Chapter 14 - § 14.13 • ANTICIPATED DEVELOPMENTS IN THE LAW

• Jurisdiction: Colorado

§ 14.13 • ANTICIPATED DEVELOPMENTS IN THE LAW

Nineteen years ago, and every two years since, the authors of this chapter tried to predict what the future held for residential construction defect litigation. A summary of some of those predictions and how they turned out, and another round of prophesying follows.

§ 14.13.1-Riskier Soils to Build on

As Colorado's population and demand for housing continues to grow, more geologically hazardous sites are developed, and the risk of significant damage from adverse site conditions increases. In an effort to remain competitive, meet housing demands in an expanding market, and secure profits, some builders may be willing to accept greater risk in their choice of construction methods, materials, and sites. Buyers will continue to demand affordable housing that performs satisfactorily and retains value; builders will continue to seek to earn a reasonable profit in a competitive marketplace.

F. H. Chen, a leading authority on home construction on expansive soils, commented in 1988 regarding the then-common practice of using slab-on-grade floors over expansive soils:

For years, geotechnical engineers have been trying to save money for the owner by advocating the use of a floating slab. . . . Indeed, the builder realizes the risk of slab-on-grade construction; yet, the temptation of saving a considerable amount of construction costs [roughly $6,000 in the 2020 market for 1,000 sq. ft.] and in some cases beating the competition that is confronting him make him decide to take the risk. . . . The author believes it is time that the engineer stop emphasizing the economical aspect of a structural slab and point out to the builder the false economy of using slab-on-grade in highly ex-
pansive soil areas. The cost of repairing a badly damaged house and the adverse publicity derived from such events can easily be compensated by the use of a structural slab.

. . .
In view of the increasing number of slab-on-grade failures where the builder has to replace the basement floor two to three times, the added cost appears to be justified.³³⁹⁴

Chen's warning proved prophetic in light of the numerous class actions in the mid-1990s relating to use of slab-on-grade construction over expansive soils.³³⁹⁵

Builders depend on the engineering community for advice regarding how to construct homes given soil conditions. Building departments frequently insist that builders obtain comprehensive soils reports before starting construction. Engineers should fully and frankly disclose to their builder-clients, in plain English, the significant economic risks to builders and the ultimate homeowners of building in certain areas and using certain building techniques, and engineers should insist these disclosures be passed on to the first purchaser.

The following example highlights the nature of the different economic risks presented to builders versus homeowners: If a builder selects a construction method with a 5 percent chance of failure during the first six years of a new home's life, but a 40 percent chance of failure during the next six years, the economic risk to the builder may be minimal due to the six-year statute of repose and contract disclaimers purporting to limit the homeowner's legal rights (the effect of such disclaimers has been mitigated by the Homeowner Protection Act of 2007 (HPA)). Yet, such an economic risk may be intolerable to the homeowner, particularly if the cost of repair is significant. For example, homeowners' counsel argue that mainly due to the increase in litigation regarding shallow piered-foundation failures in Colorado's deeply dipping bedrock area, which failures often take years to manifest, builders began to use deeper systems to mitigate this "litigation" risk. In response, builders' counsel urge that the change in pier length occurred not as a result of lawsuits, but because sufficient empirical experience showed that some of Colorado's unique soil conditions warranted deeper and costlier foundation systems and the need to mitigate this "engineering" risk became known.³³⁹⁶ Builders also argue that sometimes longer and more expensive piers are unnecessary but are employed solely as a lawsuit mitigation measure, similar to the development of the practice of "defensive medicine." In an interesting ruling, a Larimer County District Court judge examined this debate and the history of Colorado's pier design and, sitting as fact finder, concluded that "there is a general trend along the Front Range of Colorado to install foundation piers to deeper levels than was customary" earlier, and then found that the longest pier lengths recommended by competing experts constituted a reasonable repair.³³⁹⁷

These same issues arose regarding the use of post-tensioned slabs (PT-slabs) over Colorado's expansive soils. PT-slabs have been used with increasing frequency in Colorado since 2000. Serious questions have arisen as to when commonly used PT-slab designs, created for use in other states, are appropriate for Colorado's soils, climates, and landscaping practices. Property owner counsel urge that the economic risk of the PT-slab failure rate in Colorado has not been properly evaluated because many builders and engineers have not monitored their long-term performance, and rely simply on anecdotal trial and error to determine the PT-slab's utility rather than running the appropriate engineering calculations for the PT-slab's use in Colorado and conducting long-term studies of PT-slab performance.

