Claims College School of Construction LEVEL 1

Transcription

1 Claims College School of Construction LEVEL 1 Construction Defect Liability Theories and Defenses Objectives At the end of this course, you will be able to: Describe the theories of liability and defenses relative to commercial and residential construction claims; Recognize the theories of liability asserted by developers, general contractors, subcontractors and design professionals; Explain the common defenses asserted by defendants, and; Understand which damages may be recoverable under the various theories of liability. Agenda Theories of liability asserted by owners, homeowners, GCs, subcontractors, and design professionals; Differences between joint and several liability, comparative fault, and assumption of risk; Statutes of limitation and repose; Other commonly asserted defenses; Recoverable damages, and; Wrap up and review. Theories of Liability Asserted by Owners and HOAs Breach of Contract The defendant entered into a contract with the plaintiff to perform an act; The defendant failed to perform the act, and; The plaintiff substantially performed its part of the contract or was excused from performance. Breach of Express Warranty When the builder sold the homeowners their home, the builder included an express written warranty; The builder failed to comply with the provisions of the express written warranty, and; This failure was a cause of the homeowners damages. Breach of Implied Warranty The builder entered into a contract with the plaintiff for the construction and/or sale of a residence; When the builder gave possession of the residence to the plaintiff, it did not comply with one or more of the warranties implied by law as part of the transaction;

2 Implicitly warrants that: o The house is habitable; o It was built in a workmanlike fashion; o It complies with applicable building codes, and; o It is reasonably suited for its intended use. Negligence The homeowner incurred damages; The builder breached an applicable standard of care, and; The builder s breach of the applicable standard of care was a cause of the homeowner s damages. Negligence - Definition The failure to perform an act that a reasonably prudent builder would take, under the same or similar circumstances, or the taking an action that a reasonably prudent builder would not take, under the same or similar circumstances. Negligence Per Se The builder violated a state statute or city ordinance; The homeowner is within the class of persons sought to be protected by the statute; The homeowner suffered damages (including an applicable building code); Violation of this statute was a cause of the homeowner s damages, and; The damage is of the type sought to be protected against by the statute. Negligent Misrepresentation/Concealment The builder either negligently provided false information or omitted information; The false information provided or the information omitted was material; The plaintiff reasonably relied on the information or lack thereof, and; The plaintiff s reliance was a cause of his or her damages. Strict Product Liability The defendant was a manufacturer of the product; The product was defective at the time it was sold; Because of the defect, the product was unreasonably dangerous; The plaintiff had damages, and; The defect in the product was a cause of the plaintiff s damages. Breach of the Consumer Protection or Deceptive Trade Practices Act The homebuyer incurred damages; The builder engaged in conduct that violates the consumer protection act, and; The builder s conduct was a cause of the homebuyer s damages.

3 Fraud The builder made a false representation of a material past or present fact, knowing that the representation was false or that he did not know whether it was false; The builder made the representation with the intent that the plaintiff would rely on the representation; The plaintiff justifiably relied on the representation, which caused the damages. Breach of Fiduciary Duty The defendant was acting as a fiduciary of the plaintiff; The defendant breached a fiduciary duty to the plaintiff; The plaintiff had damages, and; The defendant s breach of fiduciary duty was a cause of the plaintiff s damages. Theories of Liability Asserted by Developers against General Contractors Breach of contract; Breach of express warranty; Negligence; Contractual indemnification, and; Common law/implied indemnity. Contractual Indemnification An undertaking whereby one party agrees to pay the loss or damages incurred by another; In the construction defect context, indemnity claims typically arise from subcontracts which require the subcontractor to protect the general contractor or developer from construction defect claims arising out of or relating to their work; Triggered by a valid tender; Reasonable notice of action and opportunity to participate in the defense; Must look to the language of contract, and; Duty to defend broader than duty to indemnify. Contractual Indemnification- Type I (Broad Form or Specific) Under a Type I indemnity agreement, a general contractor requires its subcontractors to indemnify it from any loss resulting from the general contractor s active or passive negligence as well as that of the subcontractor. Contractual Indemnification Type II (Moderate Form) Under a Type II indemnity agreement, a general contractor may require its subcontractors to indemnity it from any loss resulting from the general contractor s passive negligence and the subcontractor s active or passive negligence.

