By John Rebchook, Rocky Mountain News — July 13, 2005

A Colorado Supreme Court decision provides a major victory to homeowners by allowing them ability to sue subcontractors for construction defects caused by negligence, said Denver attorney Cass McKenzie, who won the case.

But Ryan Williams, one of the many attorneys on the other side, said the ruling will “have a pretty profound negative impact” on the home-building industry.

He said the decision will ultimately drive some subcontractors out of business and increase insurance costs for framers, plumbers, electricians, carpenters and other subcontractors. Those costs will be passed on to buyers, said Wiliams, a lawyer at Messner & Reeves, which represented one of the subcontractors in the case, A.C. Excavating.

The subcontractors were sued by the Yacht Club II Homeowners Association, which charged that the subcontractors were responsible for a host of building defects.

In the decision, handed down on June 26, the court ruled that subcontractors, as well as builders, “owe homeowners a duty of care, independent of any contractual obligations, to act without negligence in the construction of homes.”

“This is important because builders don’t actually build homes,” said McKenzie, principal of McKenzie Rhody & Hearn, a law firm that specializes in residential defect litigation. Instead, builders subcontract the work to framers, carpenters, electricians, plumbers and others.

“Homeowners typically not only don’t have contracts with the subcontractors, but they played no role in negotiating the contract between the builder and the subcontractors,” McKenzie said.

McKenzie said with this ruling, the court rejected what is known as the “economic loss rule,” which generally limits homeowners’ remedies to those specified in limited warranties or contracts between the builders and the subcontractors. “Those contracts typically provide limited remedies to homeowners,” he said.

“The court also ruled that homeowner associations can bring negligence suits on behalf of the homeowners,” McKenzie said.

“So if you have 100 condo units in a project, you don’t need to file 100 individual suits, or file a class-action lawsuit,” he said, because the association can file one suit on behalf of all of the owners.

Dennis Polk, a partner with Holley, Albertson & Polk, in Golden, who has represented builders and homeowners in construction defect cases, said he doesn’t think the decision will have a huge impact.

“On a scale of one to 10, with 10 being revolutionary and one being ‘so what?’ I’d give it a four. But it is good lawyering,” he said.

Polk said the decision won’t mean more lawsuits will be filed. But he said the three or four firms in the Denver area that specialize in construction defect litigation, will “jump on this as a model” and start going after the subcontractors, in addition to builders.

However, he said that usually when a builder loses a construction defect case, its insurance company already goes after subcontractors.

By John Rebchook, Rocky Mountain News July 13, 2005