BY NICHOLAS SNOW AND CHLOE MICKEL
This article examines Opus I, LLC v. Stepneski, which clarifies how to determine actual damages under Colorado’s Construction Defect Action Reform Act.
In 2003, Colorado’s Construction Defect Action Reform Act (CDARA) was amended to define and limit the remedies available to claimants seeking recovery for property damage. Although CDARA makes it clear that a construction professional may not be liable for more than “actual damages” unless there is a violation of the Colorado Consumer Protection Act (CCPA), defining “actual damages” has challenged practitioners and judges alike over the past 15 years.
In a recent construction defect case in Denver District Court, Opus I, LLC v. Stepneski, the issue was whether a building’s classification under its original zoning designation, or its later-modified designation, should be considered in establishing available damages. Taking a common sense approach, the district court held that the present, intended use of the building determines its classification under CDARA, thus clarifying how actual damages are determined.
Opus I: Facts and Claims
Before renovating and redeveloping a historic building in Denver, a developer purchased a mixed-use building (the property) that contained apartments on the second floor and a previously prominent, but recently abandoned, night club on the ground floor. The developer intended to renovate the ground floor for use as a restaurant and bar.
The construction, and its ultimate failure, occurred in two phases. Initially, the developer engaged design and construction professionals to analyze the existing building, provide structural engineering services, and construct the shell of the property, ready for tenant finish. After construction, the prospective tenant inspected the property and noted several structural issues that needed to be addressed before it would take possession and complete the tenant finish work.
The second phase of construction addressed the prospective tenant’s identification of structural distress. The developer retained a new architect, structural engineer, and contractor to evaluate and address the tenant’s concerns. The architect and engineer began analyzing the structural integrity of the building and designing a functional remediation plan. After the demolition had begun, but before the design team was able to implement any of the newly designed remediation plan, the building collapsed. The collapse occurred during preliminary demolition of the interior of the building, caused by removal of floor joists, which ran through an interior brick wall. As each joist was removed, portions of the 100-year-old brick wall continually crumbled around each hole left by removing a joist, until the wall collapsed. Several hours later, the second floor directly above the area of the first collapse also failed. The second-story collapse caused portions of the roof to collapse in the areas where it was no longer supported.
The prospective tenant soon cancelled its lease with the developer and the building was classified as a complete loss. As a result, the developer alleged construction defect claims under CDARA against every subcontractor involved in both phases of construction, seeking damages for diminution in value, lost rent, and loss of use of the property.
History of Damages under CDARA
In 2001, Colorado enacted CDARA at CRS §§ 13-20-801 et seq. to address the increasing volume of claims involving homeowners and construction professionals, with a specific aim at “preserving adequate rights and remedies for property owners who bring and maintain” claims of construction defects.3
CDARA applies to “all civil actions claiming damages, indemnity, or contribution in connection with alleged construction defects” and is designed to regulate and streamline litigation between claimants and construction professionals. An “action” is
a civil action or an arbitration proceeding for damages, indemnity, or contribution brought against a construction professional to assert a claim, counterclaim, cross-claim, or third-party claim for damages or loss to, or the loss of use of, real or personal property or personal injury caused by a defect in the design or construction of an improvement to real property.4
To increase efficiency in construction defect litigation actions, CDARA initially (1) limited claimants to damages for actual or probable damages to real property, loss of use, or bodily injury; (2) required owners to serve on the construction professional an initial list containing the alleged defective construction within 60 days of serving the complaint; and (3) allowed construction professionals to reserve claims against subcontractors or design professionals until after settlement or judgment, preserving their claims under the statute of limitations.5
In 2003 CDARA was amended (CDARA II) primarily to limit the potential liability of construction professionals by limiting damages available to claimants under CDARA. The 2003 revisions included (1) a mandatory notice of claim procedure intended to provide the construction professional an opportunity to resolve the dispute before litigation can be fled; (2) limitations on the damages available for alleged construction defects; and (3) limiting actions against construction professionals under the CCPA, CRS §§ 6-1-101 et seq.
Colorado law does not treat all construction professionals the same. Significant differences exist between design professionals, general contractors, subcontractors, and builder/ vendors that lead to separate and different claims and defenses. Typically, claimants raise claims for breach of contract, breach of warranty (express and implied), professional negligence, negligence, indemnification, contribution, misrepresentation, concealment, and CCPA violations. While a claimant may recover under various claims in construction defect cases, CDARA II created defenses for...