Monday, January 19, 2015

The Great Fallacy: If Builders Would Just Build It Right There Would Be No Construction Defect Litigation

As the 2015 Colorado legislative session gets into full swing, there is a lot of anticipation and discussion regarding this year’s construction defect reform bill.  It seems like every time a reporter broaches this issue in an article, there is a quote from a plaintiffs’ attorney stating that if builders would just build homes right, there would be no need for construction defect litigation. This is the sentiment expressed in the site www.BuildOurHomesRight.com

The problem with this argument is that it assumes that the “construction defects” for which associations sue are those only that affect the performance of the homes, or are likely to affect the performance of the homes during the useful life of the component at issue. Unfortunately, this is simply not the case. Over the years, the plaintiffs’ bar has stacked the deck, so to speak, making actionable every technical building code violation, regardless of whether it has any impact, or will ever likely have any impact, on the performance of the homes involved.

In Colorado, when a builder builds and sells a home, it impliedly warrants that the home is built in a good and workmanlike manner, that it is fit for its intended purpose, and that it complies with the applicable building codes. See, e.g., Carpenter v. Donohoe, 388 P.2d 399 (Colo. 1964). Other Colorado courts have likened the breach of implied warranty claim to strict liability for construction defects. See, e.g., Hildebrand v. New Vista Homes II, LLC, 252 P.3d 1159, 1169 (Colo. App. 2010). In short, it does not matter whether the builder acted in a non-negligent manner or whether the alleged defect impacts the performance of the home, or ever will, if it violates the applicable code, the association will call it defective and include it in its construction defect claims.

The problem with this standard is that it is impractically high.  New homes built in Colorado are the only things constructed using hundreds of thousands of parts, most of which are made of natural and imperfect materials, designed and built by human hands, in the elements, over a period of months, where the standard applied is that of perfection. Even the plaintiffs’ attorneys’ favorite experts have testified that this is an impossibly high standard, and one that cannot be achieved. It is for this reason that most builders in Colorado provide their homeowners with express written warranties, assuring the homeowners that when a problem is discovered after construction, it will be repaired.

Until recently, Colorado’s builders could, and often did, disclaim these implied warranties in favor of their own express written warranties. To thwart these efforts, the plaintiffs’ attorneys supported the passage of the Homeowner Protection Act of 2007 (“HPA”). Once enacted, and codified at C.R.S. § 13-20-806(7), this piece of legislation made void as against public policy any restriction on a homeowner’s construction defect claim beyond those found in the Colorado Construction Defect Action Reform Act, C.R.S. § 13-20-801, et seq., or the Colorado Consumer Protection Act, C.R.S. 6-1-101, et seq. This codified, at least as of April 20, 2007, when the HPA went into effect, the strict liability standard for new home construction in Colorado.

During the 2001 and 2003 legislative sessions, during the passage of Construction Defect Action Reform Act I and II (“CDARA I and II”), the Colorado legislature restricted negligence claims to only those which actually effect homeowners or would be likely to do so in the future. In this regard, C.R.S. § 13-20-804 states:

(1) No negligence claim seeking damages for a construction defect may be asserted in an action if such claim arises from the failure to construct an improvement to real property in substantial compliance with an applicable building code or industry standard; except that such claim may be asserted if such failure results in one or more of the following:

(a) Actual damage to real or personal property;

(b) Actual loss of the use of real or personal property;

(c) Bodily injury or wrongful death; or

(d) A risk of bodily injury or death to, or a threat to the life, health, or safety of, the occupants of the residential real property.

While this section is good as far as it goes, the problem is that it doesn’t go far enough. When it was included within CDARA, the legislature had not yet passed the HPA and, when it did, it did not go back and broaden the section to apply to all claims brought in a construction defect action, to include claims for breach of implied warranty.

So what’s the problem with a strict liability, perfection standard in the construction of new homes? In addition to being an impossibly high standard, as discussed above, it also creates an incentive for plaintiffs’ litigation experts to go on fishing expeditions. Rarely do owners in construction defect cases claim only as defective those things that impact the performance of their homes, or those things that are likely to do so in the future. I have seen time and time again letters from plaintiffs’ attorneys to homeowners in multi-family communities indicating that they intend to spend between $3,000 and $5,000 per unit to perform destructive testing to go looking for defects that, until they are found, were unknown to the owners and would likely have remained unknown to the homeowners for the entire time they owned their homes. This is the fishing expedition.  I can all but guarantee that if you were to spend $5,000 to have a plaintiffs’ litigation “forensic engineer” go hunting through any home built in Colorado, he or she could come up with pages and pages of technical building code violations that would never impact the performance of the home, but are none the less actionable under today’s construction defect laws in Colorado. This is the investment made by the plaintiffs’ attorneys, purportedly for the good of the owners, but which in reality just drives up the costs of litigation, the alleged damages in the actions, and, at the end of the day, the plaintiffs’ attorneys’ contingent fees. I have never had a plaintiffs’ attorney tell me what type of return they get on this investment, but I assume that it must be pretty good if they are willing to invest up to $5,000 per unit in a multi-family community.

No one knows what the 2015 Colorado legislative session has in store for the construction community. Whatever happens, I hope that the argument made that if builders would just "build it right" there would be no construction defect litigation falls on deaf ears under the dome at the State Capitol. Unless and until the test for "building it right" becomes something other than absolute perfection, this remains simply a fallacy.   

To learn more about construction law in Colorado or the litigation of construction defect claims, you can reach David McLain by e-mail at McLain@hhmrlaw.com or by telephone at (303) 987-9813.

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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.