Observing the performance of a structure over time may help builders design against the risk of potential structural failure. Ironically, many engineers acknowledge that they generally are not asked to monitor or evaluate structural failures after construction unless the builder bears potential liability for an actual failure under its warranty or in response to a lawsuit. Since most lawsuits are not filed more than six to eight years after construction due to Colorado's statute of repose, it is not surprising that many in the building community claim they are unaware of structural failures occurring beyond six to eight years. Yet, the authors have been contacted by homeowners 10 to 20 years after their homes were built who report the recent onset of a structural failure. Such failures are often associated with the development of previously vacant nearby lots. Such abutting development greatly augments the moisture content of the entire community's underlying soils due to increased lawn irrigation and the "capping" of the ground surface with streets, homes, and other improvements that prevent the natural transpiration of moisture from the soils. This increase in moisture then triggers the build-up of damaging water pressures in Colorado's expansive soils.

In 2000, the authors predicted that rather than more thoroughly investigate the long-term consequences of their design decisions, builders and developers would try, instead, to pass the risks associated with their construction and siting decisions onto home buyers by using written disclosures or "oral" assurances - and, we should have added, extensive and oppressive liability disclaimers. For a homeowner, the danger of relying on such disclosures is that they may obscure the true risks of buying the home. If problems arise, homeowners likely will attack such disclosures as insufficient to allow the homeowner to make an informed home-buying decision, or argue that the method of disclosure constitutes a sharp business practice in violation of the Colorado Consumer Protection Act (CCPA) and its anti-deceptive practices provisions, or violates public policy. The industry's practice of adding onerous liability disclaimers, leaving homeowners with little ability to seek redress, led to passage of the Homeowner Protection Act of 2007.³³⁹⁸

Regarding CCPA violations for deceptive trade practices, the Colorado Supreme Court has said that "[a]lthough disclosure may be an adequate remedy in some cases, disclosure in this case does not effectively eliminate the advertising practices which are fraudulent, deceptive, and misleading."³³⁹⁹ The authors were involved in a case that brought the need for protection from inadequate disclosures into sharp focus. There, a builder added a $20,000 premium to homes it built with unfinished, slab-on-grade walkout basements with roughed-in plumbing over expansive soils, apparently suitable for finishing by the buyer, and advertised in a fully finished condition. However, the builder buried the following disclaimers deep in its multi-page purchase contract: "The basement included in the price of this home is not designed or constructed as habitable space," "Builder makes no representations as to the habitability or fitness for habitability of its standard basement and disclaims any liability or responsibility for damage to personal property arising out of a customer's future finishing out of the basement or use of the basement as habitable space," and "Builder offers a basement upgrade option for an additional price which is suitable to meet habitability standards."

As noted elsewhere in this chapter, disclaimers stand at the crossroads of two competing principles: the freedom of parties to contract on mutually agreeable terms, and Colorado's strong public policy of encouraging good and workmanlike construction that complies with building codes, resulting in habitable homes, reasonably suitable for their intended purposes. The Colorado Supreme Court has said that "[d]isclaimers can be ineffective and may be disregarded by a consumer who is confused by the disclo-sure."³⁴⁰⁰ The authors expect that one day the Colorado Supreme Court will join other courts and hold that, at common law, some or all of Colorado's implied warranties may not be disclaimed on public policy grounds.³⁴⁰¹ Passage of the HPA, however, has likely mooted the need to determine the validity of implied warranty disclaimers in most cases. Recently, the...