With the complexity, cost, and time invested in most construction projects, staying apprised of the ongoing developments in construction law is a necessity. Over the past couple of years, there have been a handful of decisions significantly impacting the liabilities involved in a construction project.
Economic Loss Rule
The North Carolina Supreme Court recently applied the economic loss rule to hold that an owner of a project could not bring a tort suit against a subcontractor. The economic loss rule states, in general, that a litigant cannot recover in tort for damages that are purely economic, such as damages for breach of contract. In a construction case, damages for poor construction are limited to damages for breach of contract. Claims for negligent construction, which could include greater damages, are barred.
Historically courts in North Carolina have held that the economic loss rule in the construction context only applied when there was a contractual relationship, “privity” in legal terms, between the parties. Thus, an owner could sue a subcontractor on a project because the subcontractor was not a party to the contract between the owner and the general contractor.
However, in Crescent University City Venture, LLC v. Trussway Manufacturing, Inc. The North Carolina Supreme Court reexamined the purpose and history behind the economic loss rule in the context of commercial construction projects. The Court held that the nature of commercial construction agreements created a bargained-for means of recovery despite no direct contractual relationship with a subcontractor. In that context, the purpose behind the economic loss rule still applies, and owners were barred from suing subcontractors in tort. Note, the Court specifically distinguished commercial construction contracts from residential projects where an owner other than the original purchaser may still sue the builder for negligence.
Similarly, the North Carolina Court of Appeals recently examined the purpose and history of the “licensure defense” to hold that professionals could not use that defense to avoid claims from an unlicensed contractor. In North Carolina, any building or renovation project for more than $30,000 requires the contractor to have a general contractor’s license. If the contractor does not have the GC license, the licensure defense applies to prevent a lawsuit to enforce the contract.
In Wright Construction Services v. The Hard Art Studio, the prime contractor on a building contract had not been licensed at the time the contract was signed. The contractor was eventually fired from the job and brought negligence claims against the architects and engineers claiming that they had breached their professional duties to provide the necessary drawings and constructible designs.
The trial court dismissed the contractor’s claims, relying on the licensure defense to hold that that, because the contractor was not licensed at the time of the contract, it could not sue the professionals for negligence. The court of appeals reversed. In analyzing the licensure defense, the court found that the purpose of the rule was to protect the contracting public, not professionals such as architects and engineers who had their own professional duties. Therefore, the licensure defense did not bar the contractor’s lawsuit against the professionals.
These cases serve as examples of how significant changes in liability and litigation are occurring consistently in the construction and contracting world. Relying on historical practice may leave you exposed to new liabilities, or you may have new paths to seek recovery. With that in mind, it is always important to seek out up-to-date and skilled assistance with any concerns you may have. For more in-depth information or specific questions, please contact our office.
Revolution Law Group is located in Greensboro, NC, and serves individuals and small businesses throughout the Triad and surrounding areas. To contact us please visit Revolution.law or call 336-333-7907.
The information included here is for informational purposes only, is not exhaustive of all considerations when creating documents, is not intended to be legal advice, and should not be relied upon for that purpose. We strongly recommend you consult with an attorney and do not attempt to create your own documents.