## Facts

- Homeowners Carol and Melvin Northcutt hired Herb and Marge Hancock (H & M Construction) under an oral agreement to perform structural concrete work for an earth-sheltered “seven-pod” residence near Fairbanks, Alaska.
- The parties disputed contract scope and price: the Northcutts claimed a fixed-price agreement to complete all structural concrete work; the Hancocks claimed extra work beyond the original deal payable on time-and-materials.
- After delays attributed by each side to the other, all seven pods were poured by late October 1982.
- The Northcutts believed portions of the concrete work were defective; the Hancocks offered to cure, but the Northcutts refused and ordered them off the job.
- The Hancocks filed a mechanic’s lien and sued to enforce it; the enforcement action was dismissed due to noncompliance with Alaska contractor registration requirements.
- The Northcutts sued for breach of contract and wrongful lien, and asserted tort claims including misrepresentation and negligent/intentional infliction of emotional distress, seeking repair or replacement costs, emotional distress damages, and punitive damages.
- The Hancocks counterclaimed for amounts allegedly due under the contract and compensation for extra work.
- The Northcutts completed the residence, obtained a mortgage of about $160,000, and moved in, but avoided using at least one pod they considered structurally problematic.
- The jury was instructed that typical construction-defect damages are repair costs, but that diminution in value applies if repair is “disproportionate and wasteful”; a further instruction allowed demolition-and-rebuilding damages if the house had “special significance,” was “dangerous,” or plaintiffs would likely demolish and rebuild.
- The jury awarded the Northcutts about $686,000 in compensatory damages, including roughly $455,000 for demolition and rebuilding, plus a substantial emotional distress amount.

## Issues

1. Whether emotional distress damages were recoverable in a construction-defect dispute framed in negligence and breach of contract.
2. Whether the jury was properly instructed on when demolition-and-rebuilding (cost-of-cure) damages may be awarded instead of diminution in value.
3. Whether the trial court properly rejected additional tort theories and punitive damages on the homeowners’ cross-appeal.

## Decision

- The Alaska Supreme Court vacated the emotional-distress component of the verdict and the demolition-and-rebuilding portion of the property damages.
- The court held the emotional distress instruction and award were legally improper on these facts.
- The court held the “special significance/danger/likely rebuild” instruction misstated the law by permitting economically wasteful cost-of-cure damages without adequate proof that plaintiffs would actually incur those costs.
- The court remanded for a new trial on damages under correct standards.
- On cross-appeal, the court largely affirmed the trial court’s disposition rejecting expanded tort recovery and punitive damages.

## Legal Principles

- In construction-defect cases, the usual measure of damages is the reasonable cost to repair and place the property in the condition required by the contract.
- If repair (or replacement) costs are grossly disproportionate to the benefit obtained, damages are generally limited to diminution in value (as-built value versus as-promised value).
- A plaintiff may recover disproportionate “cost of cure” damages only upon sufficient proof that the plaintiff is likely to actually make the repairs or replacement corresponding to the claimed cost; subjective attachment to a residence, standing alone, is insufficient.
- Emotional distress damages are not ordinarily recoverable for negligent injury to property absent physical injury or a recognized categorical exception, and are rarely available for breach of contract absent a contract directed at highly personal interests.

## Conclusion

The court required a new damages trial because the jury was allowed to award both substantial emotional distress damages and demolition-and-rebuilding damages without meeting Alaska’s limits on noneconomic recovery and on economically wasteful cost-of-cure awards, which generally must yield to diminution in value unless the homeowner proves an actual likelihood of incurring the claimed repair or replacement costs.


Hancock v. Northcutt, 808 P.2d 251 (Alaska 1991)