Chapter 14 - § 14.3 • POTENTIAL DEFENDANTS IN RESIDENTIAL CONSTRUCTION DISPUTES
| Jurisdiction | Colorado |
Every person and entity involved in the development, marketing, and sale of a lot and the design, construction, marketing, and sale of a home built on that lot potentially may bear responsibility for defects in the home.
§ 14.3.1-Builder-Vendors
A "builder-vendor" is a person who builds a new home on his, her, or its own or using a general and/or subcontractors, and sells the home after completion.771 A builder-vendor's liability to a home buyer may sound in contract, tort, or equity, and may be shaped by Colorado statutes.
§ 14.3.2-Production Builders
A "production builder" generally includes any builder who regularly builds a substantial number of homes using standardized designs, floor plans, and construction techniques. Production builders construct most homes sold today.
§ 14.3.3-Custom Builders
Custom builders usually build to suit the home buyer, often using architectural plans drawn up specifically for that buyer. Many homes sold today are constructed by so-called "custom builders," but are actually "semi-custom" homes. Semi-custom homes use similar building techniques and plans as production builders, but offer more choices of finishes and configurations, and more personalized service. For most purposes, custom, semi-custom, and production builders have the same liability, even as to "speculation" (spec) homes. This may not be true, however, where a homeowner acts, in essence, as his or her own general contractor, and is intimately involved in design, engineering, or construction decisions, and then later sells the home to a third party who encounters problems with the home and seeks redress from the original homeowner/builder.
§ 14.3.4-Developers
One Colorado statute defines "developer" as "any person, firm, partnership, joint venture, association, or corporation participating as owner, promoter, developer, or sales agent in the planning, platting, development, promotion, sale, or lease of a subdivision."772 Developers sometimes sell only raw, undeveloped land. Many developers sell platted lots including over-lot grading, drainage, and private or public streets. Except where the developer participates in the home construction process, a developer's liability to a homeowner is considerably more circumscribed than a builder-vendor's.773 A developer who plats a subdivision may have important responsibilities and obligations under Colorado's Common Interest Ownership Act (CCIOA), including statutorily imposed fiduciary duties and covenants of good faith.774 In one case, a Colorado district court ruled that the jury should decide whether a builder-vendor's parent company qualified as a developer along with the builder-vendor due to some overlapping directorships, instances of concerted action, and statements made in the "grand"-parent company's SEC filings, among other evidence.775
§ 14.3.5-General Contractors
A general contractor retained by a developer to build new homes generally is liable in negligence to a home buyer, as is a builder-vendor.776 Contractual rights and liabilities between and among developers, architects, engineers, general contractors, and subcontractors are more fully discussed in Chapter 1, "The Construction Process and Parties."
§ 14.3.6-Officers, Directors, and Employees
Generally, employees and agents of developers, builder-vendors, general contractors, and subcontractors bear personal liability for torts they actively participate in, direct, approve of, or ratify.777 A corporate officer who approves of or sanctions a tortious misrepresentation bears liability for resulting harm to third parties.778 The president of a general contractor who is given a duplex unit in settlement of a debt with the general contractor and later sells it is a builder-vendor for purposes of implied warranty liability to the purchaser.779 For an example of a jury instruction apportioning liability between an employer and a company officer, see the appendices to Sandgrund, Sullan & Tuft, Residential Construction Law in Colorado.780
§ 14.3.7-Subcontractors
Generally, a subcontractor is one who enters into a contract with another party, express or implied, to perform an act that the other party already has contracted to perform.781 Subcontractors generally have no contractual privity with homeowners, but owe them a common law tort duty to exercise reasonable care in their work.782 Usually, a contractor or subcontractor who substantially complies with the pertinent plans and specifications is not liable for damage caused by a deficiency in the plans and specifications themselves.783 Thus, subcontractors are generally not liable for design deficiencies, pursuant to what is referred to as the Spearin doctrine.784 At least one court outside Colorado limited Spearin doctrine protections to "design specifications," which "precisely detail the manner in which the work is to be done," and held that the doctrine does not apply to "performance specifications," which "set forth an objective and allow the contractor to determine how to achieve it."785
One Colorado district court denied summary judgment where a general contractor claimed a soils engineer's design was defective, the soils engineer claimed the contractor failed to substantially comply with its design, and the disputed evidence could have supported one or both contentions, leaving the jury to decide the facts and apportion liability accordingly.786 Another district court denied summary judgment where (1) factual disputes existed whether the general contractor involved itself in, and failed to comply with, the design and drawings; and (2) an expert testified that industry standards required general contractors to report observed design flaws to the architect for correction to ensure proper construction, and a reasonably competent contractor would have seen such design flaws and had them corrected.787
Under the modern trend, the Spearin doctrine may not afford protection to a contractor if: (1) the construction contract contains an enforceable "avoidance" clause shifting the consequences of an inadequate design to the contractor or doing so through disclaimers, waivers, or exculpatory clauses (effectively expanding the contractor's warranty beyond conformity with plans and specifications to warrant that the work will be fit for its intended purpose, even if the plans and specifications are defective);788 (2) the contractor did not reasonably rely on the deficient plans and specifications, such as where reliance is unreasonable because the contractor knew of the defects or failed to comply with the plans and specifications;789 or (3) the defects in the plans and specifications were immaterial and not important to the project's completion. Even drawings that require repeated explanations are not necessarily defective.790
§ 14.3.8-Architects
A complete discussion of the rights and obligations of construction design professionals, like architects, can be found in Chapter 8, "Architect/Engineer Liability."
Generally, design professionals are held to the standard of care of a reasonable design professional acting under the same or similar circumstances,791 and are liable for damages caused by their negligence. A negligent design claim against an architect for failure to include a necessary item in the design must be "substantial" before he or she is liable for increased project costs resulting from his or her omission. The Colorado Court of Appeals held that an omission resulting in $8,000 in additional costs for a $1,447,500 project was insubstantial as a matter of law.792
"Assumption of risk," now generally considered a species of comparative negligence,793 is a defense to a professional liability claim, and applies when a person voluntarily or unreasonably exposes himself or herself to injury or damage with knowledge or appreciation of the danger and risk involved.794 No implied warranty accompanies a design professional's services,795 and the design professional is not responsible for the construction methods chosen to implement his or her design unless a contractual duty imposes such responsibility.796
Certificate of Review
Under C.R.S. § 13-20-602, plaintiffs suing an architect, engineer, or other licensed design professional for negligence must file with the court a certificate of review stating that they have consulted with an expert in the area of the alleged negligent conduct and the expert has concluded the claim "does not lack substantial justification."797 Failure to file a certificate of review for each licensed professional named as a party within 60 days of service of the claims against such party may result in dismissal of the claims.798 The Colorado Supreme Court held that a trial court improperly accepted a plaintiff's expert reports in lieu of requiring a late-filed certificate of review, but declined to set aside the verdict because the expert reports provided all the information required to be in the certificate and, thus, the procedure did not affect the de-fendant.799 Before dismissing a claim for failure to file a certificate of review, a court must determine whether good cause exists to excuse the late filing, considering whether, (1) excusable neglect caused the late filing; (2) the moving party has alleged a meritorious claim or defense; and (3) permitting the late filing would be consistent with equitable considerations, including any resulting prejudice.800
Only claims that require the plaintiff to establish a prima facie case with expert testimony require a certificate of review; thus, a certificate of review need not be filed for claims that may be established without expert testimony or on the basis of res ipsa loquitur.801 Certificates of review are only required for claims against professionals licensed by state regulatory agencies.802 Thus, the requirement does not apply to claims against most non-design construction professionals, such as builders...
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