Builders & Managers, Inc. v. Dryvit Systems, Inc., 2004 WL 304357 (Del. Super. Ct., Feb. 13, 2004)

After a group of homeowners claimed that water was infiltrating their homes built by Builders & Managers, Inc. (“B&M”), B&M and its insurance carrier reimbursed the losses and then asserted claims over against Dryvit Systems, Inc., alleging that Dryvit’s external wall insulation boards installed in the homes were defective. In its defense, Dryvit argued, among other things, that no claims could be asserted against it other than a limited implied warranty (asserting that negligence and product liability claims were eliminated because of the economic loss doctrine). B&M countered by arguing that Delaware’s Home Owner’s Protection Act permits negligence and product liability claims against those involved in the construction of residential dwellings, and it therefore could assert claims broader than those identified under Delaware’s restrictive limited warranty laws.

Delaware’s Home Owners Protection Act. (Del. Code Ann. tit. 6, § 3651-52) [i] was passed after a 1992 court decision upheld a building kit manufacturer’s limited warranty, and refused to allow a homeowner to assert negligence claims against such manufacturer. This act states, in pertinent part: “No action based in tort to recover damages resulting from negligence in the construction or manner of construction of an improvement to residential real property … shall be barred solely on the ground that the only losses suffered are economic in nature." Del. Code Ann. tit. 6, § 3652.

Dryvit argued that this statute did not apply to it because it was simply a supplier of building material, and not a contractor, engineer or architect. Its argument was based on similar wording in Delaware’s Builder's Statute of Repose, which had been interpreted not to pertain to materials suppliers. B&M, the builder plaintiff, contended that Dryvit was not just a mere supplier and had a duty to participate in the installation.

The Court found that the record raised questions about the expectation and presence of a Dryvit representative at the construction projects, and the extent and adequacy of the installation instructions, and permitted the negligence and products liability claims to continue.

Practice Tip: Like the plaintiff in this action, when a subrogation professional is faced with a recovery roadblock like the economic loss doctrine, a limited warranty or other contractual limitation, the subrogation effort does not need to automatically shut down. There are many statutory protections, such as Delaware’s Home Owners Protection Act, as an example, that may act to circumvent such restrictions. Additionally, the facts of the underlying loss or party relationships may act to avoid the seemingly unavoidable legal limitations. The “best practice” is to review the circumstances with capable subrogation counsel before discontinuing a potentially gainful recovery effort.

Additional Legal Issues and Practice Tip as to “Contribution Claims”:

Dryvit also argued that B&M could not assert contribution claims against it because it had not taken the proper legal steps necessary in its dealings with the homeowners. Under Delaware law, as in a majority of states, a party is not entitled to seek contribution until he or she has by payment discharged a “common liability” or has paid more than his or her pro rata share of such liability.

Dryvit argued that B&M could not prevail because: (1) it could not assert contribution based upon negligence claims against Dryvit (due to the economic loss doctrine addressed above); (2) the repairs had not been completed, so there had not been a complete settlement to date; (3) B&M had not entered into a settlement with the homeowners whereby Dryvit's liability had been extinguished; (4) any claim the homeowners might have had expired years ago and therefore Dryvit cannot be indirectly liable for a contribution claim when it cannot be directly liable to the homeowners; and (5) B&M undertook the repairs voluntarily and the right of contribution is not triggered until a legal obligation exists. The court, issue-by-issue, negated these arguments based upon the specific facts of the case.

Additional Practice Tip: Contribution claims (whereby one defendant extinguishes an obligation or liability, and then turns to another tortfeasor for reimbursement in whole or in part) are different legally than subrogation claims, and often require that certain specific steps be taken in the original settlement so as to preserve the contribution claim against any other tortfeasor(s). An insurance professional moving toward a settlement with an expectation of then seeking contribution should review the necessary steps for that jurisdiction with competent recovery counsel so as to assure that the contribution claim is preserved in the original settlement process.