A breach of contract claim in Pennsylvania requires 1. Existence of a contract and its essential terms; 2. breach of duty imposed by the contract; and 3. resultant damages. It appears that “Resultant Damages” must be more than defense and indemnity costs.

In Brown-v-concrete-corp, the plaintiff condominium association sued a construction manager and subcontractor for structural damage to a unit’s bathroom. The construction manager, asserted a breach of contract cross-claim against the subcontractor. The construction manager settled the claim with the plaintiff-condominium association for $175,000 and the unit owner for $36,000. The case proceeded to trial on the cross-claims. The court found that the subcontractor was negligent, and the negligence amounted to a breach of its subcontract with the construction manager. However, the construction manager failed to establish damages, because the only damages incurred related to settling plaintiffs’ claims and legal expenses. The court stated that a party must experience direct harm or damages to prevail in a breach of contract claim, and that damages related to lawsuits brought by third parties does not constitute “direct harm or damages” that naturally, ordinarily, or foreseeably result from a contractual breach.

On its face, this decision suggests that an indemnity claim disguised as a breach of contract claim will not succeed. However, the Superior Court ambiguously qualified its ruling by stating that there may be some instances where settling a third party claim could be a foreseeable result of a contractual breach. This opens the door for future contractual breach claims, to explore what those circumstances could be.

Thanks to Rachel Freedman for her contribution to this post.