Monday, September 17, 2012

Limitations of liability in subcontractors’ contracts may not be enforceable in Colorado to limit claims by construction professionals.


The Colorado Homeowner Protection Act of 2007 (“HPA”), codified at C.R.S. § 13-20-806(7), specifically voids express waivers of, or limitations on, a residential property owner’s ability to enforce any rights, remedies, and damages provided by law in a construction defect case.  Practically speaking, this means that limitation of liability provisions in contracts between construction professionals and residential homeowners are void and will not be enforced in Colorado.  The HPA can extend even further, however, to subcontractors on residential projects, as seen in a recent District Court ruling.

The HPA was tested in Thacker v. Gallery Homes, et al., v. Terracon Consultants, Inc., et al., Larimer County District Court Case No. 2007CV1195.  Gallery Homes hired Terracon to provide geotechnical and structural engineering services at the Colony Ridge subdivision in Loveland, Colorado.  Terracon performed work for Gallery Homes under three separate contracts, each of which included a provision limiting Terracon’s total liability to Gallery Homes. 

After the project was completed, two homeowners filed suit against Gallery Homes for alleged construction defects involving movement of their basement floor systems and foundations and damage to porches, patios, garages, and driveways.  Gallery Homes sued Terracon as a third-party defendant, and Terracon sought to enforce its limitation of liability provisions via a partial summary judgment motion. 

Judge Gregory M. Lammons denied Terracon’s motion in an order dated April 7, 2010, stating that the HPA “expressly states that any attempt of a construction professional to limit the amount of damages for which they are liable for work done on a residential project is void as against public policy.”  The order also affirmed the definition of a construction professional under C.R.S. § 13-20-802.5(4) as “an architect, contractor, subcontractor, developer, builder, builder vendor, engineer, or inspector performing or furnishing the design, supervision, inspection, construction, or observation of the construction or any improvement to the real property.

Importantly, Judge Lammons noted that the HPA does not state that only homeowners may enforce its provisions, and that the HPA is applicable to Terracon as a third-party defendant subcontractor on a residential project.

After the parties proceeded to trial, the jury found that Terracon was not negligent in providing its services to Gallery Homes.  Gallery Homes appealed the verdict and Terracon cross-appealed the denial of its motion to enforce its limitation of liability clauses.  In an unpublished opinion dated May 31, 2012, Gallery Homes v. Terracon Consultants, Inc., d/b/a Terracon Consulting Engineers & Scientists, the Court of Appeals declined to rule on the enforceability of Terracon’s limitation of liability provisions, finding instead that Terracon’s cross-appeal was moot and should not be addressed.

The clear impact of this interpretation of the HPA is that even if a subcontractor on a residential project does not contract directly with a residential homeowner, if that subcontractor is performing work on a residential project the HPA may apply to make any limitation of liability provisions in the subcontractor’s contract unenforceable.

- Heidi J. Gassman can be reached by e-mail at Gassman@hhmrlaw.com or by telephone at (303) 987-9815.

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The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.