Let the Builder-vendor Beware: Defenses and Damages in Home Builder Litigation-part Ii
| Publication year | 1987 |
| Pages | 629 |
1987, April, Pg. 629. Let the Builder-Vendor Beware: Defenses and Damages in Home Builder Litigation-Part II
Part I of this article, published in the March 1987 issue of The Colorado Lawyer at page 463, analyzed in detail the decline of the builder-vendor's protections for defective construction claims and discussed the various theories of recovery now available to homeowners. Although the law has become favorable to homeowners, numerous issues remain in home builder litigation, particularly with respect to available defenses and recoverable damages. This Part II addresses defenses available against the claims that homeowners may bring and the damages recoverable under those claims.
In Colorado, builder-vendors are free to limit liability to homeowners, whether the claim for relief is grounded in implied warranty or negligence. In practice, however, this ability may be more apparent than real. With respect to warranty, builder-vendors may limit liability only by "clear and unambiguous language," and such language will be construed strictly against the builder-vendor.(fn1) Moreover, no reported decision in Colorado has held a warranty limitation to be sufficiently clear and unambiguous. Colorado courts have gone to great lengths to construe purported limitations in favor of the homeowner.
The clearest example of this occurred in Davies v. Bradley,(fn2) where the court interpreted an "as is" clause as not excluding the warranty. The court based its decision on parol evidence that the clause was intended only to relieve the home builder from performing additional work, not from having performed already completed work in a workmanlike manner. In another case, the court held that a disclaimer for the "cracking of concrete flat-work" was not sufficiently precise to exclude liability for heaving resulting from expansive soils.(fn3)
In light of these strict interpretations of exculpatory clauses, Colorado apparently recognizes such limitations only in principle, not in fact. Some states have expressly held as a matter of law that the warranty of habitability cannot be limited or disclaimed.(fn4) Any difference between those states and Colorado remains to be seen.
The standard for limiting a builder-vendor's liability for negligence claims is even more difficult. In Threadgill v. Peabody Coal Co.,(fn5) the Colorado Court of Appeals held that exculpatory clauses not only must be express and unequivocal, as with exclusions for warranty claims, but also must be entered into by parties of equal bargaining power.(fn6) However, a homeowner rarely will be found to possess equal bargaining power with the home builder. Accordingly, as a practical matter, builder-vendors will find it difficult to limit liability for negligence or breach of warranty of habitability.
Substantial protections for builder-vendors and all parties involved in the construction business were recently enacted by the Colorado legislature by expanding the scope of the applicable statute of limitations. For many years, Colorado has had a special statute of limitations for construction actions. CRS § 13-80-127 formerly provided that claims against architects, contractors, engineers and inspectors had to be brought "within two years after the claim for relief arises." This two-year statute of limitations applied whether the claim was brought in fraud, negligence or warranty.(fn7)
In Financial Associates, Ltd. v. V.E. Johnson Construction Co., Inc.,(fn8) an expansive soils case, the Colorado Supreme Court gave a liberal interpretation in favor of the homeowner regarding when a construction claim arises. The court ruled that the statute did not start to run when foundation cracks first appeared, because the mere presence of cracks were not sufficient to demonstrate that a "defect"
The Colorado legislature responded quickly to this decision by repealing CRS § 13-80-127 and enacting CRS § 13-80-104, an entirely new statute for construction claims. The new statute abrogates Financial Associates, providing instead that a claim for relief arises when the claimant "discovers or. . . should have discovered the physical manifestations of a defect." Thus, the claim in Financial Associates would now be deemed triggered when the cracks first appeared, assuming that the cracks were of a sufficient magnitude to indicate the existence of a "defect." Presumably, the appearance of small or hairline cracks, which are neither unusual nor indicative of a defect, would not trigger the statute until the cracks worsened to the point where a defect was patent. Moreover, even if the contract provided for a warranty period substantially longer than the two-year statute of limitations, an owner must still bring an action within two years after first learning of the defect.(fn10)
New CRS § 13-80-104 also reduces the time after which no action may be brought, regardless of when the claim arose, from ten years to six years after substantial completion of the construction. Thus, homeowners may find their claims barred by this statute of repose...
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