By: Felicia Haigh, Attorney at Law
On March 16, 2021, the NC Court of Appeals, issued a unanimous decision in a case of first impression, in Caroline-A-Contracting, LLC v. J. Scott Campbell Constr. Co., Inc., affirming the trial court’s decision holding that under the collateral source rule a subcontractor found liable for damages caused by its own negligence on a construction project, could not obtain a credit for payments made to the general contractor by another subcontractor.
In Caroline-A-Contracting, LLC, the general contractor, J. Scott Campbell Construction Company, Inc. (“Campbell”), building a house in Maggie Valley, NC, hired a subcontractor to build a retaining wall. However, the wall collapsed on two occasions due to a failed drainage system and compromised foundation from heavy rainfall. As a result, the other subcontractor contracted with Caroline-A-Contracting, LLC (“CAC”) to rectify the situation and construct the wall anew. During reconstruction of the wall, Campbell determined CAC’s work to be deficient and ordered CAC to stop work on the wall. Campbell then hired a replacement contractor to complete the work on the retaining wall.
When Campbell and the other subcontractor refused to pay CAC for the work it had done, CAC filed separate lawsuits against Campbell and the subcontractor. In the lawsuit against Campbell, Campbell made a counterclaim of negligence for damages as a result of CAC’s work. In defense of the negligence claim, CAC argued that Campbell was not entitled to recover from CAC money damages that had already been paid by the other subcontractor. In other words, CAC asserted it was entitled to a credit or offset against the amounts paid by another source to Campbell for the damages being claimed by Campbell against CAC.
Ultimately, CAC was found liable for damages caused by its negligence in reconstructing the retaining wall. The trial court applied the collateral source rule to deny CAC’s request for a credit or offset against payments made by the other subcontractor to Campbell. Under the collateral source rule, a party found liable for damages in tort (e.g., negligence) is barred from reducing its own liability for damages by any amount of compensation the injured party receives from an independent source. The rule is meant to be punitive, and to prevent a tortfeasor from a windfall when a portion of the injured party’s damages have been paid by a collateral source. See Wilson v. Burch Farms, Inc., 176 N.C. App. 629, 639, 627 S.E.2d 249, 257 (2006).
After consideration of the other subcontractor’s level of involvement with the reconstruction of the wall, the Court of Appeals concluded that the other subcontractor was a source independent from CAC. Further, the payments made by the other subcontractor to Campbell for his failure to fulfill his obligations were entirely independent of CAC’s negligence and thus, constituted payments from an independent, collateral source. Therefore, pursuant to the collateral source rule, CAC was not entitled to reduce its liability for its negligence on the construction project by the payments made to Campbell by the other subcontractor.
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