Version 2016

STATE OF DELAWARE

CONSTRUCTION

COMPENDIUM OF LAW

Prepared by Cooch and Taylor

1000 West Street, 10th Floor Wilmington, DE 19899-1680

302-984-3800 www.coochtaylor.com

Version 2016

PRE-SUIT NOTICE OF CLAIM AND OPPORTUNITY TO CURE

In the construction context, there are no statutory requirements that a party provide pre-suit

notice prior to initiating an action for breach of warranty. The courts, however, have dismissed a

homeowner’s claims for non-compliance with the notice provisions contained in their warranty.1

The courts will enforce contractual pre-suit notice provisions between parties.2

Pre-suit notice of claims is required when the suit involves certain municipalities as defendants.3

No claims for damages relating to physical injuries, death, or injury to property and alleging

negligence against the City of Wilmington or any of its departments, officers, agents or

employees may be brought, unless written notice is provided to the Mayor within one year of the

date of such injury, denoting the time, place and manner of injuries sustained.4

STATUTE OF LIMITATIONS AND REPOSE

A. BREACH OF WARRANTY AND NEGLIGENCE

10 Del. C. § 8106 establishes the statute of limitations for breach of warranty and negligence

claims, which states:

(a) No action to recover damages for trespass, no action to regain possession of personal

chattels, no action to recover damages for the detention of personal chattels, no action to

recover a debt not evidenced by a record or by an instrument under seal, no action based

on a detailed statement of the mutual demands in the nature of debit and credit between

parties arising out of contractual or fiduciary relations, no action based on a promise, no

action based on a statute, and no action to recover damages caused by an injury

unaccompanied with force or resulting indirectly from the act of the defendant shall be

brought after the expiration of 3 years from the accruing of the cause of such action…

The cause of action for a breach of warranty accrues on the date of the settlement.5 The cause

of action for a negligence claim accrues at the time of injury. The time of injury is when “the

plaintiff has reason to know that a wrong has been committed.”6 This is known as the “Time

of Discovery Rule,” which may extend the limitations period beyond that established by

statute.7

B. BREACH OF CONTRACT

1 See Commercial Union Ins. Co. v. S&L Contractors, Inc., 2002 WL 31999352, *2 (Del. Com. Pl.). 2 U.S. Bank Nat. Ass’n v. U.S. Timberlands Klamath Falls, L.L.C., 2004 WL 1699057, *3, (Del. Ch.) (citing Harper

v. Del. Valley Broadcasters, 743 F. Supp. 1076 (D. Del. 1990) aff’d, 932 F.2d 959 (3d Cir.1991)). 3 10 Del. C. § 8124. 4 See 10 Del. C. § 8124; See also City of Wilmington v. Spencer, 391 A.2d 199, 202 (Del. 1978); Sadler v. New

Castle County, 524 A.2d 18, 26 (Del. Super. 1987). 5 Abdi v. NVR, Inc., 2007 WL 2363675, at *3 (Del. Super. Aug. 17, 2007), aff'd, 945 A.2d 1167 (Del. 2008) 6 S&R Associates, L.P. v. Shell Oil Co., 725 A.2d 431, 439 (Del. Super. 1998). 7 Cavalier Group v. Strescon Industries, Inc., 782 F. Supp. 946 (Del. 1992).

Version 2016

10 Del. C. 8127 establishes the statute of limitations for alleged deficiencies in the

construction of improvements to commercial real property. The statute operates like a statute

of repose stating:

(b) No action, whether in or based upon a contract (oral or written, sealed or unsealed), in

tort, or otherwise, to recover damages or for indemnification or contribution for damages

. . . shall be brought against any person performing or furnishing, or causing the

performance or furnishing of, any such construction of such an improvement or against

any person performing or furnishing, or causing the performing or furnishing of, any such

designing, planning, supervision, and/or observation of any such construction or manner

of construction of such an improvement, after the expiration of 6 years from whichever of

the following dates shall be earliest:

a. The date of purported completion of all the work called for by the contract as

provided by the contract if such date has been agreed to in the contract itself;

b. The date when the statute of limitations commences to run in relation to the

particular phase or segment of work performed pursuant to the contract in which the

alleged deficiency occurred, where such date for such phase or segment of work has

been specifically provided for in the contract itself;

c. The date when the statute of limitations commences to run in relation to the

contract itself where such date has been specifically provided for in the contract itself;

d. The date when payment in full has been received by the person against whom the

action is brought for the particular phase of such construction or for the particular

phase of such designing, planning, supervision, and/or observation of such

construction or manner of such construction, as the case may be, in which such

alleged deficiency occurred;

f. The date when the construction of such an improvement as called for by the

contract has been substantially completed;

g. The date when an improvement has been accepted, as provided in the contract, by

the owner or occupant thereof following the commencement of such construction;

h. For alleged personal injuries also, the date upon which it is claimed that such

alleged injuries were sustained; or after the period of limitations provided in the

contract, if the contract provides such a period and if such period expires prior to the

expiration of 2 years from whichever of the foregoing dates is earliest.

OWNER’S CAUSES OF ACTION

A. BREACH OF CONTRACT

A plaintiff must prove three elements in a breach of contract claim, which are:

(1) A contract existed;

(2) The defendant breached an obligation imposed by the contract; and

Version 2016

(3) The breach resulted in damage to the Plaintiff.8

The standard remedy for breach of contract is based on the reasonable expectations of the

parties.9 Reliance, however, is not a necessary element in the breach of contract analysis.10

10 Del. C. § 241 provides:

In determining whether a failure to render or to offer performance is material, the following

circumstances are significant:

(a) the extent to which the injured party will be deprived of the benefit which he

reasonably expected;

(b) the extent to which the injured party can be adequately compensated for the part of

that benefit of which he will be deprived;

(c) the extent to which the party failing to perform or to offer to perform will suffer

forfeiture;

(d) the likelihood that the party failing to perform or to offer to perform will cure his

failure, taking account of all the circumstances including any reasonable assurances;

(e) the extent to which the behavior of the party failing to perform or to offer to perform

comports with standards of good faith and fair dealing.

