by Ken Robinson
In construction disputes, as in any civil litigation, the term “damages” means payment in money for a plaintiff’s losses caused by a defendant’s wrongful conduct. Damages may be compensatory or punitive, according to whether they are awarded as the measure of actual loss suffered, or as punishment for outrageous conduct and to deter future transgressions. Nominal damages are awarded for the vindication of a right where no real loss or injury can be proved.
Compensatory damages are awarded in order to make the injured party whole. Compensatory or actual damages consist of both general and special damages. “General” damages are presumed as the natural and necessary result of the defendant’s wrongful conduct, while “special” or consequential damages are the actual, but not a necessary, result of that conduct, and grow out of an unusual and particular circumstance.
In construction disputes, recovery may be sought on any number of legal theories, and the type of damages available may depend upon the particular theory asserted. Generally, a plaintiff may not receive a double recovery for the same wrong. However, when claims are merged into a judgment, the larger of the awards survives.
Ordinarily, recoverable damages may be subject to certain limitations that may limit or even bar recovery. These limitations generally fall into four categories: causation, foreseeability, certainty, and avoidance. The applicability of these limitations may depend upon the theory of recovery. For example, in disputes based upon allegations of breach of an express or implied contract, recovery may be limited by several factors. Under the Restatement (Second) of Contracts § 347, an injured party has a right to recover damages based upon his or her expectation interest, subject to limitations of avoidability, unforeseeability, and uncertainty. In addition, the injured party’s expectation interest is measured, in part, by any cost or loss avoided by not having to perform under the contract. Of course, such limitations may be varied by agreement of the parties. Following are the basic contours of damages.
Causation
Whether a claim sounds in contract or in tort, it is fundamental that, in order to recover damages, the defendant’s wrongful conduct must be the cause of the plaintiff’s injuries. For example, in Construction Specialties Co. v. School District No. 2, 483 P.2d 986, n.s.o.p. (Colo. App. 1971), the Colorado Court of Appeals overturned the trial court’s award of contract damages against the general contractor in favor of the owner because the evidence did not establish that the heat gain in the cold water line was the result of the manner in which the contractor insulated the pipes.
Foreseeability
Foreseeability is a limitation on recovery of general damages. The Restatement (Second) of Contracts provides, in part:
Section 351—Unforeseeability and Related Limitations on Damages
(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.
(2) Loss may be foreseeable as a probable result of a breach because it follows from the breach:
(a) in the ordinary course of events, or
(b) as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know.
In Olson Plumbing & Heating, Inc. v. Douglas Jardine, Inc., 626 P.2d 750, 752 (Colo. App. 1981), the Colorado Court of Appeals stated that “[a] contractor is responsible for the natural, probable, and reasonably foreseeable consequence of a failure to perform his contract, including any foreseeable damages caused by natural obstacles.” The court specifically held that it was foreseeable that pavement would settle as a result of the use of six-foot lifts in the construction of a pipe trench rather than twelve-inch lifts.
In Vanderbeek v. Vernon Corp., 50 P.3d 866, 870 (Colo. 2002), the Colorado Supreme Court described the differences in the standard of foreseeability in contract and in tort.
Under either a tort or a contract standard, the foreseeability of the consequences is a factor. However, the test derived from Hadley imposes a more restrictive foreseeability limitation. To be recoverable under the Hadley test, consequential damages must be so likely that “it can fairly be said” both parties contemplated these damages as the probable result of the wrong at the time the tort occurred. Under the tort standard, damages need only be reasonably foreseeable.
Certainty
Under the Restatement (Second) of Contracts § 352, damages are not recoverable for a loss beyond an amount that the evidence can establish with reasonable certainty. “Although an award of damages cannot be based on mere speculation or conjecture, once the fact of damages has been established with the requisite degree of certainty, uncertainty as to the amount of damages will not bar recovery.” In Tull v. Gundersons, Inc., 709 P.2d 940, 943 (Colo. 1985), the Colorado Supreme Court held that a plaintiff has the burden of proving the fact of damages by a preponderance of the evidence. Mathematical certainty is not required as to proof of the amount of damages. Rather, it is sufficient for a plaintiff to provide “[a] reasonable basis for computation and the best evidence obtainable under the circumstances of the case which will enable the trier of facts to arrive at a fairly approximate estimate of the loss.” A construction defect plaintiff need only provide the fact finder with a reasonable basis for calculating actual damages using the relevant measure.
Avoidance
Colorado courts have adopted the Restatement rule that any cost that a plaintiff has avoided by not having to perform under a contract is an element of the measure of damages that must be subtracted from that party’s loss. Restatement (Second) of Contracts § 347(c). In General Insurance Co. of America v. City of Colorado Springs, 638 P.2d 752, 759 (Colo. 1981), the Colorado Supreme Court observed that the costs of completion of a municipal project that were avoided must be included (as a reduction) in the damages calculation in a dispute.
If we can assist with any matters concerning issues involving construction damages, please contact Ken Robinson https://www.hbcboulder.com/ken-robinson or anyone on the HBC Construction Team https://www.hbcboulder.com/construction-law-litigation.