4 Contractual Indemnification Type III (Narrow Form or General) Under a Type III indemnity agreement, a general contractor may require its subcontractors to indemnity it only from any loss resulting from the subcontractor s active or passive negligence. Common Law/Implied Indemnification An equitable right under which the entire loss is shifted from a tortfeasor who is only technically or passively at fault to another who is primarily or actively responsible. Theories of Liability Asserted by General Contractors Breach of contract, including failure to defend; Breach of express warranty; Negligence; Contractual indemnification, and; Common law/implied indemnity. Theories of Liability Asserted Against and Defenses Asserted by Design Professionals Breach of contract; Professional negligence; Indemnification, and; Common law/implied indemnity. Defense - Failure to construct in accordance with design. Defense - Limitation of liability. Defense - Failure to obtain a certificate of review. Differences Between Joint and Several and Apportionment of Fault Joint and Several Liability: The owner can sue one or all and recover the entire amount of damages from any of them, individually Apportionment of Fault: Each defendant is only liable for the damages caused by its negligence. A jury or judge is asked to apportion fault, so they determine the percentage of negligence causing damage among the plaintiff, all defendants, and designated nonparties. Comparative Negligence and Assumption of the Risk as a Defense Under the comparative negligence doctrine, negligence is measured in terms of percentage, and any damages awarded to a homeowner are reduced in proportion to the amount of negligence attributable to the homeowner.

5 Statutes of Limitation and Repose Statutes of Limitation Statutes of limitations extinguish, after a specified period of time, a person s right to prosecute an action after it has accrued. Accrual of Actions/Discovery Rule Construction defect claims are typically deemed to have accrued at the time the claimant, or his or her predecessor in interest, discovers or should have discovered, in the exercise of reasonable diligence, the physical manifestation of the defect. Statutes of Repose: Limit the time during which a cause of action can even be brought, regardless of when a claim arises. Cut off the right to bring an action after a specified period of time measured from the completion of the work, regardless of when the cause of action accrues. Other Commonly Asserted Defenses Standing to Sue The party has sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy. In order to have standing, a plaintiff must have a legally protectable and tangible interest at stake in the litigation. Standing is a jurisdictional issue which concerns power of courts to hear and decide cases and does not concern ultimate merits of substantive claims involved in the action. The doctrine emanates from the case or controversy requirement of the Constitution. Condominium acts regulate the creation of condominiums and, typically, HOAs assert claims related to common areas, whereas each individual unit owner asserts claims related to each individual unit. HOA declarations, statutes, and cases define where a unit ends and the common area begins. Notice of Claim / Right to Repair Statutes Alternative dispute resolution or right to repair by developer or general contractor may be a prerequisite to filing suit particularly in residential projects. Economic Loss Rule A party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law. Patent Defects Typically, a builder s duty of reasonable care extends to subsequent purchasers to the extent that the defects of which they complain are latent, i.e., they were not reasonably observable when they purchased the home. To the extent a subsequent purchaser

6 complains of patent defects, i.e., those which are open and obvious, the owner will not be able to recover. Economic Waste In situations where an owner argues for cost of repair damages, where the repairs will have no practical effect on a property, defendants often argue that such repairs would constitute economic waste, and that damages for those repairs should not be awarded. An example would be the cost of repair to fix a technical building code violation which does not impact the performance of a building. Betterment Typically, owners are entitled to an award of damages sufficient to repair a defect, but not to put the property in a better condition. In situations where the owners argue for repairs which go above and beyond the quality of original construction, defendants will argue that the owners are not entitled to damages which allow them to better their properties. Anti-Indemnification Statutes The legislatures in numerous states have enacted anti-indemnification statutes making void as against public policy Type I and Type II indemnification agreements. In some cases, indemnification can only extend to the subcontractor s own negligence - in some states, this restriction applies to AI coverage as well. Failure to Mitigate The doctrine of mitigation of damages imposes on the homeowner the duty to exercise reasonable diligence and ordinary care in attempting to minimize the damage to his or her home caused by construction defects. The diligence and care required of the homeowner is the same as that which would be used by a person of ordinary prudence under like circumstances. Disclaimer of Implied Warranties In some states, builders and/or developers are able to disclaim implied warranties so long as the language in the purchase and sale agreement is clear, unambiguous, and sufficiently particular to provide adequate notice of the implied warranty protections being relinquished by the owner. Nonparty Liability Typically, no defendant should be liable for an amount greater than that represented by the degree or percentage of the negligence or fault attributable to such defendant that produced the claimed damage. In order for a nonparty s fault or negligence to be considered, the nonparty must not only be properly designated, but that person or entity must have owed a legal duty to the plaintiff/claimant the defending party must present evidence of the designated nonparty s liability.

7 Spearin Doctrine If a contractor is bound to build according to plans and specifications prepared by, or on behalf of, the owner, the contractor will not be responsible for the consequences of defects in the plans and specification. Recoverable Damages Cost of Repair; Consequential damages/loss of use; Non-economic damages; Stigma/diminution in value damages; Punitive damages; Attorneys fees (by statute or contract); Litigation costs, and; Pre-judgment and post-judgment interest. Janet S. Wells, Esq. Ray Lego & Associates 6060 S. Willow Drive, Suite 100 Greenwood Village, CO Direct dial: (720) [email protected] David M. McLain, Esq. Higgins, Hopkins, McLain & Roswell, LLC 100 Garfield Street, Suite 300 Denver, CO Direct Dial: (303) Facsimile: (303) [email protected]