B. BREACH OF WARRANTY

An alleged breach of warranty can be grounded on express warranty provisions in the

contract or based on warranties implied by law.

1. Breach of Express Warranty

Purchasers and sellers are free to contract for whatever warranties they wish. Home

purchasers are free to, and frequently do, purchase warranties from third party companies.

The warranties provided in the contract may be orally modified, notwithstanding a

contractual provision requiring a written modification.11

2. Breach of Implied Warranty

Delaware has adopted a general implied warranty of habitability and an implied warranty of

good quality and workmanship for both new construction and renovated or reconstructed

structures.12 A developer may contract away the implied warranty by including clear,

unambiguous language in the contract specifically excluding the implied warranties.13 The

implied warranties are generally only available to purchasers of new dwellings and the

warranty does not extend to subsequent purchasers.14

8 VLIW Technology, LLC v. Hewlett-Packard Co. Stmicroelectronics, Inc., 840 A.2d 606, 612 (Del. 2003). 9 Duncan v. TheraTx, Inc., 775 A.2d 1019, 1022 (Del.2001) 10 Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 548 (Del. Super.), aff'd, 886 A.2d 1278 (Del. 2005) 11 See Pepsi-Cola Bottling Co. of Asbury Park v. Pepsico, Inc., 297 A.2d 28, 33 (Del. 1972). 12 Council of Unit Owners of Breakwater House Condominium v. Simpler, 603 A.2d 792, 793 (Del. 1992). 13 Id. 14 Council of Unit Owners of Sea Colony East, Phases III, IV, VI, VIII v. Carl M. Freeman Assocs., Inc., 1989 WL

48568 at *6 (Del. Super. 1989).

Version 2016

3. Additional Warranties

Local codes should be consulted in relation to residential construction, an area where local

legislators have largely decided to confer additional warranties.

C. NEGLIGENCE

1. General

To recovery under a theory of negligence, plaintiff must show: (1) proof of a duty of care, (2)

a breach of that duty, (3) proximate causation, and (4) damages.15

Landowners must protect business invitees from danger that is reasonably foreseeable.16 A

contractor who is in control of the workplace must provide a safe environment to work.

Safety in the workplace is not guaranteed. The contractor's duty is to exercise ordinary care,

in light of the circumstances, so that the workplace is reasonably safe.17

Delaware follows the general rule that the employer of an independent contractor is not liable

for the negligence of the contractor or his employees,18 however, Delaware follows several

exceptions found in § § 411 and 413 of the Restatement. The Particular Risk Doctrine,

states that a general contractor may be liable for the actions of the independent contractor if

the work was inherently dangerous.19 Delaware courts have held that as long as property

owners do not control the scope of independent contractor’s work, an independent

contractor's employee cannot use the Particular Risk Doctrine to sue employers that hire

independent contractors for work-related injuries.20

A second exception to the general rule for employer liability is negligent hiring practices. If

an employer negligently hired an independent contractor, the employer may be liable for the

negligence of the independent contractor and his employees.21 One who renders services in a

trade or profession is required to exercise the skill and knowledge normally held by members

of that trade or profession.22 If one holds oneself out as having superior skill or knowledge in

that trade or profession, then the person is held to a higher standard of care.23

2. Comparative Fault

15 Campbell v. DiSabatino, 947 A.2d 1116, 1117 (Del. 2008). 16 Achtermann v. Bussard, 2007 WL 901642, at *4 (Del. Super. 2007), aff’d, 957 A.2d 1 (Del. 2008). 17 Rabar v. E.I. duPont de Nemours & Co., 415 A.2d 499, 506 (Del. 1980); DiSabitino Bros., Inc. v. Baio, 366 A.2d

508, 510 (Del. 1976). 18 Restatement (Second) of Torts § 409 (1965). 19 O’Conner v. Diamond State Telephone, 503 A.2d 661 (Del. Super. 1985). 20 Roca v. E. I. du Pont de Nemours and Company, 842 A.2d 1238 (Del. 2004); See also Restatement (Second) of

Torts, § 414 (1965) (stating, “[o]ne who entrusts work to an independent contractor, but who retains the control of

any part of the work, is subject to liability for physical harm to others for whose safety the employer owes a duty to

exercise reasonable care, which is caused by his failure to exercise his control with reasonable care.”) 21 Bowles v. White Oak, Inc., 1988 WL 97901 (Del. Super. 1988). 22 Tydings v. Lowenstein, 505 A.2d 443, 445 (Del. 1986); Sweetman v. Strescon Indus., Inc., 389 A.2d 1319, 1324

(Del. 1978). 23 Norfleet v. Mid-Atl. Realty Co., 2001 WL 695547, at *5 n.12 (Del. Super. Apr. 20, 2001)

Version 2016

Delaware courts utilize the doctrine of comparative fault, determining the proportionate fault

of the parties on an ad hoc basis.24 Assumption of the risk does not generally act as a bar to

recovery, but may be a factor in the apportionment of fault. However, where the plaintiff has

expressly relieved the defendant of a duty, known as the primary assumption of the risk,

recovery may be barred.25

3. Violation of a Statute

In Delaware, evidence of a violation of a statute is only a factor in the negligence analysis.

