Chapter 14 - § 14.5 • TORT CLAIMS ARISING FROM THE CONSTRUCTION AND SALE OF A HOME

• Jurisdiction: Colorado

§ 14.5 • TORT CLAIMS ARISING FROM THE CONSTRUCTION AND SALE OF A HOME

Claims for negligence, negligent misrepresentation/omission, and fraud all may arise from the construction and sale of a new home. Claims for trespass and nuisance may arise against third parties after a sale. Whether a homeowner recovers in tort or contract may significantly affect whether liability insurance covers the claim and, thus, the ability to collect on any judgment obtained.⁹⁹⁸ In addition, viable tort claims may increase the scope of recoverable damages, side-step contractual privity requirements, and help avoid contractual liability disclaimers or other contractual limitations on the homeowner's re-covery.⁹⁹⁹ Conversely, tort-based claims may be subject to (1) set-off or reduction because of comparative and non-party fault, or (2) other tort defenses.¹⁰⁰⁰

§ 14.5.1-Negligence

A builder has an obligation to construct a home non-negligently even where implied warranties do not apply.¹⁰⁰¹ Any homeowner, even a subsequent purchaser, may seek redress from a builder for negligently caused latent defects discovered within the relevant statutory limitations period.¹⁰⁰²

The Construction Defect Action Reform Act (CDARA), passed in 2001 and amended in 2003, 2007, and 2010, significantly affects negligence-based construction defect actions. For a summary of CDARA, see § 14.2.3. Under CDARA, a party may not bring a negligence claim arising solely from the failure to construct real property improvements in substantial compliance with an applicable building code or industry standard, unless such failure results in "(a) Actual damage to real or personal property; (b) Actual loss of the use of real or personal property; (c) Bodily injury or wrongful death; or (d) A risk of bodily injury or death to, or a threat to the life, health, or safety of, the occupants of the residential real property."¹⁰⁰³ This limitation on negligence claims expressly does not limit other tort claims, contract or warranty claims, or claims arising from the violation of any statute or ordinance besides a building code.¹⁰⁰⁴ Some home-rule cities have adopted local ordinances that may, if they are not preempted by state law, expand CDARA's limitations on negligence claims to all construction defect claims. See § 14.2.8, "Construction Defect Municipal Ordinances."

CDARA also provides, in pertinent part,

(1) In addition to the notice of claim required by section 13-20-803.5, in every action brought against a construction professional, the claimant shall file with the court or arbitrator and serve on the construction professional an initial list of construction defects in accordance with this section.
(2) The initial list of construction defects shall contain a description of the construction that the claimant alleges to be defective. The initial list of construction defects shall be filed with the court and served on the defendant within sixty days after the commencement of the action or within such longer period as the court in its discretion may allow.
(3) The initial list of construction defects may be amended by the claimant to identify additional construction defects as they become known to the claimant. In no event shall the court allow the case to be set for trial before the initial list of construction defects is filed and served.
(4) If a subcontractor or supplier is added as a party to an action under this section, the claimant making the claim against such subcontractor or supplier shall file with the court and serve on the defendant an initial list of construction defects in accordance with this section within sixty days after service of the complaint against the subcontractor or supplier or within such longer period as the court in its discretion may allow. In no event shall the filing of a defect list under this subsection (4) delay the setting of the trial.¹⁰⁰⁵

This statutory requirement of early disclosure was not intended as a trap for the unwary or to bar meritorious claims, but a failure to substantially comply with this law could have serious ramifications, including possible claim dismissal or an adverse inference instruction.¹⁰⁰⁶

For a contemporaneous discussion of CDARA's 2001 enactment and its 2003 revisions, see generally Sandgrund, Sullan & Achenbach, "The Construction Defect Action Reform Act," and Sandgrund & Sullan, "The Construction Defect Action Reform Act of 2003."¹⁰⁰⁷ For a more current discussion, see § 14.2.3, "Colorado's Construction Defect Action Reform Act."

