Court Finds Contractor Has No Claim for Implied Indemnity or for Contribution Against Subcontractors

Kaleel Builders, Inc. v. Ashby, 161 N.C. App. 34, 587 S.E.2d 470 (2003)

In this case, homeowners hired an architect to design their residence, and also hired Kaleel Builders, Inc., as contractor to construct the residence.  Kaleel in turn hired several subcontractors. In the fall of 1996, the homeowners halted construction, and filed an arbitration demand against Kaleel alleging defective construction, including the work by the subcontractors and the design/supervision of the architect.  While the arbitration was pending, Kaleel filed a complaint seeking indemnification and/or contribution against the subcontractors and architect in July of 2001.  The trial court dismissed the claims against the subcontractors.  The claims for breach of warranty and breach of contract were dismissed on statute of limitations grounds, and the claims for negligence, indemnity, and contribution were dismissed for failure to state a claim.  The trial court also granted summary judgment for the architect.  The North Carolina Court of Appeals affirmed the trial court’s decision on all claims.

In rejecting Kaleel’s indemnity claim against the subcontractors, the court identified and explained three bases for indemnity in North Carolina:  (1) an express contract; (2) a contract implied-in-fact; and (3) equitable indemnity.  The first, express contractual indemnity, depends on the existence of an indemnity provision in the agreement between the parties.  The court noted that there was no allegation of express indemnity in the case before it.

Second, the court held that Kaleel failed to state a claim for indemnity implied-in-fact. Implied-in-fact indemnity is based on a binding contract between the parties that necessarily implies the right.  As part of its analysis, the court cited with approval cases holding that a surety or agency relationship between the parties gives rise to such indemnity.  The court held that Kaleel’s complaint alleged nothing more than independent contractor relationships between itself and the subcontractors.  Consequently, the court concluded that to read a right of indemnity implied-in-fact into Kaleel’s subcontracts would improperly infringe on the well-established principle of freedom of contract, and would effectively imply indemnity in every contractor-subcontractor relationship even where the parties did not contract for such right.

Next, the court held that a claim for indemnity implied-in-law was not supported by the allegations in Kaleel’s complaint. Implied-in-law or equitable indemnity is a common law right to indemnification by a passively negligent tort-feasor against an actively negligent tort-feasor, for injuries caused to third parties.  North Carolina law requires that a claim for indemnity implied-in-law arises from an underlying tort.  The court held that Kaleel’s claims against the subcontractors were more properly considered contract-based rather than tort-based, so that Kaleel and its subcontractors were not joint tort-feasors, and Kaleel thus failed to allege circumstances which would support a claim for implied-in-law indemnity.

The court also affirmed the dismissal of the remaining claims against the subcontractors.  Kaleel’s negligence claim was dismissed again because of the contract / tort distinction, i.e., Kaleel’s had a contractual relationship with the subcontractors, and the general rule in North Carolina is that a breach of contract does not ordinarily give rise to a tort action by the promisee against the promisor.  Kaleel’s contribution claim was similarly dismissed because contribution in North Carolina requires joint or several liability in tort.  With respect to the contract-based claims that Kaleel had asserted, breach of contract and warranty, the court dismissed those claims because of the statute of limitations.

Finally, the court affirmed the trial court’s grant of summary judgment in favor of the architect.  While a contractor may have a negligence claim against an architect in the absence of contractual privity in North Carolina, the statute of limitations had run on such a claim by Kaleel.  Kaleel’s contribution claim failed as a matter of law, the court explained, because neither Kaleel nor the architect caused a tortious injury to the homeowners, since the homeowners’ relationship with each was contractual.  Kaleel’s indemnity claim against the architect also failed because there was no claim of contract-based indemnity, and no implied-in-law indemnity since Kaleel and the architect were not joint tort-feasors.