To prove a claim for negligence per se, a plaintiff must establish four elements: (1) the

statute in question was enacted for the safety of others; (2) the statutory violation proximately

caused the plaintiff's injury; (3) plaintiff was a member of the class protected persons; and (4)

the statute established a standard of conduct designed to avoid the harm.26

4. Joint and Several Liability

The Delaware Uniform Contribution Among Tortfeasors Law, 10 Del. C. § 6301, et seq,

determines joint tortfeasor liability. So long as the total recover is not in excess of the final

judgment, a plaintiff may recover against any or all of the defendants.27 To be considered

joint tortfeasors, the defendants must share a common liability to the plaintiff.28

D. MISREPRESENTATION AND FRAUD

To demonstrate fraud, the following elements must be proved:

1) A false representation, usually one of fact, made by the defendant;

2) The defendant's knowledge or belief that the representation was false, or was made with

reckless indifference to the truth;

3) An intent to induce the plaintiff to act or to refrain from acting;

4) The plaintiff's action or inaction taken in justifiable reliance upon the representation; and

5) Damage to the plaintiff as a result of such reliance.29

A false representation may be made by words or by conduct. A fact is important if a

reasonable person would act, or choose not to act based on the fact, or if the maker of the

misrepresentation knew another person would find it important.30

24 Spencer v. WalMart Stores East, 930 A.2d 881, 885 (Del. 2007). 25 Koutoufaris v. Dick, 604 A.2d 390, 398 (Del. 1992). 26 NVF Co. v. Garrett Snuff Mills, Inc., 2002 WL 130536, at *1 (Del. Super. Jan. 30, 2002) 27 Brown v. Comegys, 500 A.2d 611, 613 (Del. 1985). 28 Ferguson v. Davis, 102 A.2d 707 (1954). 29 Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983). 30 See Gaffin v. Teledyne, Inc., 611 A.2d 467, 472 (Del. 1992); Stephenson v. Capano Dev., Inc., 462 A.2d 1069,

1074 (Del. 1983); Harmon v. Masoneilan Intern, Inc., 442 A.2d 487, 499 (Del. 1982).

Version 2016

E. STRICT LIABILITY

Delaware has specifically held the Uniform Commercial Code provisions on sales of goods

(6 Del. C. § 2-101 et seq.) preempted the field and prohibited the extension of the theory of

strict liability to the law of sales.31

F. OWNER’S STATUTORY REMEDIES

1. Delaware Consumer Fraud Act (6 Del. C. 2501, et seq.) covers cases of fraud and

misrepresentation in construction disputes. Under the Delaware Consumer Fraud Act, a

person can be liable for making false representation or concealing an important fact from

another in connection with the advertising or sale of any merchandise with the intention that

the other person will rely on said false representation or concealment of an important fact. An

individual that violates the statute may be liable even if he or she was unaware that it was

false, that an important fact had been concealed, or whether or not there was justifiable

reliance.32

Punitive damages are only permissible after a finding that the defendant's conduct was

"outrageous," because of "evil motive" or "reckless indifference to the rights of others.”33

Inadvertence, mistakes or errors in judgment which are mere negligence will not suffice.34

Delaware recognizes the benefit of the bargain rule and out-of-pocket measures for damages

in cases of fraud or deceit and for violations of the Consumer Fraud Act.

2. Deceptive Trade Practices Act

Sections 2531-2536 of 6 Del. C. enacted the Deceptive Trade Practices Act, codifying the

common law of unfair trade competition.35

In order to recover under the Deceptive Trade Practices Act, a party must have a basis for

injunctive relief.36 Individuals do not have standing to bring a claim under the Act; only

those involved in a trade or business or the Attorney General have standing to assert a claim

under the Act.37

COVERAGE AND ALLOCATION ISSUES

Standard commercial general liability (“CGL”) policies provide policyholders with insurance

against liability for all sums the insured becomes legally obligated to pay as damages because

of bodily injury or property damage caused by an occurrence. Whether coverage is triggered

under CGL polices depends on policy interpretation and application of the requirements that

31 Cline v. Prowler Industries of Maryland, 418 A.2d 968 (Del. 1980). 32 6 Del. C. § 2511 et seq.; Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983); Nash v. Hoopes, 332

A.2d 411, 413 (Del. 1975); In re Brandywine Volkswagen, Ltd., 306 A.2d 24, 28-29, aff'd sub nom. Brandywine

Volkswagen, Ltd. v. State, 312 A.2d 632, 634 (Del. 1973). 33 Jardel Co., Inc. v. Hughes, 523 A.2d 518 (Del. 1987) (citing Restatement (Second) of Torts § 908 cmt. b (1979). 34 Id. 35 Gebelein v. Four State Builders, 1980 WL 20294, at *3 (Del. Ch. Feb. 24, 1983). 36 Lipson v. Anesthesia Servs., P.A., 790 A.2d 1261, 1290 (Del. Super. 2001) 37 Grand Ventrures, Inc. v. Whaley, 632 A.2d 63 (Del. 1993).

Version 2016

the bodily injury or property damage occur during the policy period, and that such injury or

damage is caused by an occurrence.

Delaware courts have taken divergent positions in coverage and allocation cases. The courts

have distinguished injuries-in-fact, that is, discrete physical injuries or damage to property,

from injuries which result from continuous conduct which extends over a period of time. In

determining when an “occurrence” happens under applicable policies of insurance, Delaware

courts undertake a fact-specific analysis.

The Delaware Superior Court has applied a continuous trigger analysis to claims of pollution

resulting from leaching from a landfill.38

The Supreme Court has held that insuring agreement language providing for “indemni[ty] for

‘all sums’ which an insured is obligated to pay … caused by an occurrence” is inconsistent

with pro rata allocation based upon time on the risk.39 The Monsanto court, applying

Missouri law, held that, without an express proportional limitation in the applicable policy,

an insurer would be liable for the entirety of damages, up to the limits of coverage for the

applicable policy periods. But in E. I. du Pont de Nemours & Cocae, the Supreme Court

imposed a pro rata allocation based on time on the risk on equitable grounds, stating: “it is

illogical to compress all of this damage into one policy period and hold each insurer fully

liable. The presumption of continuous damage logically and fairly requires the imposition of

the modified pro rata allocation of damage.” 40

A. INDEMNITY/CONTRIBUTION/THIRD PARTY BENEFICIARIES

1. Contractual defense and indemnity provisions

Contractual provisions in construction contracts which purport to obtain indemnification for

a party’s own negligence are void as a matter of legislatively-defined public policy.41 The

