In BEI-Beach, LLC v. Christman, a contractor was sued by the purchaser of a development for construction defects and a South Carolina appellate court held that the contractor was limited to an equitable indemnity claim against the project architect to recover damages for design defects that caused the contractor to incur expenses resulting from having to defend itself in the suit brought by the purchaser. 2023 WL 3082503 (S.C. App. April 26, 2023).

This suit arises from the development and construction of The Market Common in Myrtle Beach, South Carolina, a 113-acre multi-use development. The Purchaser sued the General Contractor alleging construction defects, who then filed a third-party complaint against the Architect, asserting claims for contribution, professional negligence, equitable indemnity, and breach of warranty of plans and specifications. In response, the Architect moved for partial summary judgment as to the General Contractor’s third-party claims for negligence and breach of warranty.

The trial court granted the motion, ruling that the General Contractor failed to allege damages independent of the damages sought to recover in its equitable indemnity claim. In response, the General Contractor argued that it incurred damage to its business and reputation that were independent of the damages for which it sought equitable indemnity, but the trial court disagreed, and the appellate court affirmed.

The appellate court pointed to a 1995 case where the South Carolina Supreme Court ruled that a party to a contract may bring a tort claim against another party to the contract to recover for breach of a duty independent of the contract. Tommy L. Griffin Plumbing & Heating Co. v. Jordan, Jones & Goulding, Inc., 463 S.E.2d 85 (S.C. 1995). In that case, a general contractor alleged that an engineer committed separate tortious acts directed at the contractor. The contractor alleged that the engineer closed the project for almost a month due to purported OSHA violations, the engineer made demands on the contractor outside of the contract, and the engineer erroneously interpreted the contract, which required the contractor to hire an expert to dispute the engineer’s interpretation.

In contrast, the General Contractor in this case contended that its damages were caused by the Architect’s deficient plans and specifications. The Court reasoned that because the General Contractor sought to recover damages for the attorneys’ fees it incurred in defending the Purchaser’s claims, the damages based on liability for the construction defects, and the damages to its business reputation, the damages being sought were not independent of the contract, and thus could be recovered only on a claim for equitable indemnity. Stated another way, the court found that in order for a contractor to pursue a negligence claim against a design professional, the contractor must allege direct damages separate and independent from the contract.

The same reasoning was applied to the General Contractor’s arguments to maintain a claim for breach of warranty. The Court again held that the General Contractor failed to allege damages independent of the contract, as its damages arose from having to defend itself against the claims brought by the Purchaser. Thus, the General Contractor was limited to seeking recovery through an equitable indemnity claim.

Contractors in South Carolina and surrounding areas should be mindful of this reasoning. To avoid similar situations, contractors must be aware of all equitable indemnity laws in South Carolina and make sure they take the proper steps to pursue their claims.