Plaintiffs George and Deborah Christie contracted for the construction of a custom home in Chapel Hill, North Carolina, in 2004. For the exterior of the home, the builder used a direct-applied exterior finish system (a coating and waterproofing material applied over structural insulated panels) manufactured by GrailCoat and expressly warrantied by GrailCoat for 20 years. After the project was completed in March 2005, the Christies discovered water leaks and rot in the framing of their home, and in October 2011, filed suit against the builder and GrailCoat for damages under several claims including breach of warranty. 

 

The builder and GrailCoat countered that the Christies’ claim for damages was barred because it was filed more than six years after substantial completion of the project. North Carolina has a six-year statute of repose for causes of action arising out of defective construction, meaning anyone with a claim for damages arising out of a defective or unsafe condition of an improvement to real property must bring that claim within six years from the later of the last act of the defendant or substantial completion of the project. N.C.G.S. § 1-50(a)(5). 

 

The Christies conceded that their lawsuit was filed more than six years after substantial completion of the residence, but argued that because of GrailCoat’s 20-year express warranty, their claim was timely. The Appellate Court (affirming the lower court’s ruling) disagreed, and citing to N.C.G.S. § 1-50(a)(5), ruled that despite the 20-year express warranty, “a plaintiff whose action is not filed within the time set forth in the statute of repose has no cause of action for damages.” 

 

Claims for Specific Performance Remain Intact.

 

Although the case has been appealed to the North Carolina Supreme Court, for now, a plaintiff cannot recover any monetary damages for breach of warranty related to a construction defect more than six years after the substantial completion of the project in the absence of fraud or willful or wanton negligence. 

 

However, while Christie bars claims for monetary damages after the statute of repose has expired, it does not necessarily bar claims for specific performance. This means that although the Christies would not be able to recover monetary damages for the water leaks or the rot in the framing of their home, they could get an order requiring that the direct-applied exterior finish system be replaced – unless the warranty expressly limited the remedy to damages. That might be of little solace to the Christies, however, who appear to have no recourse for the damage suffered to the framing of their home as a result of the defective GrailCoat product.

 

A recent case in the Eastern District of North Carolina, Hart v. Louisiana Pacific Corp., No. 2:08-47-BO, decided on September 2, 2013, confirmed that where the warranty expressly limits the available remedy to monetary damages, an action brought more than six years after substantial completion is effectively barred. Future cases will undoubtedly address how the Court can enforce the parties’ agreement with respect to the limitation of remedies (limiting, for example, the remedy to monetary damages while prohibiting specific performance), while at the same time ignoring the parties’ agreement with respect to the length of the warranty protection. Spilman will be closely watching how the issue plays out in weeks and months ahead.

 

Time to Double-Check Your Warranties

After the Christie and Hart decisions, contractors and material suppliers would be wise to take a fresh look at their own warranties to make sure they are not exposing themselves to liability for fraud, misrepresentation or deceptive trade practices by claiming their materials are warrantied for longer than they legally can be. We expect these types of cases to be the next to be filed in North Carolina. Contractors and material suppliers should already be reviewing their contracts periodically and now appears to be a prime time to do so.

For more information, please contact:
Bryan G. Scott

336.631.1061