Delaware Superior Court has held that when a construction contract contains a severability

clause, 6 Del. C. §2704(a) may invalidate only the parts of the agreement that indemnify a

38 See National Union Fire Insurance Co. v. Rhone-Poulenc Basic Chemicals Company, 1992 WL 22690, at *18-19

(Del. Super.) (finding that “every policy from the start of the injurious process is triggered”) (citing New Castle

County v. Continental Casualty Co., 725 F. Supp. 800, 809-812 (D. Del. 1989) (aff’d in part, rev’d in part); New

Castle County v. Hartford Acc. and Indem. Co., 933 F.2d 1162 (C.A. 3 (Del.) 1991)); but see Olde Colonial Village

Condominium Council v. Millers Mut. Ins. Co., 2002 WL 122885, at *10 (Del. Super.) (rejecting the continuous

trigger analysis, finding that an engineer’s recommendations to evacuate a building, coupled with the condemnation

of the building equated to the “collapse” of the building: “a collapse provision’s trigger is the collapse itself, not

what led to it”). 39 See Monsanto Co. v. C.E. Heath Compensation and Liability Company, 652 A.2d 30, 34-35 (Del. 1994) (applying

Missouri law); cf. Hercules, Inc. v. AIU Insurance Co., et. al., 784 A.2d 481, 489 (Del. 2001) (holding that “pro rata

allocation is inconsistent with the ‘all sums’ provisions in the [applicable] policies”; finding that insurers who

agreed to indemnify for “all sums” in policies covering the applicable period were jointly and severally liable). 40 See E. I. du Pont de Nemours & Co. v. Admiral Ins. Co., 1995 WL 654020, at *15 (Del. Super.) 41 See 6 Del. C. § 2704(a); Alberici Const. Co. v. Mid-West Conveyor Co., Inc., 750 A.2d 518, 521 (Del. 2000); see

also Kempski v. Toll Bros., Inc., 582 F. Supp. 2d 636, 641(D. Del. 2008) (“Under Delaware law … ‘a contractual

provision requiring one party to indemnify another party for the second party’s own negligence, whether sole or

partial, is against public policy and is void and unenforceable.’”) (applying Delaware law).

Version 2016

party against that party’s own conduct.42 The extent to which indemnification clauses are

severable, however, depends upon the express language of the indemnification provision.43

Delaware courts have distinguished agreements to procure insurance from agreements to

indemnify. The Supreme Court has held that liability insurance purchased for another

remains enforceable when a party seeks coverage under that policy, despite the provisions of

6 Del. C. 2704(a).44 Where a party fails to honor their contractual agreement to purchase

insurance coverage for another, an enforceable cause of action for breach exists.45 The

Delaware Supreme Court has held that certain terms in an additional insured clause are

construed broadly under Delaware law.46

The common law recognized the right to indemnity only if it was based upon contract,

express or implied.47 While indemnity ordinarily arises out of contract, it may also be based

upon “equitable principles” and that term is equivalent to the term “principles of fairness or

justice.”48

Generally, contract provisions must be crystal clear and unequivocal in requiring a contractor

to assume all liability for damage claims, regardless of which party is guilty of negligence

actually causing the injury.49 Contracts relieving a party of its own negligence are not

favored, are strictly construed, and will not be interpreted to provide indemnification unless

the intent of the parties is so expressed in very clear terms.50

In addition, where the contract is silent on indemnification, Delaware provides us with

several circumstances which can give rise to an implied obligation to indemnify. The first

arises from an implied duty of workmanlike performance. Others involve special

relationships in which a party with superior expertise or knowledge of a danger or risk of

danger may be held to indemnify another. Typically, if an indemnity provision specifically

addresses, and permits, indemnification in a situation where the negligence of the indemnitor

and indemnitee combine and concurrently cause a loss, that provision will be enforced.

42 See Handler Corp. v. State Drywall Co., Inc. 2007 WL 3112466, at *3 (Del. Super.) (where an indemnification

provision between a contractor and subcontractor expressly provided that the subcontractor was required to

indemnify the contractor for the negligence of either party, and the contract contained a severability clause, the court

voided only the language of the provision requiring the subcontractor to indemnify the contractor for its own

negligence, and held that the rest of the indemnification provision, providing that subcontractor was required to

indemnify the contractor for vicarious liability, was enforceable); see also Menkes v. Saint Joseph Church, 2011 WL

1235225, at *3 (Del. Super. 2011); Patton v. 24/7 Cable Co., LLC, 2013 WL 1092147, at *4 (Del. Super.). 43 See Kempski v. Toll Bros., Inc., 582 F.Supp.2d 636, 641(D. Del. 2008) (applying Delaware law) (granting

Summary Judgment for the subcontractor, refusing to apply a severability clause to the indemnification provision,

holding that “the duties to indemnify for the conduct of the [contactor] and the actions of [the subcontractor] were

expressed together as a single obligation, and were “not severable … distinct[,] or distinguishable.”), citing Handler

Corp, 2007 WL 3112466, at *3. 44 See Chrysler Corporation v. Merrell & Garaguso, Inc., 796 A.2d 648 (Del. 2002); See also 6 Del. C. § 2704(b). 45 DaimlerChrysler Corporation v. Pennsylvania National Mut. Ins. Co., 2003 WL 1903766 (Del. Super. 2003). 46 See Pacific Ins. Co. v. Liberty Mut. Ins. Co., 956 A.2d 1246, 1257 (Del. 2008) (holding that the term “‘arising out

of’ is broadly construed to require some meaningful linkage between the two conditions imposed in the contract

[i.e., the contractors’] operations and the [landowner’s] resulting liability ….”). 47 Insurance Company of North American v. Waterhouse, 424 A.2d 675 (Del. 1980); Allstate Investigation Security

Agency, Inc. v. Turner Construction Co., 301 A.2d 273 (Del. 1972). 48 Clark v. Teeven Holding Co., Inc., 625 A.2d 869, 878 (Del. Ch. 1992). 49 State v. Interstate Amiesite Corp., 297 A.2d 41, 44 (Del. 1972). 50 Waller v. J.E. Brenneman Co., 307 A.2d 550 (Del. Super. 1973).

