{"id":896028,"date":"2019-06-19T11:32:39","date_gmt":"2019-06-19T17:32:39","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=896028"},"modified":"2019-06-19T11:32:43","modified_gmt":"2019-06-19T17:32:43","slug":"exceptions-economic-loss-rule","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/exceptions-economic-loss-rule\/","title":{"rendered":"Exceptions to the Economic Loss Rule in North and South Carolina: Yes, an owner MAY be able to sue that subcontractor after all!"},"content":{"rendered":"\n<p>Julia Gallagher | <a href=\"https:\/\/www.nexsenpruet.com\/insights\/exceptions-to-the-economic-loss-rule-in-north-and-south-carolina-yes-an-owner-may-be-able-to-sue-that-subcontractor-after-all\">Nexsen Pruet<\/a> | June 10, 2019<\/p>\n\n\n\n<p> In North Carolina, the economic loss rule will not bar recovery on a negligence claim when there is no contract between the parties. In\u00a0<em>Lord v. Customized Consulting Specialty, Inc.<\/em>, a general contractor contracted with the plaintiff owners to construct a home. The owners subsequently sued the general contractor for alleged defects in the home\u2019s construction. The general contractor named as defendants the subcontractors with whom the general contractor had contracted with to provide the trusses for the home. These subcontractor defendants asserted that the economic loss rule should apply to bar the plaintiffs\u2019 negligence claim against them. The court acknowledged that, \u201csimply stated, the economic loss rule prohibits recovery for purely economic loss in tort, as such claims are instead governed by contract law.\u201d\u00a0However, the court recognized the economic loss rule is not fair to those plaintiffs who have suffered economic loss or damage from improper construction but \u201cwho have no basis for recovery in contract\u201d in the absence of a contract between the parties. Therefore, the court held \u201cthat the [subcontractor defendants] had a duty to use reasonable care in performing its promise to provide reliable trusses to [the general contractor] for use in the construction of the [plaintiffs\u2019] residence, and it further held that because there was no contract between the plaintiffs and the subcontractor defendants, the economic loss rule did not apply and therefore did \u201cnot operate to bar the plaintiffs\u2019 negligence claims.\u201d<\/p>\n\n\n\n<p>The North Carolina Court of Appeals recently acknowledged in the 2016 case&nbsp;<em>Buffa v. Cygnature Constr. &amp; Dev., Inc.<\/em>, 796 S.E.2d 64 (unpublished) Lord\u2019s holding that the economic loss rule does not bar a negligence claim where there is no contract between parties in a home construction case. However, the court qualified this holding by stating that \u201cwhere a basis for recovery is available by warranty,\u201d the economic loss rule will apply to prevent recovery for purely economic loss under a negligence claim. In this case, the plaintiffs sustained damage to their home as a result of defective windows. The seller of the windows did not have a contract with the plaintiffs, as the windows were purchased by the subcontractor who installed the windows. These windows were covered by the manufacturer\u2019s express warranty. Because a basis for recovery was available by warranty, the court held that it was appropriate to apply the economic loss rule to bar negligence claims seeking to recover for purely economic loss.&nbsp;<\/p>\n\n\n\n<p>However, it may be important to note that the Buffa case concerned an express warranty. A more detailed analysis may be required as to the issue of whether an implied warranty would bar a negligence claim per the economic loss rule, but the general rule in North Carolina is that a contract \u201cis required to assert a claim for breach of an implied warranty involving only economic loss.\u201d&nbsp;<em>Energy Inv&#8217;rs Fund, L.P. v. Metric Constructors, Inc.<\/em>, 351 N.C. 331, 338, 525 S.E.2d 441, 446 (2000). Therefore, the economic loss rule will likely bar negligence claims if a court has recognized the existence of an implied warranty, because an implied warranty typically only exists when there is a contract between parties.&nbsp;&nbsp;<\/p>\n\n\n\n<p>South Carolina law is complicated in that there are a number of uncoordinated opinions touching on the subject. However, similar to the Lord case above, the South Carolina Supreme Court has ruled that the economic loss rule will not bar a negligence action against a builder when a legal duty has been violated, \u201cno matter the type of resulting damage. . . . But the economic loss rule will apply [to bar negligence actions] where duties are created solely by contract.\u201d\u00a0<em>Kennedy v. Columbia Lumber &amp; Mfg. Co.<\/em>\u00a0This case further emphasized that \u201cprivity of contract as a defense to an implied warranty action\u201d has been abolished in South Carolina. So, unlike in North Carolina, the existence of an implied warranty is not likely to bar a negligence claim for economic loss in South Carolina where there is no contract between the parties. Further, in\u00a0<em>Beachwalk Villas Condo. Ass&#8217;n, Inc. v. Martin<\/em>, the holding in Kennedy was expanded to architects in addition to builders, as the court stated that \u201carchitects may be held liable to home buyers\u00a0for negligence in connection with home construction projects and breach of implied warranty where no contractual privity exists between the architect and the home buyer.\u201d However, the South Carolina Supreme Court has since held that the principle set forth in Kennedy is limited to the residential real estate\u00a0construction\u00a0context.\u00a0<em>Sapp v. Ford Motor Co<\/em>.<br><br>In sum, in both North and South Carolina the economic loss rule will not apply in certain instances to bar recovery for purely economic loss in tort, although the justification for such an exception may differ somewhat between the two states. Therefore, if a party seeks to recover for pure economic loss and does not have adequate recourse via typical contract law, it would be wise to explore the various exceptions in North and South Carolina regarding the economic loss rule when bringing a claim. <\/p>\n","protected":false},"excerpt":{"rendered":"<p>Julia Gallagher | Nexsen Pruet | June 10, 2019 In North Carolina, the economic loss rule will not bar recovery on a negligence claim when there is no contract between the parties. In\u00a0Lord v. Customized Consulting Specialty, Inc., a general contractor contracted with the plaintiff owners to construct a home. The owners subsequently sued the&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/exceptions-economic-loss-rule\/\">Continue reading <span class=\"screen-reader-text\">Exceptions to the Economic Loss Rule in North and South Carolina: Yes, an owner MAY be able to sue that subcontractor after all!<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9],"tags":[9895,224,319],"class_list":["post-896028","post","type-post","status-publish","format-standard","hentry","category-construction-contracts","tag-advise-consult","tag-construction-contract","tag-economic-loss-rule","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Exceptions to the Economic Loss Rule in North and South Carolina: Yes, an owner MAY be able to sue that subcontractor after all! 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