Chapter 17 - § 17.7 • NATURE OF REMEDIES

• Jurisdiction: Colorado

§ 17.7 • NATURE OF REMEDIES

§ 17.7.1-Introduction

It goes without saying that the nature of the remedy - whether contract or tort, legal or equitable - is terribly important in construction litigation. Many of the recent significant decisions from the Colorado appellate courts in this area focus on a careful determination of which remedies are available to the litigants. Given this trend, practitioners in Colorado will need to take even more care in reviewing the relevant construction contract provisions, matching them to the applicable law, and tailoring the requested remedies appropriately.

§ 17.7.2-Economic Loss

In 2004, the Colorado Supreme Court held in BRW, Inc. v. Dufficy & Sons, Inc. that a subcontractor may not sue the project's design engineer in tort for the subcontractor's alleged economic losses on the project.⁴⁴ That decision turned on the economic loss doctrine, which comes into play when a party to a contract, claiming financial or other economic loss, asserts negligence or other tort claims to cover its alleged losses. Negligence is often pleaded in construction cases because of the generalized standard of care and because of an expansive measure of damages. However, the economic loss doctrine also provides that a party who sustains only economic loss from the breach of a contractual duty cannot sue in tort for that breach unless the breaching party owes the injured party an independent duty of care.⁴⁵

The BRW case arose from a contract between the City and County of Denver and BRW. Those two parties had entered into a design contract for a bridge over Speer Boulevard pursuant to a contract that stated that BRW would perform its services in accordance with the standards of "care, skill, and diligence provided by competent professionals."⁴⁶ A lower-tier subcontractor, Dufficy, and the general contractor and other subcontractors, all agreed to build the bridge in accordance with BRW's plans and specifications. The trial court found that this matrix of contracts, under which all the parties operated, assigned the respective duties and proscribed the remedies for any disputes. Nevertheless, Dufficy sued BRW directly, alleging that BRW was negligent in preparing, interpreting, and administering the paint system specifications. Dufficy also claimed that BRW made negligent misrepresentations regarding compliance with plans and specifications. Dufficy cited only economic damages for these claims, including lost profits, consequential losses, attorney fees, prejudgment interest, and the like.⁴⁷ The Colorado Supreme Court dismissed Dufficy's claims and held that the court of appeals erred when it failed to consider whether a proposed new duty differed from any of the duties found in and arising from the contracts. Further, the court held that the duties argued for by Dufficy were not independent of duties named in the contract and therefore could not survive application of the economic loss rule.⁴⁸

The key aspects of the BRW decision are that the economic loss rule:

• Turns on the source of the duty as allegedly breached, not on the professional status of the defendant;
• Applies not only where commercial parties are in direct contractual privity, but also where they are bound by the series of interrelated contracts that frequently characterizes commercial and public construction contracts; and
• Ensures that the commercial parties' contractual allocations, duties, rights, and remedies will be enforced, not altered, by the courts.

In previous decisions, the Colorado Supreme Court applied the economic loss rule where the parties were bound by a direct, two-party contract.⁴⁹ The rationale for the expansion of the application of the economic loss rule was to maintain a distinction between contract and tort law; to enforce expectancy interests and to allow the parties to reliably allocate risks and costs; and to encourage the parties to build cost considerations into the contract. In fact, the court reasoned that all of these policies are at stake when multiple, commercially sophisticated parties enter into a series of interrelated...