Version 2016

Delaware courts permit parties, by contract, to provide that each party would bear the loss

proportionate to its fault.51

An employer is immune from contribution claims due to the exclusivity provisions of

Delaware’s worker’s compensation statute.52 However, the Supreme Court has held that

contractual claims for indemnification based upon express contract terms may be maintained

against a plaintiff’s employer.53 The Superior Court has held that even implied

indemnification claims may survive in certain cases where no express indemnification

provision exists on the face of the contract.54

2. Contribution

The right to contribution is triggered when it is appropriate for liability to be apportioned

among codefendants. In Delaware, the right to contribution is governed by Delaware’s

Uniform Contribution Among Tortfeasors Law 10 Del. C. § 6301 et. seq. (the “UCATL”).

Under the UCATL, parties must be joint tortfeasors who share a common liability for

contribution to be appropriate. A joint tortfeasor is not entitled to contribution until he has,

by payment, discharged the common liability or has paid more than his pro rata share.55

3. Third party beneficiaries

Ordinarily, one must be a party to the contract to enforce it, however, the law has recognized

an exception to the general rule, and, in narrow circumstances, will allow a third party

beneficiary to have an enforceable right.56 In order for third party beneficiary rights to be

created, the parties to the contract must have intended to confer a benefit to the third party

and the benefit should be a material part of the contract.57

4. Subrogation waiver

Waiver of subrogation clauses in construction contracts are intended to limit a party’s

recovery when the property loss or damage is covered by insurance.58 Generally, Delaware

courts will uphold waiver of subrogation clauses unless they are unconscionable,

inconspicuous, or contracts of adhesion.59 The right to subrogation may be expressly waived

or impliedly waived by course of conduct.60

51 Precision Air, Inc. v. Standard Chlorine of Delaware, Inc., 654 A.2d 403 (Del. 1995). 52 See 19 Del. C. § 2304; See also Precision Air, Inc. v. Standard Chlorine of Del., Inc., 654 A.2d 403, 407 (Del.

1995) (“Because the employer cannot be held liable as a joint tortfeasor, it is not obligated to provide contribution to

the third party.”). 53 See Precision Air, 654 A.2d at 407. 54 See Davis v. R.C. Peoples, Inc., 2003 WL 21733013 (Del. Super.); see also Thompson v. Murta Wiedemann, Inc.,

2010 WL 596504, at *2 (Del. Super.). 55 Builders & Managers, Inc. v. Dryvit Sys., Inc., 2004 WL 304357, at *2 (Del. Super. Feb. 13, 2004). 56 See Stuchen v. Duty Free Int'l, Inc., 1996 WL 33167249, at *9 (Del. Super. 1996) 57 See Insituform of North America, Inc. v. Chandler, 534 A.2d 257, 268 (Del. Ch. 1987). 58 St. Paul Fire & Marine Ins. Co. v. Elkay Mfg. Co., 2003 WL 139775, at *5 (Del. Super. Jan. 17, 2003). 59 Middlesex Mut. Assur. Co. v. Delaware Elec. Signal Co., 2008 WL 4216145, at *4 (Del. Super. Sept. 11, 2008). 60 See Baio v. Commercial Union Ins. Co., 410 A.2d 502, 507 (Del. 1979)

Version 2016

DAMAGES

Delaware courts have generally adhered to the Restatement of the Law in determining damages

in construction defect cases: “[I]f a party to a construction contract fails to perform its

obligations under the contract, the aggrieved party is entitled to damages measured by the

amount required to remedy the defective performance unless it is not reasonable or practicable to

do so.”61 Thus, the appropriate measure of damages is the cost of repair unless that is not

feasible, then the measure of damages will be diminution in value.

A. Attorney’s fees

Delaware follows the “American Rule,” whereby a prevailing party is expected to pay its own

attorney’s fees and costs.62 Generally, Delaware courts may not order the payment of

attorney’s fees as part of costs to be paid by the non-prevailing party unless a statutory or

contractual basis exists for the award of such fees.63

B. Compensatory damages

In a contract action, a party may recover damages for those injuries which are reasonably

foreseeable or anticipated to flow from the breach.64 In a construction contract action,

compensatory damages have been equated to a plaintiff’s “‘out-of-pocket’ actual loss.”65

1. Betterment/economic waste

The primary type of damages for defective performance of a real estate construction

contract is the cost of repairing or remedying the defect.66 However, if this would result

in economic waste, the secondary measure of damages is diminution in value of the

property caused by the breach.67

§ 346 Restatement (First) of Contracts provides that compensatory damages for defective

construction may be either:

(i) the reasonable cost of construction and completion in accordance with the contract, if

this is possible and does not involve unreasonable economic waste (repair rule); or

(ii) the difference between the value that the product contracted for would have had and

the value of the performance that has been received by the plaintiff, if construction and

61 See Council of Unit Owners v. Carl M. Freeman Associates, Inc., 564 A.2d 357, 361 (Del. Super. 1989) (citing

Farny v. Bestfield Builders, Inc., 391 A.2d 212, 214 (Del. Super. 1978)); Carey v. McGinty, 1988 WL 55336, at *6

(Del. Super.); see also Restatement, Contracts § 346 (1932). 62 See Montgomery Cellular Holding Co. v. Dobler, 880 A.2d 206, 227 (Del. 2005). 63 See Casson v. Nationwide Ins. Co., 455 A.2d 361, 370 (Del. Super.1982); but see Dover Historical Soc., Inc. v.

