Construction Defect Damages
One reform sought by those who passed the Construction Defect Action Reform Act ("CDARA") was to limit the damages available to claimants. It is important for all parties to construction projects to understand those limits when assessing the risk and reward of construction defect litigation.
What Damages are Recoverable?
The CDARA statute provides "a claimant shall not recover more than actual damages in an action." More on "actual damages" below. There is an exception. A claimant can recover treble (triple) damages and attorney fees if they can prove a violation of the Colorado Consumer Protection Act ("CCPA") and the contractor's offer to remedy was less than 85% of the amount ultimately awarded by the court or jury or the contractor failed to provide an offer to remedy.
However, violation of the CCPA is difficult to prove. First, the claimant must prove that the contractor engaged in a "deceptive trade practice" that significantly impacts the public as actual or potential consumers of the contractor's services. The first requirement is easier to prove as the statute provides a laundry list of acts that constituted a "deceptive trade practice." The second is much more difficult. This requires an analysis of the number of consumers directly affected, the relative sophistication and bargaining power of consumers, and previous and future impact. This "public impact" element is where most CCPA claims fail. CCPA claims are often asserted but rarely the basis for recovery.
Even then, CDARA caps the the tremble damages and attorney fees at $250,000.
What Damages are Restricted?
CDARA specifically restricts damages that arise "from failure to construct an improvement to real property in substantial compliance with an applicable building code or industry standard" unless the claimant suffers actual losses. In other words, there must be an actual loss as opposed to a technical violation of a code or standard for the claimant to recover.
What are Actual Damages?
CDARA limits claimants to "actual damages." The statute defines "actual damages" as the lesser of (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. For instance, if instead of installing copper piping throughout the property the contractor installed PVC piping, the damages would be the lesser of the reduction in the value of the home resulting from the use of the wrong piping, the replacement value of the home with the wrong piping, or the cost to remove and replace all of the piping throughout the home. Almost certainly the first damage category would be the least in this situation. The claimant only need prove one of these three categories of damage. It is up to the contractor to present evidence that another category would be lower.
Actual damages also include relocation costs, loss of use (if residential), and interest and attorney fees (if provided by contract or separate statute).
Are Pain and Suffering/Non-Economic Damages Available?
Yes. CDARA permits the recovery of personal injury damages. Actual damages for personal injury resulting from a construction defect mean "those damages recoverable by law." That essentially means all damages recoverable in a personal injury action are recoverable, which includes noneconomic damages. The statute specifically references noneconomic damages and incorporates the following definition: "'Noneconomic loss or 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."
There are limits. The damages must be foreseeable and the "proximate result" of the defect. The more attenuated the connection between the defect and the noneconomic damages the more difficult it will be for a claimant to recover those damages.
And, like treble damages, CDARA caps noneconomic damages at $250,000.