Chapter 5 - § 5.6 • UNIQUE DAMAGES ISSUES ("EXTRAPOLATION" EVIDENCE)

• Jurisdiction: Colorado

§ 5.6 • UNIQUE DAMAGES ISSUES ("EXTRAPOLATION" EVIDENCE)

Disputes regarding the proper method for determining damages often arise in cases involving numerous multi-family living units located in a single project, or in a single phase of a project. In such cases, parties frequently attempt to prove the existence or non-existence of defects or damage in similarly constructed or designed construction elements by presenting evidence of the condition of some, but not all, of the construction elements. The party then has an expert opine that the defect or damage in, and any required repairs to, the observed construction element exists in all substantially similar, but not directly observed, construction elements. Some have taken to calling this investigatory and analytic methodology "extrapolation," a term that may be misleading when used in the context of a lawsuit rather than in a scientific journal. For a more detailed discussion of the use and abuse of extrapolation evidence, see Sandgrund & Sullan, "Another Perspective on Extrapolation Evidence."⁵⁷⁴

The term "extrapolation" has no well-accepted meaning in the law. There are two common definitions of "extrapolation"; one scientific, the other experiential:

1: (mathematics) calculation of the value of a function outside the range of known values 2: an inference about the future (or about some hypothetical situation) based on known facts and observations.⁵⁷⁵

In Colorado, the Colorado Rules of Evidence govern the admissibility of an expert's opinions regarding defects and repairs based on the direct examination of some, but not all, of the construction elements in a large structure or series of related structures.

Although the fact of damage must be proven by a preponderance of the evidence, Colorado does not require proof of damages with scientific precision; the fact finder may, by utilizing all the evidence and the reasonable inferences to be drawn from such evidence, devise a fair method of assessing damages.⁵⁷⁶ Colorado juries are regularly instructed that "[d]ifficulty or uncertainty in determining the precise amount of any damages does not prevent you from deciding an amount" and that the jury should use its "best judgment based on the evidence."⁵⁷⁷ The commonly accepted definition of extrapolation as meaning "an inference . . . based on known facts and observations" is consistent with Colorado's jury instructions, which direct that "[e]vidence may be either direct or circumstantial," and that "[c]ircumstantial evidence is the proof of facts or circumstances from which the existence or nonexistence of other facts may reasonably be inferred."⁵⁷⁸ Colorado makes no distinction between the effect of direct evidence and circumstantial evidence.⁵⁷⁹ Taken together, these basic evidentiary concepts offer great assistance to a jury in considering the validity of, and gauging the weight to be accorded, if any, to expert opinions allegedly founded on "extrapolation" — that is, inferences based on known facts and observations.⁵⁸⁰

Many courts have permitted the introduction of evidence and opinions that may be encompassed by the term "extrapolation." However, in each of these cases, the courts applied the relevant jurisdiction's evidentiary rules in deciding, based on the particular facts before the court, whether that evidence and those opinions were admissible.⁵⁸¹ In disparate contexts, the U.S. Supreme Court has similarly approved of "extrapolation" under proper circumstances.⁵⁸² Even cases precluding evidence that may involve "extrapolation" base their decisions on the facts before them and do not foreclose such "extrapolation" evidence as a matter of law.⁵⁸³

In Clough v. Williams Production RMT Co., a case involving a failure to pay oil and gas royalties, the Colorado Court of Appeals held that a plaintiff need only provide "[a] reasonable basis for computation and the best evidence obtainable under the circumstances of the case which will enable the trier of the facts to arrive at a fairly approximate estimate of the loss."⁵⁸⁴ The court noted that a loss involving royalties is, by its nature, difficult to show, and held that where "the precise amount of damages is difficult to determine, sampling is an acceptable method of calculating damages."⁵⁸⁵ The court affirmed the trial court judgment in light of the trial court's finding that the sampling period used by the damages expert was reasonable under the complicated financial picture presented, and the fact that the defendant cross-examined the expert extensively on the sample size she used, drawing out other weaknesses in her testing, challenging her assumptions, and pointing out minor mathematical errors in her calculations.⁵⁸⁶

