Materials Suppliers Beware: Economic Loss Rule May Not Bar Owners' Negligence Claims

In an opinion that clarified the application of the "economic loss" rule in North Carolina, the North Carolina Court of Appeals affirmed a jury award against the supplier of defective roof trusses where the homeowners who brought the negligence claim had no direct contract with the truss supplier. See North Carolina Lawyers Weekly, 20 NCLW 0145 et seq. and Lord v. Customized Consulting Specialty, Inc., 643 S.E.2d 28 (N.C. App. 2007).

Judge James A Wynn, Jr., writing the opinion for the court explained: "Because the economic loss rule does not operate to bar a negligence claim in the absence of a contract between the parties, we affirm the trial courts' judgment in favor of the plaintiffs." A similar rationale was determinative in Ellis-Don Constr., Inc. v. HKS, Inc., 353 F.Supp. 2d 603 (M.D.N.C. 2004). These decisions help owners who might otherwise direct their affirmative claims for defective construction to the contractor with whom they are in direct contract, while ignoring the potential liability of the suppliers. Often suppliers are brought into lawsuits on claims for indemnity by the contractor, but these cases make clear that good pleading may require the owners to sue the defective material suppliers directly from the outset. Statutes of limitation and repose should be monitored closely, although in the Lord case, the supplier's limitation defense proved to be unsuccessful.

For further discussion on the current state of the "economic loss" rule in North Carolina, see the April 23, 2007 edition of N.C. Lawyers Weekly and materials cited therein. (This entry was published by Laura Luger of Womble Carlyle's construction and real estate development practice group.)