If you are handling a construction case or other matter involving any sort of indemnity claim, you should be familiar with Kaleel Builders, Inc. v. Ashby. 161 N.C. App. 34, 587 S.E.2d 470 (2003). Kaleel may have been decided twenty years ago, but it is still the pre-eminent North Carolina case interpreting the three different types of indemnity claims. (If you need a refresher on the different types of indemnity, see Different Types of Indemnity and Their Relative Enforceability in Construction Litigation.)

In Kaleel, homeowners Paula Andretta and Pier Giorgio (“the Andrettas”) hired Kaleel Builders, Inc. to serve as the general contractor to construct a house for them in Mecklenburg County, North Carolina. Subsequently, Kaleel Builders contracted with several subcontractors, including Kent Ashby, d/b/a Superior Exteriors, (“Subcontractors”) to perform various scopes of work in connection with construction of the Andrettas’ residence. The Andrettas also contracted directly with Don Duffy to provide architectural services.

In the fall of 1996, the Andrettas, unhappy with some allegedly defective construction work on their residence, including work performed by the Subcontractors and Duffy, demanded arbitration against Kaleel Builders. Kaleel Builders, in turn, filed a lawsuit against the Subcontractors seeking indemnification or, alternatively, contribution, based upon breach of contract, breach of warranty, and negligence causes of action. Kaleel Builders also sued Duffy alleging negligence.

The trial court dismissed Kaleel Builders’ claims against the Subcontractors and granted Duffy’s Motion for Summary Judgment. On appeal, the Court of Appeals affirmed the lower court’s ruling, holding that Kaleel Builders had no right to indemnity or contribution from the Subcontractors based on a negligence claim, nor did they have a valid negligence claim against Duffy. In coming to its decision, the Court of Appeals analyzed the three different types of indemnity: express, indemnity implied-in-fact, and indemnity implied-in-law.

Kaleel Builders’ Claims Against its Subcontractors

Regarding express indemnity, the Court reasoned that the Complaint filed by Kaleel Builders against the Subcontractors did not allege an express contractual right of indemnity in the written (or oral) agreements between Kaleel Builders and its Subcontractors; thus, Kaleel Builders failed to state a claim for express indemnity.

Regarding indemnity implied-in fact (also called contract implied-in-fact), as it did in McDonald v. Scarboro (see here for a brief case summary), the Court looked to the parties’ relationship and surrounding circumstances to determine whether a contract implied-in-fact that would support a potential right to indemnity existed between Kaleel Builders and its Subcontractors. However, unlike in McDonald, where the Court held there was indemnity implied-in-fact, in Kaleel, Kaleel Builders did not have either a master-servant or agency-type relationship with its Subcontractors. Furthermore, also unlike in McDonald, Kaleel Builders did not allege “any circumstances tending to show the existence of an indemnification agreement, either written or oral.” On the contrary, the Complaint suggested that the Subcontractors were merely independent contractors of Kaleel Builders. Finally, the Court pointed to the fact that Kaleel Builders had not alleged any facts to suggest that they and the Subcontractors actually intended to create an indemnitor-indemnitee relationship. Thus, the Court held that the Complaint failed to state a claim for indemnity implied-in-fact, stating firmly, “For this Court to read a right of indemnity implied-in-fact into such bald allegations would be to do so in every general and subcontractor agreement, thus infringing upon this state’s long standing and coveted principle of freedom of contract.” (Note, however, that the Court declined to hold that a right to indemnity implied-in-fact must arise from an agency or surety relationship.)

To have a valid claim for indemnity implied-in law (also called contract implied-in-law), there must be an underlying injury sounding in tort (e.g., negligence). The Court reasoned that because Kaleel Builders could not make out a prima facie tort claim against its Subcontractors (because all rights and remedies were set forth in the contracts between the parties), there could be no indemnity implied-in-law. (Note: Although Kaleel Builders alleged the Subcontractors were “negligent,” they specifically alleged the Subcontractors were negligent “in fulfilling [their] duties and [in] the quality of the services contracted for by” Kaleel Builders. Thus, in reality, they were alleging a breach of contract claim, not a negligence claim.)

As for Kaleel Builders’ alternative claim for contribution against the Subcontractors, the Court reasoned that because there must be joint tortfeasors for there to be a right of contribution (pursuant to the Uniform Contribution Among Tort-Feasors Act, N.C. Gen. Stat. § 1B-1), and because Kaleel Builders failed to state a tort claim against the Subcontractors, it did not have a valid claim for contribution.

Kaleel Builders’ Claims Against the Architect

Regarding Kaleel Builders’ claim for indemnification, or alternatively, contribution*, from Duffy, the architect with whom the Andrettas contracted directly, because the contract was between Duffy and the Andrettas, not Kaleel Builders, the only claim Kaleel Builders potentially had against Duffy was for negligence. Therefore, Kaleel Builders did not have a valid claim for indemnity based on either express contract or contract implied-in-fact, both of which required contractual privity between Kaleel Builders and Duffy. The Court, likewise, concluded that Kaleel Builders did not have a right to indemnity implied-in-law from Duffy. Although a common law tort between a general contractor and an architect can apply even when the two are not in contractual privity,  in this case, Kaleel Builders failed to allege any tort “flowing to the Andrettas from either he or Mr. Duffy;” rather, the only valid tort claim that Kaleel Builders alleged against Duffy flowed directly from Duffy to Kaleel Builders. Thus, the Court reasoned that “the parties do not fit the active-passive tort-feasor framework required to support an equitable right to indemnity implied-in-law as the Andrettas have no claim in tort against either [Kaleel Builders] or Mr. Duffy.”

*The Court held that the only negligence claim that was alleged was by Kaleel Builders against Duffy. Therefore, Kaleel Builders and Duffy were not joint tortfeasors, and Kaleel Builders had no statutory right to contribution from Duffy. Additionally, the Court held that Kaleel Builders’ direct negligence claim against Duffy was barred by the statute of limitations.