The Colorado Court of
Appeals recently handed down an opinion clarifying when the knowledge of a
general contractor can be imputed to a developer. In the case of Jehly v.
Brown, 327 P.3d (Colo. App. 2013), the Court of Appeals held that a
developer cannot be held liable for fraudulent concealment when the developer
has no actual knowledge of the fact or facts allegedly being concealed even if the
general contractor had knowledge.
In this case, Brown,
the developer, owned real property in Teller County and hired a general
contractor to build a single-family house. Sometime before or during the
construction, the general contractor became aware that part of the home site was
located in a designated floodplain.
Although the general contractor was aware that part of the home site was
located in a floodplain, he continued to build the home without informing Brown
of the floodplain designation.
Once the home was
complete, Brown sold the property to the Jehlys. Brown completed a Seller’s
Property Disclosure Form regarding the condition of the house and property, but
failed to identify that the home site was located in a governmentally
designated floodplain.
Approximately five years
after purchasing the home, heavy rains caused severe flooding and damage to the
basement. The Jehlys sued Brown for fraudulent concealment, alleging that he
fraudulently concealed knowledge of the floodplain in order to entice the
Jehlys to purchase the property. The Jehlys asserted that the general contractor’s
knowledge that the home site was located in a designated floodplain should be
imputed to Brown. The trial court ruled in Brown’s favor, finding that the
Jehlys failed to show Brown had any actual knowledge that the home site was
located in a floodplain.
On appeal, the Court of
Appeals upheld the trial court’s ruling that the general contractor’s knowledge
cannot be imputed to Brown to support a claim of fraudulent concealment. The Court of Appeals in its ruling stated
that “in the context of a fraudulent concealment claim, knowledge of the
information by the agent, when not communicated to the principal, is not deemed
to be that of the principle.” Id.
The Court further added “when an agent has information that he has a
duty to disclose, the principal may be liable except where actual knowledge is
important.” Id.
It is important to note
that while the Court held that a general contractor’s knowledge cannot be
imputed to a developer in the context of a fraudulent concealment claim, this result
would not follow for causes of action that lack an actual knowledge requirement. A court could impute the general contractor’s
knowledge to a developer under a negligence based claim or other claim where actual
knowledge is not required. Therefore, it is important for developers to stay
apprised of such information and not merely turn a blind eye in hopes of
claiming they didn’t have actual knowledge.
To learn more about the
Jehly v. Brown decision or for additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.
