Supreme Court of North Carolina Clarifies Murky Economic Loss Doctrine

The Supreme Court of North Carolina recently clarified important aspects of the so-called “economic loss doctrine,” which prevents a party from suing in negligence for purely economic loss, where the gist of the claim is based on the defendant’s failure to perform a contractual obligation. This doctrine is an important protection for commercial parties, who need to be able to define and limit their risk through contracts and have confidence that courts will not look beyond those contracts to assess liability.

Specifically, the court in Crescent Univ. City Venture v. Trussway Mfg., No. 407A19 (N.C. Dec. 18, 2020), held that a plaintiff cannot pursue such a claim, even if the defendant’s failure to perform was due to negligence or lack of skill. In Trussway, a developer contracted with a general contractor to build a multi-building apartment complex on property owned by the developer. A subcontractor who was responsible for the wood framing on the property purchased what proved to be defective trusses from Trussway, a manufacturer of trusses.

The developer sued Trussway after the floors in two apartments began sagging. Importantly, the developer had no direct contract with Trussway and, instead, alleged that Trussway was negligent in designing, fabricating, manufacturing, handling and storing the trusses, which resulted in almost $8 million in economic damage for repairs and accommodations needed for the residents of the apartment complex.

Trussway moved for summary judgment, citing the economic loss doctrine and arguing it could not be sued in negligence for purely economic losses because of the contract that existed between the developer and the general contractor. The developer disagreed, arguing the economic loss doctrine bars such claims only where the plaintiff and defendant are in direct contract with one another. 

The court ruled for Trussway, reasoning that the absence of a contract between the developer and Trussway did not expose Trussway to negligence-based theories of recovery for purely economic loss. Importantly, the court limited its ruling to commercial contexts, in which the parties are accustomed to allocating risk through contracts. The court further noted that such a result may not apply in consumer contexts, as has been the case in certain other North Carolina Court of Appeals cases involving residential home purchasers, rather than a “sophisticated commercial developer.”

For more information on the economic loss doctrine and related litigation, please contact a member of Robinson Bradshaw’s Construction Practice Group.

The information contained in this article is not intended to be, nor should it be relied upon as, legal advice.