Court decision appears to limit construction warranties

Listen to this article

Homebuilders will likely not be affected by an N.C. Court of Appeals decision handed down this week that appears to limit all construction warranties to six years, even when the builder expressly provides a longer one, according to the top lawyer for the N.C. Home Builders Association.

“There is nothing particularly remarkable about the opinion, as least as it applies to the general contractor,” said J. Michael Carpenter, executive vice president and general counsel at the Raleigh-based NCHBA.

But, Carpenter said, a dissenting opinion in the decision could result in ramifications for the manufacturer of a building product involved in the case, Christie v. Hartley Construction Inc.

In vehement contrast to Carpenter, Scott C. Harris, a lawyer representing the plaintiffs in the case, said the decision could affect both homebuilders and homebuyers.

“I think this decision could affect a lot of builders who provide 10-year structural warranties,” Harris said. “They will be meaningless. If the house collapses after six years, the homeowner will have no recourse against the builders.”

The case involves a couple who contracted with Hartley Construction in 2004 to build a custom home in Chapel Hill.

They purchased a waterproof exterior from GrailCoat WorldWide that the company expressly warranted for 20 years. The homeowners alleged that GrailCoat’s faulty design and installation instructions caused water to leak into the home and rot the walls, compromising the home’s structural integrity. They sued GrailCoat and Hartley in 2011.

The trial court dismissed the suit because the state’s “statute of repose” limits any action to recover damages for defective or unsafe improvement to real property to six years after either the specific last act or omission by the defendant that caused the damage, or the substantial completion of the improvement. The law’s six-year limit does not apply only if the defendant is found guilty of fraud, or willful or wanton negligence.

The homeowners appealed, arguing that even though they brought their suit outside the six-year limit, their complaint was still valid because of GrailCoat’s express warranty.

On July 16, a divided appeals court disagreed and affirmed the lower court’s dismissal, citing the Court of Appeals’ 2008 decision in another, similar case, Roemer v. Preferred Roofing.

In the Roemer case, the Court of Appeals found that the statute of repose invalidated the homeowner’s lawsuit, and that the only remedy a homeowner could seek for violation of a lifetime warranty after six years was the repair of the defect, not monetary damages.

In the majority opinion, appeals court Judge Wanda G. Bryant wrote, “Despite an express lifetime warranty as in Roemer, or for twenty years as in the present case, a plaintiff whose action is not filed within the time set forth in the statute of repose has no cause of action for damages.”

The majority decision in the Christie case, Carpenter said, “correctly upheld the trial court’s summary judgment dismissal of the claims against the contractor because the plaintiffs failed to file their claim within (the) six year statute of repose applicable to improvements to real property.

“As the opinion sets forth, a statute of repose is a legislatively mandated limitation of liability. After the statute of repose has run, no action may be maintained. All three of the panel’s judges ruled that the dismissal against the contractor was proper. The result in this case follows longstanding precedent from both of our appellate courts for many years.”

But one of the panel’s three judges dissented, meaning that the plaintiffs have an automatic right to have any appeal be heard by the state’s Supreme Court.

In his dissent, Judge Robert N. Hunter wrote that he would have allowed the claim against GrailCoat for breaching the express 20-year warranty because, he argued, the warranty in Roemer was a limited one and GrailCoat’s was a full one.

Harris said he had not discussed a possible appeal to the Supreme Court with his clients but said it was a possibility.

“I presume that will occur,” Carpenter said.

The homeowners argued that the GrailCoat system could not be repaired because it is prohibited by North Carolina’s building code, and that they should receive damages to recover what they paid to replace it. They also argued that the statute of repose should be excused because they alleged that GrailCoat had committed fraud. The court did not address this argument.

NC Lawyers Weekly staff writer David Donovan contributed to this report.