City of Dover Planning Com’n, 902 A.2d 1084, 1091 (Del. 2006) (“The Superior Court does hear cases in which it

is occasionally required to apply equitable principles. In such cases [, to control its own process,] the Superior Court

has jurisdiction to award attorneys’ fees even if no contract or statute requires it.”) (citing Burge v. Fidelity Bond &

Mortgage Co., 648 A.2d 414, 421-22 (Del. 1994)) (upholding award of attorneys’ fees in a Superior Court action

involving a mortgage foreclosure, which is inherently equitable). 64 Clemens v. Western Union Telegraph Co., 28 A.2d 889, 890 (Del. Super. 1942). 65 Hazlett v. Pompeo, 2002 WL 32074651 (Del. Com. Pl. 2002) (citing Strassburger v. Earley, 752 A.2d 557, 579

(Del. Ch. 2000)). 66 Farny v. Bestfield Builders, Inc., 391 A.2d 212, at 214 (Del. Super. 1978). 67 Brandywine 100 Corp. v. New Castle County, 527 A.2d 1241 (Del. Super. 1987).

Version 2016

completion in accordance with the contract would involve unreasonable economic waste

(value rule).68

C. Delay and disruption damages

Delaware courts have allowed delay damages where a construction contract provided for

same in a liquidated damages provision.69

D. Economic loss doctrine

Under the Economic Loss Doctrine, a party may recover in tort only if damages include

bodily injury or property damage.70 Delaware courts have adopted an exception to this rule as

set forth in the Restatement (Second) of Torts § 552, which provides a basis for recovery for

economic losses against those supplying false information.71 In order to successfully meet the

exception in a negligent misrepresentation claim, a plaintiff must show that (1) defendant

supplied the information to the plaintiff for use in business transactions with third parties,

and (2) the defendant is in the business of supplying information.”72 Delaware courts have

allowed purely economic tort claims to extend to suppliers of information.73

Residential homes

6 Del. C. §3652 provides that no action based in tort to recover damages from negligence

in the construction of residential real property shall be barred solely on the ground that

the only losses suffered are economic in nature. Thus, the economic loss doctrine does

not apply to residential homes.

E. Interest

A prevailing party in a contract action is entitled to pre– and post-judgment interest.74

Prejudgment interest is awarded as a matter of right.75 As a general rule, pre-judgment

interest is computed from the date payment is due under the contract.76 The legal rate of

interest is defined as not greater than 5% over the Federal Reserve Discount Rate.77 68 Restatement (First) of Contracts § 346 (1932). 69 See Joseph T. Dashiell Builders v. Andrews, 2002 WL 31819895 (Del. Super. 2002). 70 Christiana Marine Service Corp. v. Texaco Fuel and Marine Marketing, Inc., 2002 WL 1335360, at *22 (Del.

Super. 2002). 71 See Guardian Construction Co. v. Tetra Tech Richardson, 583 A.2d 1378, 1385-1386 (Del. Super 1990). 72 See Christiana Marine Services Corp., 2002 WL 1335360, at *6, citing Danforth v. Acorn Structures, Inc., 1991

WL 269956 (Del. Super.). 73 As to design engineers (See Guardian, 583 A.2d at 1385), as to accountants (see Carello v.

PricewaterhouseCoopers, LLP, 2002 WL 1454111, at *7 (Del. Super. 2002), as to financial advisors, Outdoor

Technologies Inc. v. AllFirst Financial Inc., 2000 WL 141275, at *5 (Del. Super.), as to title searchers (see Ruger v.

Funk, 1996 WL 110072, at *10 (Del. Super.). But cf. Millsboro Fire Co. v. Construction Management Services, Inc.,

2006 WL 1867705, (Del. Super. 2006) (refusing to apply an exception to a subcontractor, finding that plans and

design drawings provided by a subcontractor did not place them in the “business of supplying information”). 74 But see Reserves Development LLC v. Severn Sav. Bank, FSB, 961 A.2d 521, 525 (Del. 2008) (Denying

Appellant’s argument that it was entitled to pre-judgment interest as a matter of right and denying request for

prejudgment interest as untimely in a quasi-contract claim for unjust enrichment; affirming the Chancery Court’s

decision to deny pre-judgment interest, where Appellant requested interest in its Amended Complaint, but did not

specifically request pre-judgment interest until including it in a proposed form of Order). 75 Citadel Holding Corp. v. Roven, 603 A.2d 818, 826 (Del. 1982); but see Reserves Development LLC v. Severn

Sav. Bank, FSB, supra, at FN 57. 76 Moskowitz v. Mayor & Council of Wilmington, 391 A.2d 209, 210 (Del. 1978). 77 6 Del. C. §2301(a).

Version 2016

F. Punitive damages

Punitive damages generally are not recoverable in a breach of contract action.78 However, the

Delaware Supreme Court has stated that punitive damages are recoverable where “the

defendant’s conduct exhibits a wanton or willful disregard for the rights of [the] plaintiff.”79

A finding of “ill-will, hatred or intent to cause injury” is required in order to support a claim

for punitive damages in a contract action.80

G. Emotional distress

Under Delaware law, if a person intentionally or recklessly causes severe emotional distress

to another by extreme and outrageous conduct, that person is liable for the emotional distress

and for any bodily harm that results from the distress.

According to the Delaware Pattern Jury Instructions:

Extreme and outrageous conduct goes beyond all possible bounds of decency and would be

regarded as atrocious and utterly intolerable in a civilized community. Emotional distress

includes all highly unpleasant mental reactions, including fright, horror, grief, shame,

humiliation, embarrassment, anger, chagrin, disappointment, and worry. Severe emotional

distress is so extreme that no reasonable person could be expected to endure it.81

H. Duty to mitigate damages

The general rule for the measure of damages is the loss actually sustained as a result of the

breach of the contract.

