In Ascot Corporation, LLC v. I&R Waterproofing, Inc., the Court of Appeals of North Carolina recently held that a subcontractor responsible for waterproofing could properly pursue the manufacturer of the waterproofing system for breach of the implied warranty of merchantability, but not for breach of express warranty, contribution, or negligence-based indemnity. Additionally, the Court held the subcontractor could pursue a subcontractor responsible for landscaping for negligence-based indemnity and contribution. No. COA22-19, 2022 WL 16937546, at *1 (Nov 15, 2022).
Ascot Corporation, LLC (“Ascot”) contracted with I&R Waterproofing, Inc. (“I&R”) to provide waterproofing services in the basement of a residence owned by Heronsbrook, LLC (“Heronsbrook”). These services included installing a TUFF-N-DRI waterproofing system manufactured by Tremco Barrier Solutions, Inc. (“Tremco”). Ascot separately contracted with Tanglewood Landscape, LLC (“Tanglewood”) to landscape the surrounding property.
In 2018, water intrusion and water damage was discovered in the basement of the residence. Ascot independently resolved the issue and then initiated a lawsuit against I&R to recover their damages, alleging defective installation of the waterproofing system. I&R filed a third-party complaint against Tremco for breach of express warranty, breach of implied warranty of merchantability, contribution, and common-law indemnity. I&R also filed a third-party complaint against Tanglewood for negligence and contribution. The trial court dismissed I&R’s claims against both third-party defendants for failure to state a claim upon which relief could be granted.
On appeal, the Court concluded I&R could not pursue its claim for breach of express warranty against Tremco because the warranty only benefited homeowners, not installers of the product. However, the Court held I&R could properly assert a claim for breach of implied warranty of merchantability because I&R purchased and installed the Tremco waterproofing system. The Court found I&R sufficiently alleged Tremco had warranted the system to be of merchantable quality, I&R had installed in a workmanlike manner and the Tremco system malfunctioned after being put to its ordinary use. Finally, the Court held I&R’s common-law indemnity and contribution claims against Tremco were deficient because I&R had not sufficiently alleged Tremco’s negligence.
Conversely, the Court held that I&R had sufficiently pled its causes of action for negligence, common law indemnity, and contribution against Tanglewood. I&R pled Tanglewood had a contractual duty to perform its landscaping work with reasonable care, but had breached its duty by failing to properly install drainage components, resulting in the basement water intrusion. Thus, the Court held I&R had sufficiently pled it would be held liable for damages caused by Tanglewood’s negligence and was, therefore, entitled to pursue its common law indemnity and contribution claims.
Construction projects are often complex, and because different contractors’ work will intersect, it is important to be aware of possible causes of action that others may assert. This case illustrates the potential causes of action co-subcontractors may be exposed to.