In Hauser v. Rose Health Care Systems, the Colorado Court of Appeals said that the amount of damages awarded may be an approximation, provided the fact of damages is certain and the plaintiff introduces sufficient evidence to permit a reasonable damages estimate.⁵⁸⁷ In Hauser, the plaintiff's expert testified that his figures assumed certain facts, such as average monthly expenditures before and after various contracts were renegotiated, and that the estimates were compiled from data for a seven- to nine-month period and extrapolated over that period until trial. The court held that because the defendant was permitted to cross-examine the expert on the accuracy of his assumptions and also presented testimony from its own expert, disputing the accuracy of the estimated expenditures, the judgment would be affirmed because the jury's verdict had adequate record support.⁵⁸⁸

Colorado district courts have not found so-called extrapolation evidence inadmissible per se. Instead, they have simply held a plaintiff to its burden of proof, frequently admitting such evidence.⁵⁸⁹ Thus, an expert may not be permitted to testify that based on his or her direct observation of only 4 out of 400 windows, the weather-proofing flashings were installed in a "reversed" manner (allowing water to be drawn behind the window rather than shed away from the window), and as a result all 400 window flashings need repair. However, such an opinion should be permitted if coupled with a builder's construction superintendent's testimony that he or she thought that the "reversed" installation was the proper method, that he or she trained his or her workers to do the work in this manner, and that he or she occasionally spot-checked the work afterwards to ensure that it was done as he or she instructed consistently from window to window.⁵⁹⁰

Still, a court is required to exercise its "gate-keeper" function and preclude clearly invalid or unreliable evidence and opinions.⁵⁹¹ However, "experience-based" specialized knowledge, like that upon which many building envelope and other construction defect experts rely, may not be well-suited to such an admissibility analysis.⁵⁹² Where the trial court allows the admission of such evidence over a defendant's objection, the defendant's concerns can be "mitigated by 'vigorous cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof.'"⁵⁹³

Generally, courts employ a non-exhaustive multi-factor analysis when evaluating so-called extrapolation opinions, often considering: (1) whether the technique can be tested; (2) whether the theory or technique has been subjected to peer review and publication; (3) the technique's known or potential error rate and standards for controlling the technique's operation; (4) whether the technique is generally accepted; (5) the relationship of the technique to more established modes of scientific analysis; (6) whether specialized literature regarding the technique exists; (7) whether the technique has any non-judicial uses; and (8) whether such evidence has been offered in previous cases to support or dispute the merits of the procedure.⁵⁹⁴ However, as noted above, experience-based, specialized construction knowledge may not be well-suited to such an admissibility analysis.⁵⁹⁵

A trial court's inquiry should focus on the reliability and relevance of the scientific evidence, requiring consideration of: (1) the reliability of the scientific principles, (2) the qualifications of the witness, and (3) the usefulness of the testimony to the jury.⁵⁹⁶ The court should ask whether the testimony will assist the jury "to either understand other evidence or to determine a fact in issue"; and, even if admissible, whether the evidence's probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of the evidence.⁵⁹⁷

The Colorado Supreme Court has held that the Colorado Rules of Evidence abrogated the requirement that an expert express his or her opinions with "reasonable . . . probability or certainty"; that opinion testimony with no analytically sound basis is speculative, unreliable, and inadmissible under CRE 702; and that admissible expert testimony must be grounded in "the methods and procedures of science rather than subjective belief or unsupported speculation."⁵⁹⁸ The proponent of expert testimony "need not prove that the expert is undisputedly correct or that the expert's theory is generally accepted in the scientific community."⁵⁹⁹ Instead, he or she must show only that "the method employed by the expert in reaching the conclusion is scientifically sound and that the opinion is based on facts which sufficiently satisfy Rule 702's reliability requirements."⁶⁰⁰ Moreover, "in determining that an expert's testimony is unreliable and should therefore not be admitted under CRE 702, it is not enough for a court to conclude that the testimony is 'speculative.'"⁶⁰¹

Many opinions founded upon extrapolation result from the reasonable inference that observed damage is the result of a specific, hidden defect once other potential causes have been eliminated. The Colorado Court of Appeals...