Thursday, February 14, 2013
Colorado Court of Appeals Enforces Limitations of Liability In Pre-Homeowner Protection Act Contracts
Keirns Construction Co. (“Keirns”) hired Landmark Engineering, Ltd. (“Landmark”) to provide a geotechnical investigation and foundation designs for two duplexes Keirns built in Larimer County. Keirns and Landmark signed one contract in 2001 for the geotechnical work and two separate contracts in 2005 for the foundation design of the two duplexes. Each contract contained an identical “risk allocation clause,” which had language specifically limiting Landmark’s liability to Keirns. The risk allocation clause also had language specifically prohibiting claims against individuals and only allowing claims against a corporation.
After the two duplexes were built, foundation problems developed, and Keirns filed suit against Landmark for breach of contract and negligence. Keirns also filed suit against two individual employees of Landmark, Wayne Thompson and Larry Miller, for negligence. Messrs. Thompson and Miller performed the geotechnical and design services pursuant to the contracts.
Landmark and Messrs. Thompson and Miller filed a motion seeking to enforce the risk of allocation clauses in the contracts, thereby limiting Landmark’s liability. Messrs. Thompson and Miller also filed a summary judgment motion seeking their dismissal from the case based on the prohibition in the risk allocation clause against asserting claims against individuals.
The trial court granted both motions, limiting Landmark’s liability pursuant to the risk allocation clause and dismissing Messrs. Thompson and Miller. Keirns appealed the trial court’s rulings on these two motions, asserting that the 2001 contract was not enforceable or, in the alternative, that the court had incorrectly interpreted both contracts.
The Court of Appeals ruled that the 2001 contract, which had not been signed by Landmark, was enforceable because it was fully performed by both Keirns and Landmark, even though the contract itself stated that it “shall not constitute an agreement between the parties until executed by [Keirns] and Landmark.” Keirns’ undisputed acts in performing the contract were held to amount to an unequivocal admission that the agreement was enforceable and binding.
The Court of Appeals next examined Keirns’ claims that the risk allocation clauses were ambiguous, and therefore unenforceable. None of the contracts defined the term “claim,” but the Court of Appeals found nothing in the contracts indicating that the parties intended the word “claim” to have any definition other than its ordinary meaning. The court therefore held that the term “claim,” as used in the risk allocation clauses, was not ambiguous. The court applied the same common-sense analysis to the use of the term “corporation” in the risk allocation clauses, and found that Messrs. Thompson and Miller, as individual defendants, had been properly dismissed from the lawsuit.
In an interesting footnote to its reasoning, the court addressed Keirns’ additional contention that even if the risk allocation clauses did not allow claims against individual employees of Landmark, Keirns ought to be allowed to pursue an independent cause of action for negligence against Messrs. Thompson and Miller. The court noted that while Colorado’s economic loss rule recognizes an independent duty of care owed by homebuilders and subcontractors to homeowners, that duty has not been found to extend to employees of homebuilders or subcontractors.
Officers and directors of construction companies should be aware, however, that the corporate officer responsibility doctrine still applies, as described in Hoang v. Arbess, 80 P.3d 863 (Colo. App. 2003). If Messrs. Thompson and Miller had been officers or directors of Landmark, they may have been personally liable for any individual acts of negligence, even if such acts were committed on behalf of Landmark.
In light of C.R.S. § 13-20-806(7)(a), the Colorado Homeowner Protection Act (“HPA”), the ruling in this case enforcing a limitation of liability clause for a residential project is very short lived and may only be applicable to contracts entered into before April 20, 2007, when the HPA was enacted. For individual employees of homebuilders or subcontractors, however, this ruling is a reassuring affirmation that there is no case law in Colorado extending the independent duty of care in residential construction projects to employees of builders.
The attorney who drafted this entry is no longer with the firm. For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at email@example.com.