceptions to the term. § 87-10 governs the application process to receive a contractor’s license, along with the examination and renewal process. Generally, all contractors must be licensed by the State of North Carolina pursuant to the statutory requirements found in Chapter 87.

Common Law & Statutory Claims

Breach of Contract: under North Carolina law, the elements of a claim for breach of contract are (1) existence of a valid contract and (2) breach of the terms of that contract. Odom v. Kelly, 242 N.C. App. 521, 776 S.E.2d 898 (2015)

Warranty

Express: a contractor may provide his or her own express warranty concerning the work. Usually, a builder agrees to repair defective or deficient work that appears within a certain period of time, typically one year.

Implied: In every contract for the sale of a new dwelling, a builder-vender of the house is held to have issued an implied warranty to the initial purchaser that the dwelling, together with all its fixtures, is sufficiently free from major structural defects, and is constructed in a workmanlike manner, so as to meet the standard of workmanlike quality then prevailing at the time and place of construction. Hartley v. Ballou, 286 N.C. 51, 209 S.E.2d 776 (N.C., 1974). The implied warranty of habitability does not arise with construction of commercial buildings. Dawson Industries, Inc. v. Godley Construction Co., Inc., 29 N.C. App. 270, 224 S.E.2d 266

Negligence: The owner of dwelling house who is not original purchaser has cause of action against builder and general contractor for negligence in construction of the house where such negligence results in economic loss or damage to the owner. Oates v. Jag, Inc., 314 N.C. 276, 333 S.E.2d 222 (1985)

Statutory Liability – there are no statutes allowing recovery for construction defects in North Carolina.

Construction Damages

Compensatory Damages

Arise from the natural and proximate result of the breach of contract, the general rule is that non-breaching party be put in the same position he or she would have been had the contract been fully performed.

Special (Indirect) Damages—Lost Profits

Special proof must be shown to recover these damages. A plaintiff must first show that lost profits were contemplated by the parties when the contract was made. Second requirement is that special damages must be ascertainable with reasonable certainty. Weyerhauser Co. v. Godwin Bldg. Supply Co. 292 N.C. 557 (1977).

Liquidated Damages

Clauses for liquidated damages often used in contracts for construction. Parties to a contract can agree to the amount of damages at the beginning of the contractual relationship. Such clauses are upheld if the provision is not a penalty and is a reasonable estimate of damages.

Liquidated damages clause requires the damages be of such a nature that they would be difficult to determine if there were a breach and the amount of stipulated damages must either be a reasonable estimate of the probable damages based on a breach or be reasonably proportioned to the damages actually sustained by the breach. Ledbetter Brothers, Inc. v. N.C. Department of Transportation, 68 N.C. App. 97 (1984).

Punitive Damages

Punitive damages are not awarded in breach of contract claims. However, may be awarded if an aggravating factor of fraud, malice, or willful and wanton conduct is present in connection with a tort action.

Delay Damages

Recoverable in certain situations; delay can be excusable or inexcusable. Excusable delays are typically delays caused by acts outside of contractor’s control and is no fault of either party such as weather conditions. Excusable delays do not give rise to damages but may entitle a contractor to an extension of time to complete the work.

Inexcusable delay is caused by one party that impacts the other party which entitles the other party to be compensated for resulting damages. This type of delay is considered a breach of contract, such as failure to provide access to a project or supplying defective materials.

If both parties contribute to a delay, neither can recover unless there is a clear apportionment of the delay and expense that can be attributed to each party.

Attorney’s Fees

There must be a statutory basis for an award of attorney fees such as a lien enforcement action (N.C. Gen. Stat. § 44A-35), unfair and deceptive trade practice (N.C. Gen. Stat. § 75-16.1) or claim for punitive damages (N.C. Gen. Stat. § 1D-45—If a claimant fails to prevail on a punitive damages claim, other party may recover reasonable attorney fees). Business to business contracts that contain mutual attorneys’ fees obligations are enforceable. (N.C. Gen. Stat. § 6-21.1)

Coverage Trigger of Coverage

Definition of an Occurrence

Duty to Defend

When pleadings state facts demonstrating that the alleged injury is covered by the policy, the insurer has a duty to defend, whether or not the insured is ultimately liable. Waste Mgmt. of Carolinas, Inc. v. Peerless Ins. Co., 315 N.C. at 691 (1986). If the insurer fails to defend, it is at his own peril: if the evidence subsequently presented at trial reveals that the vents are covered, the insurer will be responsible for the cost of the defense. Id. Any doubt as to coverage is to be resolved in favor of the insured. If the claim is within the coverage of the policy, the insurer’s refusal to defend is unjustified even if it is based upon an honest but mistaken belief that the claim is not covered. Duke Univ. v. St. Paul Fire & Marine Ins. Co., 96 N.C. App. 635 (1990).

Contractual Indemnity

Governed by N.C. Gen. Stat § 22B-1 and 22B-2

Coverage Defenses

Late Notice

An unexcused delay by an insured in giving notice to insurer of accident does not relieve insurer of its obligation to defend and indemnify unless delay operates materially to prejudice insurer’s ability to investigate and defend. Great American Ins. Co. v. C. G. Tate Const. Co., 303 N.C. 387 (1981)

Lack of an Occurrence

Under North Carolina law, defective workmanship alone is not an “occurrence.” Prod. Sys., Inc., v. Amerisure Ins. Co., 167 N.C. App. 601 (2004).

Property damage other than the work product must be present for an occurrence to take place according to a CGL policy. Id.

Choice of Law (Forum Selection Clauses)

Governed by N.C. Gen. Stat. 22-B3; generally void and unenforceable if contract entered into in North Carolina but clause in contract requires arbitration or resolution of dispute to be instituted or heard in another state