Colorado Construction Defect Litigation: More than You Might Want to Know – But Should! (Part 4: Aspects of CDARA That Ought to Be Clear, But Aren’t)

On February 24, 2012, Ken Robinson, Esq., and John Tweedy, Esq., of Robinson Tweedy, PC, presented a Continuing Legal Education program through the Boulder County Bar Association focused on the legal and factual contexts of construction defects in relationship to the larger practice of construction litigation.  This is Part 4 of the CLE presentation, addressing aspects of CDARA that ought to be clear, but aren’t.

Part 1     Part 2     Part 3     Part 5

A.         What is a Construction Defect? 

While construction defect litigation has been going on for a long time, and we now have over a decade of statutory regulation of such suits, there is no standard or statutory definition of a defect.  A working definition might be an improvement that doesn’t do what it’s supposed to do, but this isn’t completely satisfactory.  For example, certainly damage to an improvement caused by a natural event such as a tree falling on a house causing the roof to leak would not constitute a construction defect.  But what about shingle damage from a high wind?  Were the shingles not the ones specified in the plans?  Were the specifications wrong for the anticipated wind conditions?  If so, perhaps the shingles would constitute a construction defect.  However, if there were merely an extraordinary wind event, say hurricane force winds in a location not prone to experiencing hurricanes, the dislocated shingles would not be regarded as a construction defect.  That is, they weren’t supposed to withstand such high winds.

Perhaps a refinement of the proposed definition of a construction defect would be an improvement that doesn’t perform the way it is supposed to at the time of construction.  But what about the installation of incorrect shingles with a shorter warranty, say twenty years, than those specified in the contract, if those shingles fail at twenty-five years?  Wouldn’t that be a construction defect?  So, maybe an additional refinement would help.  What about: an improvement that doesn’t perform as intended for as long as it was supposed to?  Perhaps but, in the end, it may fall into the realm of questions of fact that Justice Stewart addressed when he remarked: “I know it when I see it.”

There is also a question as to whether defects in individual components of a structure comprise discrete construction defects for purposes of, say, the running of the statute of limitations, or whether they might collectively constitute a system, taken as a whole, that comprises the construction defect.  A good example of this question was addressed by the Colorado Court of Appeals in an unreported decision, Legacy Apartments, L.P. v. Pinkard Const. Co., 2007 WL 3105524 (Colo. App. 2007), which held that for purposes of a statute of limitations analysis, a water intrusion event occurs on the “building envelope” and not on a particular component of the envelope such as the roof.  The Court of Appeals stated:

We also conclude the district court erred by distinguishing between roof leaks and other alleged defects that may have caused the water problems.  It is undisputed that during the one-year period following substantial completion, and after the final certificate of payment was issued, Legacy notified Pinkard of water leaks and intrusions at numerous locations within various apartment units.  We conclude such leaks and intrusions are defects, regardless of their particular causes, and once Legacy informed Pinkard of such leaks and intrusions, Pinkard had an obligation pursuant to article 2.B [of the contract] to repair those defects, whether they resulted from leaking roofs or other specific construction defects. 

Opinion, pp. 14-15.

The Court of Appeals held that Legacy’s claim for breach of contractual duty to repair “encompasses Pinkard’s alleged failure to repair the construction defects that caused the water leaks and intrusions, and not merely the roof…”  Id. at 16.  The Court of Appeals held that the three-year statute of limitations period found in § 13-80-101 applies to the breach of contract claim, which is “in substance, a breach of warranty claim for purposes of determining which statute of limitations applies.”  The Court of Appeals concluded as a matter of law that the entire “building envelope” should be treated as one defect of leaks and intrusions into the building and remanded the case to the trial court for further findings.

B.         When Does a Construction Defect Cause of Action Accrue?

One of the most fundamental, and yet most vexing, issues in construction defect litigation is the definition of when a claim accrues, and when the limitations period runs.  Despite a decade of statutory reform and judicial interpretation, these questions remain elusive.   One problem derives from the fact that, according to §13-20-804, a claim of negligence for non-compliance with a building code or industry standard is not actionable unless it causes actual property damage, loss of use, or bodily injury, or threatened bodily injury.  Thus, under CDARA, faulty construction that threatens property damage but has not yet caused it is not actionable in negligence until the property damage actually occurs.  For example, installation of flashing and building paper around building openings in a “reverse-lapped” condition is likely to cause leaks into the building envelope.  These weatherproofing components are commonly installed by subcontractors, and therefore, an owner in this scenario may not have a direct claim against the negligent installer for breach of contract.  If the faulty flashing installation is discovered before actual leakage occurs, then a claim of negligence against the subcontractor will not accrue until the building actually begins to leak.

However, the Colorado Supreme Court, in Smith v. Executive Custom Homes, 230 P.3d 1186 (Colo. 2010) held that a claim for negligence against a construction professional under §13-80-104 accrues when the owner notices the “physical manifestations of a defect,” not when the damage occurs.  Thus, in the defective-flashing scenario described above, a homeowner who notices the faulty flashing before the building actually begins to leak might have a claim which has accrued under §13-80-104, but which is not yet actionable under §13-20-804.  Because this issue was not raised in Smith, the Supreme Court did not attempt to resolve this apparent statutory conflict in its opinion.  The Smith majority did acknowledge that its holding might yield “harsh” results, but observed that “where a statute leads to undesireable results, it is up to the General Assembly, not the courts, to provide a remedy.”  230 P.3d at 1191.

C.         Warranty Repairs as New “Defects”?

Another issue left partially unresolved in Smith concerned a contractor’s unsuccessful efforts to repair defective work.  Because the issue was not raised by the parties, the Smith majority did not hold that the contractor’s faulty repairs of the gutter at issue in that case constituted a separate “improvement to real property,” triggering a new accrual period once the defective repair was noticed, but observed in a footnote that, when a repair is “essential and integral to the function of the construction project,” a repair could trigger a new accrual, and restart the limitations period.  230 P.3d at 1191, n.6.  Moreover, the dissenting justices in Smith held that the gutter repair was such a separate improvement and would have reached a different result on that basis.  By combining the dicta of the majority and the holding of the dissent, one may conclude that, faced with properly-postured facts, the Supreme Court would find that a faulty repair effort would be a new construction defect and thus re-start the limitations period if the repair concerned a component that is “essential and integral to the function” of the building.

D.        Proving “Actual Damages.”

Helpful guidance has recently emerged regarding proof of damages under CDARA.  As noted earlier, §13-20-802.5 defines “actual damages” as the lesser of (i) the fair market value of the property without the defect, or (ii) the replacement cost of the property, or (iii) the cost of repairs plus relocation costs and, for residential property, loss of use and other fees or costs allowable by contract or law.  §13-80-802.5(2).  “Actual damages” may also include bodily injury as provided by law.   Which party bears the burden of proving which of these measures is “the lesser”?  Must a plaintiff provide evidence of all three measures as part of its case in chief, or is the statutory limitation on damages a matter that must be affirmatively pleaded under C.R.C.P. 8(c)?  A recent case by the Court of Appeals held that, where a plaintiff provides evidence of its preferred measure of damages, it was for the defense to prove that another measure could be less.  See Hildebrand v. New Vista Homes II, Inc., 252 P.3d 1159 (Colo. App. 2010).  Hildebrand also approved a plaintiff’s recovery of “inconvenience” damages for the loss of full use and enjoyment of the home, where the plaintiff tripped on a cracked foundation and was unable to use a pool table and ping-pong table in the basement as he had intended.  Id.  Neither party sought certiorari review of the Court of Appeals’ decision in Hildebrand.