Construction Law

Colorado Court of Appeals Addresses "Actual Damages" Under the Construction Defect Action Reform Act

By Tim Gordon

In Hildebrand v. New Visa Homes II, LLC (Colo. App. Nov. 11, 2010), a division of the Colorado Court of Appeals addressed, among other things, what the proper measure of damages is for a construction defects claim under the Construction Defect Action Reform Act ("CDARA").  In doing so, the Court of Appeals clarified that the plaintiffs need not present alternative methods of computation of damages.  Additionally, the Court of Appeals held that "inconvenience damages" were recoverable under CDARA.  Finally, the Court held that the plaintiffs were not entitled to prejudgment interest for its damages based on cost to repair.

After the movement of their basement floor slab caused damage to their new home, the Hildebrands sued the home builder, New Vista Homes and its manager, Richard Reeves, for negligence, negligent misrepresentation, violation of the Colorado Consumer Protection Act ("CCPA"), lack of proper soils disclosure, and breach of warranty.  The trial court entered a directed verdict in favor of Reeves, and the jury returned a verdict in favor of the Hilderbrands against New Vista Homes.  Both parties appealed.

Directed Verdict for Reeves Was Improper

Since the matter involved the construction of a home, the plaintiffs could maintain negligence claims against the home builder.  And in Colorado, "[c]orporate agents are liable for torts of the corporation if they approved of, sanctioned, directed, actively participated in, or cooperated in such conduct."  "Such an agent may 'be held personally liable for his or her individual acts . . . even though committed on behalf of the corporation, which is also held liable.'"  Because the question of whether an individual's conduct is sufficient for liability to attach is a question of fact for the jury to decide, and because the plaintiffs presented sufficient evidence, the Court of Appeals held that the plaintiffs' negligence and negligent misrepresentation claims against Reeves should have gone to the jury. 

Waiver In Purchase Agreement Did Not Bar Warranty Claim

The Court of Appeals also held that the disclaimer in the purchase agreement did not bar plaintiffs' claim for breach of the implied warranty of habitability.  According to the Court of Appeals, the warranty of habitability "has been likened to strict liability for construction defects, and proof of a defect due to improper construction, design, or preparations is sufficient to establish liability in the builder-vendor."  Plaintiffs presented evidence that the defects in their home were caused by installing a slab-on-grade basement floor rather than a structural floor and failing to install a sump pump, which might have limited slab movement by dewatering the soil below the slab.  As such, the disclaimers in the purchase agreement did not bar the warranty claim.

Plaintiffs' CCPA Claim Rejected

The Court of Appeals held that plaintiffs failed to present sufficient evidence to support their claim for violation of the CCPA.  Basically, plaintiffs failed to prove that defendants' conduct significantly impacts the public as actual or potential consumers.  "Although 38 of the homes were constructed with slab-on-grade basement floors, this fact does not alone show public impact arising from defendants? alleged misrepresentations concerning soils and flooring."  And there was no evidence that the other homes had any problems with respect to the slab-on-grade basement floors. 

Actual Damages Under CDARA

New Vista Homes attacked the damage award, arguing that the trial court erred (1) in not capping plaintiffs' repair-cost damages at the fair market value of the home, and (2) in awarding inconvenience damages to plaintiffs.  The Court of Appeals rejected both arguments.

With respect to damages for the defects themselves, CDARA provides in relevant part as follows:

"Actual damages" means [1] the fair market value of the real property without the alleged construction defect, [2] the replacement cost of the real property, or [3] the reasonable cost to repair the alleged construction defect, whichever is less . . . .

Section 13-20-802.5(2), C.R.S. 2010 (bracketed numbers added).

The Court of Appeals rejected New Vista Homes' argument that the court should have capped plaintiffs' repair-cost damages at the fair market value of the home.  According to the Court, plaintiffs do not have to present evidence on all three measures of damages.  Instead, New Vista Homes bore the burden of proof if it wished to argue that the cost to repair were more than the fair market value of the home.

The Court of Appeals also rejected New Visa Homes' argument that plaintiffs were not entitled to inconvenience damages.  In addition to damages for the defects themselves, CDARA also allows for the recover of other damages.  Specifically, "Actual Damages" can also include:

relocation costs, and, with respect to residential property, other direct economic costs related to loss of use, if any, interest as provided by law, and such costs of suit and reasonable attorney fees as may be awardable pursuant to contract or applicable law. "Actual damages" as to personal injury means those damages recoverable by law, except as limited by the provisions of section 13-20-806 (4).

Section 13-20-802.5(2), C.R.S. 2010.

For claims for noneconomic loss or injury caused by a construction defect, "'noneconomic loss or injury' has the same meaning as set forth in section 13-21-102.5 (2) (b) . . . ."  Section 13-20-806(4)(a), C.R.S. 2010.  And "'[n]oneconomic loss on injury' means nonpecuniary harm for which damages are recoverable by the person suffering the direct or primary loss or injury, including pain and suffering, inconvenience, emotional stress, and impairment of the quality of life."  Section 13-21-102.5(2)(b), C.R.S. 2010.

Based on the plain language of CDARA, the Court of Appeals upheld the award of "inconvenience damages" to plaintiffs, which included compensation for plaintiff's anger, sleeplessness, and loss of use.

No Prejudgment Interest for Repair Costs Damages

Finally, the Court of Appeals affirmed the trial court's refusal to award prejudgment interest on plaintiffs' repair cost damages.  In short, because plaintiffs had not yet spent the money to repair the defects, it would not be proper to award damages on such costs that had not yet been incurred.

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Full post as published by Colorado Construction Law on November 19, 2010 (boomark / email).