The Colorado General Assembly determined that "changes in the law are necessary and appropriate" concerning construction defect claims. As such, they passed the Construction Defect Action Reform Act, or "CDARA" - C.R.S. 13-20-801, et seq.
Notice of Claim Process.
The CDARA statute imposes a formal "notice of claim process" that must occur before litigation may commence. More on the notice of claim process here. The goal of the notice of claim process was to create a pre-litigation dispute resolution process aimed at reducing construction defect litigation. That goal has not really been met. Often when a contractor disagrees with the defect claim, it simply ignores or rejects the notice of claim with little downside risk. Conversely, the notice of claim process can be abused to interminably stay litigation.
Limiting Recovery to "Actual Damages."
CDARA specifically prohibits defect claims "if such claim arises from a failure to construct an improvement to real property in substantial compliance with an applicable building code or industry standard" (in other words, all defect claims) unless there are "actual damages," loss of use, bodily injury, or risk thereof. The statute then defines "actual damages" as the least of (1) "fair market value of the property without the alleged construction defect," (2) "the replacement cost of the real property," and (3) "the reasonable cost to repair the alleged construction defects." Actual damages also include loss of use and relocation economic losses.
The CDARA statute is clear that it is "not intended to abrogate or limit the provisions of any express warranty or the obligations of the provider of such a warranty." More on warranty claims here. Warranty claims are often the quickest and easiest path toward resolution.
Colorado Consumer Protection Act.
There is one exception to the limitation to "actual damages" - the Colorado Consumer Protection Act ("CCPA"), which provides treble (triple) damages and attorney fees when a contractor has engaged in a "deceptive trade practice." First, it is important to note that CCPA claims are amongst the most over-pleaded claims in Colorado. Additionally, in order to prevail on a CCPA claim, the claimant must demonstrate "public impact." The alleged "deceptive trade practice" must be so pervasive that the public at large is in jeopardy.
Even then, CDARA limits the availability of this remedy. A CCPA claim is only available when (1) the contractor's monetary offer during the notice of claim process is less than 85% of the amount of actual damages or repair costs ultimately awarded, (2) the contractor fails to comply with the offer to remedy, or (3) the contractor simply fails to respond the notice of claim. Even then, the statute caps the CCPA treble damages and attorney fees at $250,000. This is the only downside risk to contractors resulting from the failure to meaningfully engaged in the notice of claim process, which is why many notices of claim are ignored or outright rejected.