The duty to mitigate requiring that the injured party make a reasonable effort, whether

successful or not, to minimize the losses suffered. If no reasonable effort was made, the

damages shall be reduced by the proper amount, had a reasonable effort been undertaken.

The reduction must be measured with reasonable probability.82

CONTRACTOR’S REMEDIES

A. Mechanic’s Lien

The process and procedure for mechanic’s liens in Delaware is governed by statute.83 The

statute allows for “any person having performed or furnished labor or material … for the

78 Horizon J.J. White, Inc. v. Metropolitan Merchandise Mart, 107 A.2d 892 (Del. Super. 1954). 79 Cloroben Chemical Corp. v. Comegys, 464 A.2d 887, 891 (Del. 1983), citing Riegal v. Aastad, 272 A.2d 715, 718

(Del. 1970), or “for willful or malicious breaches of contract.” Jardel Co., Inc. v. Hughes, 523 A.2d 518, 529 (Del.

1987); see also Casson v. Nationwide Insurance Co., 455 A.2d 361 (Del Super. 1982), citing McClain v. Faraone,

369 A.2d 1090 (Del. Super. 1977). 80 See Casson, 455 A.2d at 368. 81 Del. P.J.I. Civ. § 14.1 (2000). 82 See Lynch v. Vickers Energy Corp., 429 A.2d 497, 504 (Del. 1981) (plaintiff with out-of-pocket expenses has duty

to mitigate them); McClain v. Faraone, 369 A.2d 1090, 1093 (Del. 1977)(duty to mitigate losses in liquidation of

property at foreclosure sale of injured party); Nash v. Hoopes, 332 A.2d 411, 414 (Del. 1975)(duty in contractual

breach to mitigate losses when reasonably possible); Katz v. Exclusive Auto Leasing, Inc., 282 A.2d 866, 868 (Del.

1971)(common law of contracts requires injured party to minimize losses); see also Restatement (Second) Of

Contracts § 350 (1979). 83 See 25 Del. C. § 2701 et. seq.

Version 2016

erection, alteration, or repair of any structure, in pursuance of any contract … with the

owners … or with the agent of such owner … to obtain a lien upon such structure and upon

the ground upon which the same may be is situated.”84 “The general purpose of a mechanic’s

lien is to provide protection for contractors or other laborers who furnish labor or other

services on a structure pursuant to a contract with its owners.”85 Under the mechanic’s lien

statute, “labor” includes both physical and supervisory labor.86

Because the right to a mechanic’s lien derives solely from the statute, the rights and remedies

are in derogation of the common law, and the statute is strictly construed.87 “Strict

compliance with the statute is required as powerful relief is afforded that was unavailable at

common law.”88

Delaware courts have held that strict construction, however, “does not mean unreasonable or

unwarranted construction.”89 Delaware Courts have mandated that those individuals who file

mechanic’s liens be in “substantial compliance” with the statutory requirements.90 Delaware

Courts have readily dismissed complaints for non-compliance with the statutory

requirements.91

In personam claims, such as breach of contract, can be filed concurrently with a mechanic’s

lien claim.92

1. Pre-Lien Notice

There is no statutory requirement to provide notice prior to initiating an action under the

mechanic’s lien statute.

2. Mechanic’s Lien Statement

84 25 Del. C. § 2702(a). 85 Commonwealth Const. Co. v. Cornerstone Fellowship Baptist Church, Inc., 2006 WL 2567916, *16 (Del. Super.)

(citing J.G. Justis Co. v. Spicer, 95 A. 239 (Del. Super. 1915)). 86 See A.J. Bradbury v Adeleke, 2008 WL 5048427, at *3 (Del. Super.), citing Construction Resource Management

v. Littleton, 2008 WL 4117186, at *3 (Del. Super.). 87 Wyoming Concrete Industries, Inc. v. Hickory Commons, LLC II, 2007 WL 53805, at *2 (Del. Super.) (citing

Dep’t of Cmty. Affairs & Econ. Dev. V.M. Davis & Sons, Inc., 412 A.2d 939, 942 (Del. 1980)). 88 C&J Paving, Inc. v. Hickory Commons, LLC, 2006 WL 3898268, at*2 (Del. Super.) (citing J.O.B. Constr. Co. v.

Jennings & Churella Servs., Inc., 2001 WL 985106, at *2 (Del. Super.)); see King Construction , Inc. v. Plaza Four

Realty, LLC, 2008 WL 4382798 (Del. Super.), aff’d 976 A.2d 145 (Del. 2009) (citing E.J. Hollingsworth Co. v.

Continental-Diamond Fiber Co., 175 A.2d 266, 268 (Del. 1934)) (There is no right to a mechanic’s lien unless the

statement of claim complies all of the applicable statutory requirements). 89 Rockland Builders, Inc. v. Endowment Management, LLC, 2006 WL 2053418, *3 (Del. Super.) (quoting Ceritano

Brickwork, Inc. v. Kirkwood Indus., Inc., 276 A.2d 267, 268 (Del. 1971)). 90 See Ewing v. Bice, 2001 WL 880120, at *2 (Del. Super.); citing 25 Del. C. § 2712; also citing Silverside Home

Mart, Inc. v. Hall, 345 A.2d 427, 429-30 (Del. Super. 1975); Lakewood Builders, Inc. v. Vitelli, 1987 WL 10533, at

*2 (Del. Super.). 91 See Wyoming Concrete Industries, Inc.; C&J Paving, Inc., supra. 92 See Commonwealth Const. Co. v. Cornerstone Fellowship Baptist Church, Inc., 2006 WL 2567916 (Del. Super.),

citing Neukranz v. Delaware Lumber & Millwork, Inc., 1998 WL 442847 (Del. Super.) (citing amendment to 12

Del. C. § 2712).

