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Subcontractors Can Be Sued in Tort for Negligence in Building Homes, Colorado Supreme Court Rules
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October 9, 2006
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By Laura Kent
Thelen Reid Brown Raysman & Steiner LLP
The homeowners association for a complex of townhomes sued the developer and general contractor for breach of express and implied warranty, violation of the Colorado Consumer Protection Act and negligence. The association also sued subcontractors that worked on the complex for negligence. The complaint alleged construction defects, including improperly installed widows, roofs, chimneys and doors; improper grading and drainage; heaving front porches and basement floors; and damaged drywall.
After the developer and contractor settled with the association, the subcontractors moved for summary judgment on the grounds that: (1) the association lacked standing to sue them; and (2) the negligence claim was barred by the economic loss rule because the subcontractors owed the association no independent duty of care. The trial court granted the motion.
The association appealed, and the Court of Appeals reversed the trial court's decision. The Court of Appeals held that the association had standing pursuant to the Colorado Common Interest Ownership Act and that the economic loss rule did not apply to the negligence claim. The court explained that the subcontractors owed a duty of care to act without negligence when constructing homes. The subcontractors appealed.
The Supreme Court explained that the economic loss rule precludes a tort claim when a party suffers only economic loss due to breach of a duty arising only from contract. However, the economic loss rule does not apply when a tort claim arises from a duty of care independent from the contract. The existence of an independent duty is a question of law to be determined by the court.
After examining prior decisions, the court concluded that there is a duty of care, independent of any contractual obligations, to act without negligence in the construction of homes and that the duty, previously applied to contractors, was equally applicable to subcontractors. A.C. Excavating v. Yacht Club II Homeowners Assn., Inc., 114 P.3d 862 (Colo. 2005). Because of the independent duty of care, the economic loss rule was not applicable. In determining that the duty extended to subcontractors, the court looked at "the risk involved, the foreseeability and likelihood of injury as weighed against the social utility of the defendant's conduct, the magnitude of the burden of guarding against injury or harm, and the consequences of placing the burden upon the defendant."
The court held that Colorado statutes provided additional support for finding that subcontractors owe a duty to act without negligence in constructing homes. The General Assembly, in the Construction Defect Reform Act, recognized that subcontractors owe an independent duty of care when subcontractors were listed as a party possibly liable to property owners for negligent construction defects. Negligence claims may be brought against subcontractors when their negligence results in actual damage or loss of use of real or personal property.
The Supreme Court explained that Colorado's economic loss rule applies only to economic loss claims arising from breach of an express and implied contractual duty and when no independent duty of care exists.
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For more information about the issues covered in this report, please contact Laura Kent in our San Francisco office at 415-369-7756 or at lkent@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2006 Thelen Reid Brown Raysman & Steiner LLP
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