Caroline-A-Contracting, LLC
03.18.2021
By: Safran Staff
The North Carolina Court of Appeals issued an opinion on a case of first impression in North Carolina. In Caroline-A-Contracting, LLC v. J. Scott Campbell Construction Company, Inc., __ N.C. App. __, 2021-NCCOA-62 (2021), the issue was “whether the collateral source rule applies to payments made by a source independent of the negligent actor to an injured party in the context of a construction dispute.”
In Caroline-A-Contracting, LLC, Ariel Mendoza (“Mendoza”) hired Caroline-A-Contracting,LLC (“CAC”) to construct a retaining wall. Mendoza had previously attempted to construct the retaining wall but was not successful. During CAC’s construction of the wall, J. Scott Campbell Construction Company, Inc. (“Campbell”) terminated CAC and hired a new contractor to complete the retaining wall. When Mendoza and Campbell refused to pay CAC, CAC filed separate lawsuits against Mendoza and Campbell.
During the lawsuits, CAC learned that Mendoza paid Campbell for the damages caused by the retaining wall. When Campbell obtained a judgment against CAC for damages, CAC argued that any amounts paid by Mendoza should be a credit against the amounts CAC owed to Campbell. In turn, Campbell argued that the collateral source rule should apply.
The North Carolina Court of Appeals, quoting Katy v. Capriola, 226 N.C. App. 470, 482, 742 S.E.2d 247, 256 (2013), defined the collateral source rule as a “tort-feasor should not be permitted to reduce his own liability for damages by the amount of compensation the injured party receives from an independent source.” Applying the collateral source rule to the matter, the North Carolina Court of Appeals found that “Mendoza’s payments to Campbell for failure to fulfill his obligations were entirely independent of CAC’s negligence and do not relieve CAC from its own distinct liability to Campbell for damage caused at the site.” The North Carolina Court of Appeals reasoned that CAC was an independent subcontractor, and thus, Mendoza did not have an obligation to Campbell to rectify damages caused by CAC’s negligence.
While the holding may not be a total shock, its application to construction disputes should cause contractors some apprehension. As a case of first impression, it is too early to tell how this rule will transform in the future. On the other hand, we now know that Contractors should be wary of agreeing with a subcontractor to fix damaged work caused by that subcontractor. At the very least, based on the holding, the general contractor should be notified when a subcontractor contracts with another contractor to fix damaged work. In addition, contractors should thoroughly review their agreements to prevent the application of the collateral source rule.
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