Third-Party Claims by a General Contractor against its Subcontractor in Construction Defect Lawsuits in South Carolina

Written by: Elizabeth Wieters, Esq.

In August, the South Carolina Court of Appeals issued two opinions in Stoneledge at Lake Keowee Owners’ Ass’n v. Clear View Constr., LLC, 776 S.E.2d 426 (S.C. Ct. App. 2015) and Stoneledge at Lake Keowee Owners’ Ass’n v. Builders FirstSource-Southeast Grp., 776 S.E.2d 434 (S.C. Ct. App. 2015). Our firm represented the initial general contractor in the underlying lawsuit. We do not represent the appellants in these specific opinions, but the issues on appeal are seminal nonetheless.

The Stoneledge opinions visit an area of law that needed to be touched upon in South Carolina and impact pleadings practice in construction defect lawsuits as they address claims of a general contractor against its subcontractors. The first Stoneledge opinion we examine concerns Marick Homebuilders’, the general contractor’s, negligence, and equitable indemnity claims against its subcontractor, Clear View Construction. As to the negligence cause of action, the appellate court affirmed the trial court’s ruling that the general contractor Marick did not have a separate claim for negligence from that of the plaintiff against its own subcontractor, and in essence, its claim for negligence was a veiled indemnity claim.

As to the equitable indemnity claim, the Court of Appeals reversed the trial court’s decision to grant summary judgment in favor of the subcontractor. South Carolina disallows equitable indemnity among joint tortfeasors. In order to prevail on equitable indemnity, the indemnity-plaintiff must be faultless. The trial court determined the general contractor carried a certain degree of fault inherent to its profession and therefore could not pursue equitable indemnity against its subcontractor. The Appellate Court summarized as follows: “To recover damages on its equitable indemnity claim, Marick must prove the following: (1) [subcontractor] Clear View was at fault in causing [plaintiff’s] water intrusion damages; (2) [general contractor] Marick has no fault for those damages; and (3) [general contractor] Marick incurred expenses that were necessary to protect its interest in defending against [plaintiff’s] claim.” Stoneledge, 776 S.E.2d at 432.

The Court of Appeals reviewed the record of the trial court and determined -viewing the evidence in the light most favorable to the appellant general contractor – the record contained conflicting evidence where a factfinder could conclude Marick was not at fault. As a result, the appellate court reversed the trial court’s decision granting summary judgment in favor of the subcontractor on the equitable indemnity claim and remanded that issue for trial.

The second Stoneledge opinion issued by the South Carolina Court of Appeals concerns Marick’s crossclaims against its subcontractors for breach of contract and breach of warranty. The Court of Appeals affirmed the trial court’s granting of summary judgment against Marick on these claims, finding that they were “merely disguised . . . claims for equitable indemnity and are not viable as alternative causes of action.” See Stoneledge, 776 S.E.2d at 436 (quoting the trial court). On appeal, Marick argued its breach of contract and breach of warranty claims against its subcontractor were separate causes of action from its equitable indemnity claim.  However, the manner in which the general contractor’s allegations are prefaced show the subcontractor is only liable to the extent the general contractor is found at fault, which is the typical language used in an indemnity claim:

If [Stoneledge’s] allegations are true, . . . [the respondents] have provided defective materials or services in breach of each of their contracts with Marick. . . . [S]aid breach of contract has resulted or could result in damage to [Stoneledge], which could or will be assessed against Marick.

If [Stoneledge’s] allegations are true . . . , [the respondents] breached their express and/or implied warranties. . . . Should [Stoneledge] prevail on [its] claims, Marick will be damaged as a direct and proximate result of [the respondents’] breach of their express and/or implied warranties.

Stoneledge, 776 S.E.2d at 37 (emphasis added). Based upon the language in these pleadings, the general contractor Marick did not sustain damages independent of the Plaintiff aside from the cost of defense. Thus, the general contractor seeks to recover only under the circumstances the plaintiff is successful on its claims.

During the trial court’s hearing on these matters, Marick was unable to identify damages in the lawsuit that arose exclusively to Marick and did not relate to any claims made by Stoneledge. The Court of Appeals distinguishes Addy v. Bolton, 257 S.C. 28, 183 S.E.2d 708 (1971) from Stoneledge because, in Addy, the appellate/indemnity-plaintiff suffered independent damages from that of the plaintiff when asserting its claims for breach of contract against its subcontractor.  The facts of Addy are unique in that the appellate/indemnity-plaintiff engaged its subcontractor to make repairs and during those repairs, the subcontractor started a fire in the building.  As a result, the facts of Addy created a scenario whereby a direct claim from the general contractor to the subcontractor for breach of contract was appropriate. Unlike Stoneledge, the parties in Addyhad damages separate from their defense costs against the plaintiff’s claims. In the instant case, Marick’s crossclaims against its subcontractor arise only when the general contractor faces liability for the plaintiff’s damages.

The Court of Appeals relied on the same case law in disposing of the breach of contract and breach of warranty claims as it did Marick’s negligence claim and came to the same conclusion: they are also disguised indemnity claims. Lastly, the Court of Appeals affirmed summary judgment against the appellate on its cause of action for contractual indemnity simply because the Court of Appeals found the contract did not apply to the Stoneledge project.

In sum, the Court of Appeals’ opinions solidify what we already knew: it may be anticipated that a general contractor’s claims against its subcontractor for negligence, breach of warranty, breach of contract, and so on, maybe boiled down to equitable indemnity claims. Because of the “no-fault” prerequisite in South Carolina, equitable indemnity claims can prove difficult to prevail under South Carolina law. The takeaway for general contractors is to include a provision in the written contract with its subcontractor for indemnity, thereby giving rise to a claim for contractual indemnity. On the other hand, a subcontractor is far better situated in a construction defect suit when there is no contractual indemnity owed to its general contractor.