Court of Appeals Rules on the Application of the Licensure Defense in Tort Claims

By Jillian C.S. Blanchard

Sophisticated construction projects often require engaging many professionals whose services are all interconnected and critical to the overall success of the project. Sometimes a design produced by architects and engineers will prove to be flawed, thereby delaying the project as a whole. Such flaws and delays can result in the builder being incapable of completing the project within the specific timeframe designated in the builder’s contract with the property owner and in this event, the property owner may be entitled to terminate the builder for breach of contract.

If a builder is terminated by the property owner in this scenario, does the builder have enforceable claims against the architects and engineers? What if the builder does not have a direct contract with those professionals, or did not have a valid general contractor license at the time work commenced on the project? According to a recent decision from the North Carolina Court of Appeals, the answer is yes, so long as those claims are solely based in common law negligence.

Wright Construction Servs., Inc. v. The Hard Art Studio, PLLC,[1] involved negligence claims brought by a builder against a group of architects and engineers who worked on a failed construction project, alleging that these professionals breached their professional duties of care. The defendants moved for summary judgment, arguing that these claims were barred due to the builder’s failure to obtain a general contractor’s license before beginning work on the project. In reliance upon the licensure defense raised by defendants, the trial court granted summary judgment on all claims in favor of defendants and dismissed the builder’s complaint.

The question raised on appeal was whether the licensure defense bars negligence claims brought by an unlicensed contractor against architects and engineers who breached their duty of care in their professional work on a construction project. The North Carolina Court of Appeals noted that the negligence claims brought by the builder were entirely separate from any rights or responsibilities that exist between the property owner and the builder under the construction contract. The Court also noted that the duties of the architects and engineers are standard and arise out of the need for such professionals to use due care in the exercise of their skills and abilities to avoid foreseeable harm to others, which includes all who reasonably rely on their work, including the builder, whether or not the builder had a direct contract with these professionals.

The licensure defense, a common law doctrine created by the North Carolina Supreme Court, is designed to protect the public from incompetent work on construction projects.[2] Thus, a contractor without proper licensure cannot recover from the property owner for breach of contract, as they are in violation of the law.[3] Nevertheless, the Court held that applying the licensure defense to the types of tort claims raised in the current action would undermine the purpose of the defense, as the architects and engineers would be shielded from legal responsibility for their failure to exercise due care in critical aspects of the construction process, and the public would gain nothing from application of the defense in this manner. The Court determined that since the licensure requirements for general contractors are intended to protect the public, the defendant architects and engineers were simply not among the class of persons the general contractor licensing statutes were intended to protect. Thus, the licensure defense did not prove to bar the builder’s negligence claims against the defendant architects and engineers.

The Court’s ruling was consistent with the limited set of cases examining the licensure defense outside the context of the contract between the owner and the builder, as such cases deemed subcontractors not to be among the class of persons the general contractor licensing statutes were intended to protect, thus barring the use of the licensure defense against negligence claims raised by a builder related to such subcontractor’s services on a construction project.[4] However, the Court was clear that its holding does not address claims that could be brought as contract claims against a property owner, and instead solely addresses cases that deal exclusively with the common law negligence claims against architects and engineers recognized by the Court in Shoffner Indus., Inc. v. W.B. Lloyd Constr. Co., 42 N.C. App. 259, 272, 257 S.E.2d 50, 59 (1979) and Davidson & Jones, Inc. v. New Hanover Cty., 41 N.C. App. 661, 667, 255 S.E.2d 580, 584 (1979).