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.”[1] 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.
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