Version 2016

The statute defines “structure” to “include[] a building or house.”93 Mechanic’s liens may

also be obtained by those furnishing labor or materials for the construction of or

improvements to mills, factories, bridges, wharves, piers, and docks.94 In the absence of a

contract between the contractor and landowner which has been signed by the landowner,

as well as meeting other enumerated requirements as contained in the statute, a lien may

not attach to improvements which are made solely to the land alone, that is, those not

made for the benefit of or improvement to any structure thereon.95

Complaints or statements of claims for mechanic’s liens must be filed in the county

where the structure is situated, and must include certain information as enumerated in the

mechanic’s lien statute.96 Delaware’s mechanic’s lien statute, at 25 Del. C. § 2712, sets

forth “requirements of complaint and/or statement of claim.”97 This section, however, is

not an exhaustive list of all necessary pleading requirements for mechanics’ lien claims.98

If claims for liens are made against multiple structures, the claimant must designate in the

complaint the amount which is claimed due on each structure.99

Contractors who have contracted directly with the owner of a structure must file a

statement of claim within 180 days after the completion of the structure.100 A claim made

under the mechanic’s lien statute is deemed timely if it is filed within 180 days of any of

nine (9) enumerated events in the construction process.101 Those not having a contract

directly with the owner have 120 days from the date labor or delivery of materials was

completed, or from the date final payments were due or made to the contractor, to file a

statement of claim.102 Including a finishing date in a Statement of Claim is “‘essential ...

93 25 Del. C. § 2701(3). 94 25 Del. C. § 2702(b). 95 See 25 Del. C. § 2703; See also Whittington v. Segal, 193 A.2d 534 (Del. Super. 1963) (holding that provisions

contained in a lease did not comport with the statutory requirement of a contract signed by the owner for the work

performed); see also C&J Paving, 2006 WL 3898268, *2 (Del. Super.) (dismissing mechanic’s lien action for

paving work that was not appurtenant to or did not service any structure on the land, where plaintiff failed to allege

any specific structure benefited by the materials delivered or the work performed); Cf. Jones v. Julian, 195 A.2d

388, 390 (Del. 1963) (finding that mechanic’s lien law applied to paving work done by subcontractor around a motel

then under construction because the paving was a “component part of [the] motel,” rather than an improvement to

land alone (not requiring the pleading of a written contract signed by the owner)). 96 See 25 Del. C. § 2712; see also Commonwealth Const. Co. v. Cornerstone Fellowship Baptist Church, Inc., 2006

WL 2567916, at *16 (Del. Super.). 97 See 25 Del. C. § 2712. 98 See, e.g., King Construction, Inc. v. Plaza Four Realty, LLC, 2008 WL 4382798 (Del. Super.), aff’d 976 A.2d 145

(Del. 2009), citing 25 Del. C. § 2712 (dismissing mechanic’s claim for failure to plead lessor’s written consent for

work performed for its tenant) (“Although not explicitly referenced in the pleading requirements of § 2712, the

statutory requirement of prior written consent has long been construed by Delaware courts to impose a pleading

requirement upon that ‘special class of mechanics’ liens for labors or supplies contracted for by the tenant.’”). 99 See 25 Del. C. § 2713. 100 See 25 Del. C. § 2711(a)(1). 101 See 25 Del. C. § 2711(a) (2) (a-i). 102 See 25 Del. C. § 2711(b).

Version 2016

for the creation of any mechanics’ lien’ in part because it is necessary to determine the

running of the statute of limitations.”103

3. Foreclosure

If the contractor obtains a judgment upon a claim made under the statute, a lien will

attach to the structure at issue and the grounds upon which it sits.104 A claimant is

required to proceed by writ of levari facias in order to execute on a Judgment obtained

under the mechanic’s lien statute.105

4. Sale

A judgment lienholder may file a writ of scire facias commanding a sheriff’s sale of the

property in order to recover his lien interest.106 The statute does not provide for the

priority or preference of claims. If the proceeds of the sale are insufficient to satisfy all

outstanding liens obtained pursuant to the statute, the proceeds are divided on a pro rata

basis between those claimants proceeding under the statute.107

5. Prompt Payment Act

The Act requires an entity withholding payments to establish that the withholding was

done in good-faith for reasonable cause, along with providing timely notice as to why the

payments are withheld.108

The general purpose of the Act is to require owners and contractors to make timely and

prompt payments for construction work.109

i.. Attorneys’ fees

Attorney’s fees are recoverable under the act when the plaintiff can show that the

withholder asserted a frivolous or bad faith defense.110

103 King Const., Inc. v. Plaza Four Realty, LLC, 2008 WL 4382798 *3 (Del. Super.), aff’d 976 A.2d 145, (Del.

2009), (citing Poole v. Oak Lane Manor, Inc., 118 A.2d 925, 926 (Del. Super. 1955)), aff’d 124 A.2d 925

(Del.1956). 104 25 Del. C. § 2718. 105 25 Del. C. § 2719. 106 25 Del. C. §§2714, 2715. 107 25 Del. C. §2720. 108 6 Del. C. § 3506(e). 109 Nason Const., Inc. v. Bear Trap Commercial, LLC, 2008 WL 4216149, at *1 (Del. Super. 2008) 110 6 Del. C. § 3506(e).

Version 2016

This Compendium outline contains a brief overview of certain laws concerning various litigation and

legal topics. The compendium provides a simple synopsis of current law and is not intended to explore

lengthy analysis of legal issues. This compendium is provided for general information and educational

purposes only. It does not solicit, establish, or continue an attorney-client relationship with any

attorney or law firm identified as an author, editor or contributor. The contents should not be construed

as legal advice or opinion. While every effort has been made to be accurate, the contents should not be

relied upon in any specific factual situation. These materials are not intended to provide legal advice or

to cover all laws or regulations that may be applicable to a specific factual situation. If you have matters

or questions to be resolved for which legal advice may be indicated, you are encouraged to contact a

lawyer authorized to practice law in the state for which you are investigating and/or seeking legal

advice.