14.5.1.a-Duty and Breach

A builder owes purchasers of its homes a duty to construct those homes with reasonable care.¹⁰⁰⁸ As the Colorado Supreme Court said in Cosmopolitan Homes, Inc. v. Weller,

An obligation to act without negligence in the construction of a home is independent of contractual obligations such as an implied warranty of habitability. . . . The fact that a contract may have existed between a builder and the original purchaser of the home does not transform the builder's contractual obligation into the measure of its tort liability arising out of its contractual performance. . . . The principle enunciated in [Metropolitan Gas Repair Service, Inc. v. Kulik and Lembke Plumbing & Heating v. Hayutin] - that a negligence claim, not limited by privity of contract, may lie against a contractor - requires a builder to use reasonable care in the construction of a home in light of the apparent risk. . . . Negligence, however, requires that a builder or contractor be held to a standard of reasonable care in the conduct of its duties to the foreseeable users of the property. Negligence in tort must establish defects in workmanship, supervision, or design as a responsibility of the individual defendant.¹⁰⁰⁹

Even if express and implied warranties are effectively disclaimed, an underlying contract for the construction and sale of a home still provides the matrix from which independent tort liabilities arise.¹⁰¹⁰

In an unpublished opinion examining a builder's tort duties, the Colorado Court of Appeals held that a general contractor hired by a receiver to perform work on a partially completed common interest development owed the plaintiff homeowners' association independent tort duties of care despite the contractor's argument that it "never agreed to build the project."¹⁰¹¹ The court held that the undisputed record evidence showed that the defendant had agreed to serve as a general contractor during the receivership, complete certain construction work on the development, and correct any defective work it or its subcontractors performed. Thus, "[a]s a general contractor for a residential project, [the contractor] owed the homeowners' association a duty to ensure that the project was constructed non-negligently."¹⁰¹² The court also held that the contractor was the receiver's independent contractor, not the receiver's agent, and that the receivership court's discharge of and grant of immunity to the receiver did not immunize the contractor from its independent tort duties.¹⁰¹³

In a different case, the Colorado Court of Appeals held the plain language of amendments to the Department of Public Health and Environment Regulations, adding the phrase "single-family residential dwellings" to the asbestos regulations, did not create a duty on the part of the contractor or the homeowner to inspect for asbestos before beginning construction.¹⁰¹⁴

Negligent Design, Site Selection, Construction, Supervision, Quality Control, Coordination, and Hiring

Builders and contractors also owe duties of reasonable care to foreseeable users of the property.¹⁰¹⁵ A successful negligence claim must establish errors or omissions in workmanship, supervision, quality control, or design as a responsibility of the particular defendant.¹⁰¹⁶ A builder also may be liable for making a negligent site-selection decision.¹⁰¹⁷

The Independent Duty (Economic Loss) Rule

Recognizing that a home buyer "makes the biggest and most important investment in his or her life and, more times than not, on a limited budget," the Colorado Supreme Court declared in 1983 in Cosmopolitan Homes that homebuilders and contractors have an "obligation to act without negligence in the construction of a home," which is "independent of contractual obligations."¹⁰¹⁸ In Town of Alma v. AZCO Construction, the Colorado Supreme Court expressly adopted the "economic loss" or "independent duty" rule, holding that a party suffering only economic loss (generally meaning "damages other than physical harm to persons or property") from the breach of an express or implied contractual duty may not assert a tort claim for such breach absent an independent tort duty of care.¹⁰¹⁹ The court noted the continuing vitality of Cosmopolitan Homes, however, stating,

Relying heavily on policy concerns about protecting home buyers, we held [in Cosmopolitan Homes] that the plaintiffs could maintain a negligence action for latent defects in the home. We allowed the negligence claim for latent defects in the home because we determined that a builder has an independent duty to act without negligence in the construction of a home.¹⁰²⁰

In Forest City v. Rogers, the Colorado Supreme Court reaffirmed that a negligence tort claim is not limited by contract, but that foreseeability determines its scope, and held that requiring privity of contract for breach of implied warranty claims is consistent with the boundary between tort and contract claims.¹⁰²¹

In Stiff v. BilDen Homes, Inc., the Colorado Court of Appeals made clear that the independent tort duty to build a home with reasonable care flowing to the fourth owner of a home in Cosmopolitan Homes also ran to the original purchaser of the home.¹⁰²² Because of this independent duty of care, a homeowner may simultaneously pursue both breach of contract and negligence claims against a home-builder.¹⁰²³ In A.C. Excavating v. Yacht Club II Homeowners Ass'n, the Colorado Supreme Court held that subcontractors also owe...