Thursday, January 5, 2012

It is time to clarify that plaintiffs in construction defect cases cannot recover more than 100% of their actual damages.


Developers in Colorado could be facing more of an uphill battle than the economy.  Attorneys for homeowners’ associations have conceived a new argument whereby they seek to hold the developer liable for one hundred percent of the damages in a construction defect action as a fiduciary under Colorado law.  As most of us know, developers rarely participate in the actual construction work of any given project.  However, pursuant to Colorado’s Common Interest Ownership Act (“CCIOA”), board members appointed by the declarant developer are fiduciaries of the unit owners.  See 38-33.3-301, et seq.  Attorneys for homeowners’ associations argue that this designation of a declarant as a fiduciary creates a non-delegable duty to assure that there is no negligence in the construction of a home.  See Cosmopolitan Homes Inc. v. Weller, 663 P.2d 1041 (Colo. 1983). [1]  

Taking this argument one step further, attorneys for homeowners’ associations are now arguing that, in accordance with its non-delegable duty, a developer should not be allowed to allocate any liability to settling parties, including general contractors and/or subcontractors, which actually performed the work on a project.  If successful, the ultimate result of this argument precludes the developer from seeking a set-off for any of the settlements between the association and the settling parties, thereby allowing the homeowners’ associations to potentially recover more than one hundred percent of their claimed damages. 


In a recent construction defect suit, the plaintiff homeowners’ association successfully argued that the developer, as a fiduciary, has a non-delegable duty under CCIOA.  As a result, the association argued that the jury should not allocate any liability to the general contractor, which had already settled.  The jury then allocated one hundred percent of the liability for the claimed construction defects to the developer on the verdict form.  As a result, the developer was precluded from seeking a set-off for the amount of settlement between the general contractor and the association, which essentially allowed the homeowners’ association to recover from the developer what it had already recovered from the general contractor.            

While Colorado law would seemingly prohibit this outcome, those involved and/or interested in the home building industry are urged to speak up and get involved. Perhaps there should be an amendment to Colorado’s statute concerning pro rata liability that would explicitly preclude the ability to recover more than one hundred percent of a party’s claimed damages.  See C.R.S. § 13-21-115.5.  Currently, Colorado’s statute concerning contribution among tortfeasors provides that a release given in good faith to a person liable in tort for the same injury does not discharge any of the other tortfeasors from liability for their respective pro rata share of liability for the injury.  C.R.S. § 13-50.05-105.  Pursuant to Colorado’s pro rata statute, no defendant is liable for an amount greater than represented by the degree or percentage of fault or negligence attributable to such defendant.  C.R.S. § 13-21-115.5.  However, both statutes are silent on the issue of recovery, which is why many believe an amendment is necessary to preclude what is essentially double recovery by homeowners’ associations in construction defect actions.
Another way to skin the cat may be to make clear, statutorily, that C.R.S. § 13-21-115.5(6)(a)(I) means what it says, that “every construction business in the state is financially responsible under the tort liability system for losses that a business has caused.” This can be accomplished by making clear that developers and general contractors are not liable for the negligence of the subcontractors and design professionals they hire, but are only liable for their own negligence.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.
 



[1] The Colorado Supreme Court has also recognized that subcontractors are also under an independent to act without negligence in the construction of homes.  See A. C. Excavating v. Yacht Club II Homeowners Ass’n, Inc., 114 P.3d 862 (Colo. 2005); see also Driscoll v. Columbia Realty-Woodland Park Co., 590 P.2d 73 (Colo. App. 1973).        

1 comment:

  1. Since posting this entry, I have heard from some of the attorneys involved in the case described in the post, in which the homeowners association recovered more than 100% of its “actual damages.” I was informed by these attorneys that the blog entry contains certain inaccuracies regarding the specific facts, circumstances, and arguments made in that case. We learned that the homeowners’ association did not argue that the developer had a non-delegable duty under CCIOA. Rather, counsel argued that the developer was liable as a result of its own independent negligence. I understand that the jury was asked to apportion any negligence found between the developer and the settled general contractor, and that the jury found the developer one hundred percent liable.

    I apologize for the inaccuracies in the post and please understand that we were not involved in that case. Regardless of what arguments were presented to the jury, the homeowners’ association was able to settle with the general contractor for a certain amount and recover one hundred percent of the jury verdict from the developer thereby resulting in a recovery of an amount greater than the total damages assessed by the jury. Unfortunately, the legislative process may be the only avenue to preclude a party’s ability to recover more than one hundred percent of its claimed damages as the Colorado Supreme Court has previously indicated that there should be no reduction of a judgment even if a plaintiff recovers an amount greater than the total damages assessed by the jury. See Smith v. Zufelt, 880 P.2d 1178 (Colo. 1994).

    -Heather Anderson

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