THEORIES OF HOMEBUILDER LIABILITY FOR SUBCONTRACTOR NEGLIGENCE-PART I

• Jurisdiction: Colorado

Theories of Homebuilder Liability for Subcontractor Negligence-Part I

by Ronald M. Sandgrund, Scott F. Sullan, and Joseph F. Smith

Issues surrounding the question of whether homebuilders are liable for their subcontractors' negligence generally have not found their way to Colorado's appellate courts. Nonetheless, the authors have observed that Colorado's district courts regularly rule or instruct juries that homebuilders are liable for their subcontractors' negligence in constructing a home.¹ As such, an analysis of the legal theories available for imposing such liability is useful. This two-part article focuses on the liability of residential builders, not commercial builders, because of different legal duties the law imposes on each.²

Part I of this article focuses on various legal theories that may support imposing liability on homebuilders for their subcontractors' negligence. These concepts are listed in the accompanying sidebar, "Potential Theories Underlying Homebuilder Liability."

Part II, which will appear in this column in July 2005, details the policies underlying various liability theories, particularly the vicarious liability doctrine, and sets forth possible distinctions between liability for acts of subcontractors who are design professionals and those who are not. Part II also addresses related insurance coverage issues and provides sample jury instructions that may be useful when instructing a jury charged with deciding whether the facts necessary to impose such liability are present, if the issues relating to such liability are not decided as a matter of law by the court.

Independent Duty Analysis

Homebuilders owe an independent tort duty of reasonable care in constructing a home. In the seminal 1983 case, Cosmopolitan Homes, Inc. v. Weller,³ the Colorado Supreme Court stated, "An obligation to act without negligence in the construction of a home is independent of contractual obligations such as an implied warranty of habitability."⁴ The Court added:

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 . . . 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 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.⁵

The Court held that the Cosmopolitan Homes plaintiffs-homeowners, who were the fourth owners of the home at issue, could maintain a negligence action for latent defects in their home based on the builder's independent duty to act without negligence in the construction of a home.⁶ This independent duty existed because buyers would not likely have access to inspect the structural aspects of a home.⁷

The Court noted that a purchaser cannot afford to find a latent defect in his or her home that destroys the family's budget and have no remedy, particularly given the mobility of most potential homeowners. According to the Court, it is foreseeable that a house will be sold to subsequent purchasers and any structural defects are as certain to harm the subsequent purchaser as the first purchaser.⁸ In 2003, in Stiff v. BilDen Homes, Inc.,⁹ the Colorado Court of Appeals expressly held that the builder's liability begins with the first purchaser and extends to subsequent buyers.¹⁰

Reproduced by permission. ©2005 Colorado Bar Association, 34 The Colorado Lawyer 69 (June 2005). All rights reserved.

Generally, "a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach."¹¹ However, this rule does not apply to home construction because of the existence of an independent tort duty of care, independent of any contract.¹²

In another 2003 case, Yacht Club II Homeowners Association, Inc. v. A.C. Excavating,¹³ the Colorado Court of Appeals applied this independent duty to subcontractors who helped build a home. The Yacht Club II court noted the Supreme Court's decision in Cosmopolitan Homes as "strongly endorsing a policy favoring quality construction of homes."¹⁴ Further, the Yacht Club II court stated:

. . . Subcontractors play an important part in the construction of homes; they are aware that their work is, ultimately, for the benefit of homeowners and that harm to homeowners from negligent construction is foreseeable. To discourage misconduct and provide an incentive for avoiding preventable harm, we conclude that subcontractors owe homeowners a duty of care, independent of any contract provision, in connection with the construction of homes.¹⁵

In July 2004, the Colorado Supreme Court granted certiorari in Yacht Club II. The Court will soon address whether a homeowners association's damages claim asserted directly against subcontractors arising from the subcontractors' negligent construction work is barred by the economic loss rule.¹⁶

Regardless of how the Colorado Supreme Court decides the issues before it in Yacht Club II, such decision should not affect the analysis of whether a homebuilder bears liability for the negligence of its subcontractors due to the homebuilder's independent tort duty of care. For instance, if the Court holds that subcontractors do not owe an independent tort duty of care, this arguably strengthens the policy reasons for imposing liability for subcontractor negligence on builders so as to ensure that homeowners are made whole.¹⁷ Conversely, if subcontractors are found to owe an independent tort duty of care, there are a number of reasons this result should not materially affect imposing such liability on the homebuilder as well. (See "Non-Delegable Duties and Pro Rata Liability Act," below.)

The proposition that sound policy reasons exist to hold homebuilders liable for the negligence of their subcontractors has been articulated by courts outside Colorado. For instance, according to the Georgia Court of Appeals:

It would be too easy for a builder-seller of a house to avoid liability by hiring inexperienced crews, providing little or no supervision, and then claiming the culprit of any negligence was an independent contractor. The contract to build, with its attendant obligations, is between buyer and builder, not the buyer and any independent contractor. As for a negligence claim, having held himself out as having the ability to build a fit and proper house, the builder generally cannot abdicate to an "independent contractor" his duty to do it. The right to direct and control the work is assumed and retained by the builder in these cases.¹⁸ (Emphasis added; citations omitted.)

Another court noted:

[I]nherent in any contract on the part of a general contractor to erect or repair a building is the obligation to do the work in a careful and workmanlike manner. . . . [I]t would be indefensible to permit the general contractor to shrug off his contractual duties in this regard by arguing that the negligence was not his but that of an independent subcontractor employed by him.¹⁹ (Emphasis added; citations omitted.)

At least one Colorado case echoes an analogous concern. In Springer v. City and County of Denver,²⁰ in the context of evaluating a claim that a defendant's governmental immunity was not waived because the defective construction work at issue had been performed by the defendant's subcontractor, the Colorado Supreme Court said:

Potential Theories Underlying Homebuilder Liability

√ Independent duty

√ Assumed duty

√ Joint liability when "acting in concert"

√ Non-delegable duty

√ Express and implied warranty duties

√ Non-delegable duty arising from inherently dangerous activities

√ Vicarious liability.

[I]mmunity waiver would seldom, if ever, apply [if a] public entity could simply hire an independent contractor for any and all public works projects and escape answering for injuries to citizens using its buildings.²¹ (Emphasis added.)

Colorado's appellate courts have made clear the important public policies underlying the independent tort duty to properly build a home. These same courts must decide whether the policies would be undermined if a builder is permitted to shunt a portion of its tort liability to subcontractors, even if a homeowner may sue such subcontractors directly for their negligence.²² The courts also must address whether the same public policies underlying an independent tort duty of care on the part of homebuilders support imposing liability on such builders for their subcontractors' negligence.

If the decisions of the district courts are an indicator of how Colorado's appellate courts will resolve this issue, it appears likely homebuilders are liable for their subcontractor negligence based on the homebuilder's independent duty of care. Whether this liability can be properly translated to the homebuilder as an assumed or non-delegable duty, under the rubric of the vicarious liability doctrine (as will be discussed in Part II of this article), or otherwise, is the subject of the balance of this article.

Assumed Duty Analysis

Colorado recognizes that a person may assume a tort duty of care.²³ For example, the Colorado Court of Appeals has held that when an insurer assumed direct responsibility to effect repairs to a damaged home, then hired an independent contractor to perform the work, the insurer may not escape tort liability for damages accruing as a result of the negligent performance of the work. This is because it assumed the duty to ensure that the task was performed with due care.²⁴ Even gratuitously assumed duties carry with them the responsibility to act with due care.²⁵

In...