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A breach of implied warranty of habitability suit against a homebuilder is held to be a breach of contract action rather than a tort (negligence) action and the statute of limitations/statute of repose period applicable to breach of contract (running 4 years from date of construction completion) was therefore applied to dismiss the suit for being untimely. Of note is the fact that the homeowner/plaintiff was not in privity of contract with the builder. The original buyer of the house sold it to the plaintiff several years after it was built.  Whereas the economic loss doctrine might prevent a tort (e.g. negligence) suit since there was no privity of contract, the plaintiff’s implied warranty claim isn’t affected by that doctrine.  It is treated as a contract matter despite the lack of privity of contract.  Petrus Family Trust  v. Kirk, 163 Idaho 490 (2018).

The court’s opinion presents an interesting analysis of when a breach of contract can create a tort, or when a tort could create a breach of contract. The issue of whether damages are caused only by breach of contract or whether they are actually a tort caused by breach of an independent duty of care has been an important point of distinction in a number of lawsuits where insurance carriers have asserted the “contractual liability” exclusion in their policies to deny coverage for damages.

In its analysis the court cited an earlier decision in a case of Employers Mutual Casualty Co. v. Donnelly, 154 Idaho 499, 505, 300 P.3d 31, 37 (2013). In concluding the district court correctly classified the damages awarded from a breach of the implied warranty of habitability as “contract-based,” the Court explained in Donnelly as follows:

The key determination for whether an implied warranty of workmanship—and therefore the insurance policy—covers the damages is whether the duty is based upon a contractual promise or if the duty can be maintained without the contract. In the special verdict, the jury found: there was a contract involving the remodeling project between RCI and the Donnellys; RCI did not substantially perform under the contract; a breach of contract caused damage to the Donnellys; and that RCI breached “the implied warranty of workmanship with regard to the manner in which it constructed the Donnelly remodel project.” Based on the jury’s verdict, the breach of implied warranty of workmanship occurred with regard to RCI’s performance under the remodeling contract with the Donnellys. There is no duty beyond the contractual promise between RCI and the Donnellys. Since the insurance policy contains an express exclusion for contractual damages, we hold that the district court correctly found the awarded damages to be outside the scope of the insurance policy.

In the instant case, the court stated that the above reasoning espoused in Donnelly comports with the Court’s efforts to distinguish between contract and tort. As acknowledged in Donnelly,

[t]he law governing the ability to obtain remedies for breach of contract, as well as tortious behavior, is confusing, with few, if any, court decisions on the subject. Ordinarily, a breach of contract is not a tort. A contract may, however, create a state of things that furnishes the occasion for a tort. 38 Am. Jur. 662, Negligence § 20. If the relation of the plaintiff and the defendants is such that a duty to take due care arises therefrom irrespective of contract and the defendant is negligent, then the action is one of tort. To found an action in tort, there must be a breach of duty apart from the nonperformance of a contract. 52 Am. Jur. 379, Torts, § 26.

….

It can also be said that if a cause of action for breach of a duty based on a contractual promise could also be maintained without the contract by virtue of a statutory or common law duty, then the action is founded upon tort, not contract.

Put another way,

[i]n order for a cause of action to arise in tort, Claimants must establish the breach of a tort duty, separate and apart from any duty allegedly created by the contract.” Furthermore, “negligent conduct and breach of contract are two distinct theories of recovery. Ordinarily, breach of contract is not a tort, although a contract may create the circumstances for the commission of a tort.” But, “[t]he mere negligent breach or non-performance of a contract will not sustain an action sounding in tort, in the absence of a liability imposed by law independent of that arising out of the contract itself.” Instead, “active negligence or misfeasance is necessary to support an action in tort based on a breach of contract; mere nonfeasance, even if it amounts to a willful neglect to perform the contract, is not sufficient.” Baccus v. Ameripride Servs., Inc., 145 Idaho 346, 350, 179 P.3d 309, 313 (2008)….

The court concluded that “ … Petrus has not identified any duty ‘separate and apart’ from a duty created by Kirk’s oral contract for construction with Gentry-Boyd; nor has Petrus alleged “active negligence or misfeasance … based on a breach of contract.”

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 21, No. 2 (Feb 2019).

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