When Can A General Contractor’s Knowledge Be Imputed To A Developer?

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In construction litigation, one question that often arises is “Who knew what and when did they know it?” It’s an important point for clarifying responsibility for construction defects and remedying those defects. The term “impute” can come into play in these situations, particularly when one construction professional oversees another, as is the case with general contractors and developers.

To impute is “to ascribe to or charge (a person) with an act or quality because of the conduct of another over whom one has control or for whose acts or conduct one is responsible.”

In some situations, it is possible for a general contractor to become aware of a defect or of something that may cause a defect to form at some future date in time. The general contractor may choose to inform the developer of this potential problem, or he may not inform the developer. If the general contractor does not inform the developer, can the developer be held liable for the damages that arose to the property as a result of the defect or problem?

In other words, can the developer be held liable for the actions (or inactions) of the general contractor?

 

What The Courts Say

The Colorado Court of Appeals says No to that question. The Court handed down an opinion in 2013 that a developer cannot be held liable for fraudulent concealment when the developer has no actual knowledge of the fact or facts allegedly being concealed, even if the general contractor had knowledge.

In the case of Jehly v. Brown, the developer hired a general contractor to build a single-family home. During the course of construction, the general contractor discovered that part of the home site was located in a government designated floodplain, yet he continued construction and did not inform the developer, Brown, of the discovery.

The home was subsequently sold to the Jehlys and included a Seller’s Property Disclosure Form that did not identify that the home was in the floodplain. Five years after purchase, the home flooded resulting in damage to the basement. The Jehlys sued Brown for fraudulent concealment, asserting that the general contractor’s knowledge should be imputed to Brown. Both the trial court and the Court of Appeals ruled in Brown’s favor, finding that the Jehlys failed to prove that Brown had any actual knowledge that the home site was located in a floodplain.

The Court of Appeals stated, “in the context of a fraudulent concealment claim, knowledge of the information by the agent, when not communicated to the principal, is not deemed to be that of the principle” and “when an agent has information that he has a duty to disclose, the principal may be liable except where actual knowledge is important.”

 

Knowledge Can Be Imputed In Certain Circumstances

Even though the Court held that the general contractor’s knowledge could not be imputed to the developer in the context of fraudulent concealment, there are situations in which the developer could be imputed.

For instance, causes of action that lack an actual knowledge requirement could be imputed to the developer. This may occur under a negligence claim or another type of claim where actual knowledge is not required.

In light of this, developers have a responsibility to stay informed of any information that could affect the development. Ignoring the problem so as to claim the developer did not have actual knowledge is not a guarantee of protection from liability.

 

Defend Yourself Against Construction Defect Claims With Representation From Schlueter, Mahoney, And Ross, P.C.

If you have been named as a defendant in a construction defect lawsuit or if your property is suffering from a construction-related defect, contact the construction law attorneys at Schlueter, Mahoney, and Ross, P.C. to explore your legal options. Our firm has over 26 years of experience in Colorado construction law, including construction defect litigation and arbitration.

Contact a construction law attorney at Schlueter, Mahoney & Ross, P.C. (303) 292-4525, at our office, or by filling out the contact form on our Contact Us page.

Our construction law attorneys, Michael A. Schlueter, Elliot D. Fladen and JR Geraghty represent clients throughout Colorado, including Denver, Aurora, Broomfield, Boulder, Greely, Commerce City, Lakewood, Highlands Ranch, Littleton, Arvada, Westminster, Pueblo, Thornton, Colorado Springs, and Fort Collins.

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