In the wake of the Supreme Court’s decision in CTS Corp. v. Waldburger and recent modifications to North Carolina’s 10-year statute of repose, some have questioned how the repose period applies to  environmental indemnity agreements.   N.C.G.S. 1-52(16) provides that a cause of action for personal injury or property damage may not be brought more than ten years after the defendant’s last act or omission giving rise to the claim.  Though the legislature recently added an exception to the repose period for claims associated with consumption of – or exposure to – contaminated groundwater, it does not explain when the repose period begins to run on enforcement of environmental indemnity agreements.  The Middle District of North Carolina recently held that the repose period does not start to run until the indemnitor fails to honor its agreement to make the indemnitee whole.

In Madison University Mall LLC v. Chapel Hill Tire Co., the plaintiff sought to enforce its tenant’s promise to indemnify the landlord for any damages caused by the introduction of foreign materials into the plumbing system for the building and common areas.  Defendant argued that – because it had assigned the lease to another party more than ten years prior to plaintiff filing suit – the statute of repose barred the action.  In essence, the defendant contended that its last act or omission could not have occurred after it assigned the lease.  Judge Eagles rejected that argument and held that the 10-year repose period on a contractual indemnity claim does not begin to run until the indemnitor refuses to indemnify the indemnitee.

The decision is an important confirmation about the lifespan of environmental indemnities in North Carolina.  Had the court accepted the Defendant’s approach, closing on a commercial transaction would likely have also marked the point at which the 10-year repose period begins to run on the enforcement of an indemnity agreement.  Accordingly, many environmental indemnities would have become worthless on the tenth anniversary of the closing.  The opinion makes it clear, however, that this is not the case.

The decision is Madison University Mall LLC v. Chapel Hill Tire Co., No. 1:14-CV-169, slip op. (M.D.N.C. July 23, 2014).

The recent modification to NCGS 1-52(16) is available here.