For years, Colorado’s economic loss rule has not applied to residential construction and has not impeded the ability of homeowners to hold general contractors, subcontractors, design professionals, or other construction professionals accountable for negligent work.  Specifically, the Colorado Supreme Court has recognized an independent duty on the part of construction professionals to construct homes without negligence.

Senate Bill 25-125 seeks to correct a potential imbalance created by the Colorado Court of Appeals in the Appleby v. Dossey Sudik Structural Engineers, No. 23CA0008, 2023 WL 8798602 (Colo. App. Dec. 21, 2023) (unpublished), which held that the independent duty of care is owed only to subsequent purchasers, but not the first homeowner.  To accomplish this S.B. 25-185 would clarify that construction professionals owe an independent duty of care to both original and subsequent residential home purchasers.  This legislation is crucial for protecting homeowners and ensuring accountability within the construction industry.

The Economic Loss Rule and Its Consequences

The economic loss rule is intended to maintain the boundary between contract law and tort law. In Town of Alma v. AZCO Construction, Inc., 10 P.3d 1256 (Colo. 2000), the Colorado Supreme Court held that a party suffering purely economic loss from a contractual breach may not bring a tort claim unless an independent duty exists.  Thereafter, in A.C. Excavating v. Yacht Club II Homeowners Ass’n, 114 P.3d 862 (Colo. 2005), the Colorado Supreme Court recognized that construction professionals owe an independent duty of care to homeowners to construct homes without negligence.  The decision affirmed that claims for negligent construction could proceed despite the economic loss rule, because the duty owed to homeowners is independent of any contractual obligations.

Despite this precedent, the Colorado Court of Appeals, in the Appleby v. Dossey Sudik case, limited the independent duty exception, holding that any independent duty only applies to subsequent purchasers.  The court in Appleby misread Yacht Club II and wrongly concluded that the independent duty of care applies only to subsequent homeowners.  This ruling, which lacks precedential value, erroneously held that first-time purchasers cannot bring negligence claims against construction professionals due to the economic loss rule.  While Appleby did not directly overrule Yacht Club II, it has created confusion that S.B. 25-185 seeks to resolve.

Why S.B. 25-185 is Necessary

S.B. 25-185 seeks to restore fairness and accountability in the residential construction industry by explicitly stating that construction professionals owe an independent duty of care to both original and subsequent home purchasers.  This bill ensures that homeowners can seek recourse for negligence, against both the general contractor and downstream parties.

Introduced on February 27, 2025, by Senators Robert Rodriguez and Byron Pelton, the bill has been assigned to the Senate Judiciary Committee.  As of March 3, 2025, a hearing date has not yet been scheduled.  This bill explicitly clarifies that construction professionals, including subcontractors and design professionals, owe independent tort duties of care to construct residential homes in a non-defective and reasonable manner.  Crucially, it confirms that this duty applies equally to original and subsequent home purchasers, legislatively overturning Appleby and reaffirming the principle established in Yacht Club II.

Furthermore, S.B. 25-185 aligns with the intent expressed in C.R.S. § 13-21-111.5(6)(a), which states:

(I) It is in the best interests of this state and its citizens and consumers to ensure that every construction business in the state is financially responsible under the tort liability system for losses that a business has caused;

*          *          *

(IV) It is the intent of the general assembly that the duty of a business to be responsible for its own negligence be nondelegable;

*          *          *

(VI) The intent of this subsection (6) is to create an economic climate that will promote safety in construction, foster the availability and affordability of insurance, and ensure fairness among businesses;

(VII) If all businesses, large and small, are responsible for their own actions, then construction companies will be able to obtain adequate insurance, the quality of construction will be improved, and workplace safety will be enhanced.

These legislative findings reinforce the importance of S.B. 25-185 in ensuring that all construction professionals remain accountable for their negligence.  In order to carry out the stated legislative intent of making every construction professional financially responsible, in negligence, for the damage the business caused, it is only logical that a homeowner should be able to sue that business directly for its negligence.  The subcontractor or design professional should not be able to shield itself from liability based on the economic loss rule, which would contradict the fundamental principle that businesses must bear responsibility for their own negligent acts.

Key Reasons to Support S.B. 25-185:

Protecting Homeowners’ Rights – Under Appleby court’s interpretation of the economic loss rule, original homebuyers have no recourse, in negligence, against construction professionals.  S.B. 25-185 ensures that homeowners, regardless of whether they are the first or subsequent purchaser, have access to legal remedies for construction defects.

1. Encouraging Higher Construction Standards – If construction professionals know they can be held accountable for negligent work, they will be incentivized to adhere to higher standards.  This benefits the entire housing market by improving the quality and durability of homes.
2. Correcting Legal Inconsistencies – Cases like Yacht Club II recognized an independent duty of care, yet more recent rulings, such as Appleby, have put this protection into question for original purchasers.  S.B. 25-185 provides legislative clarity to ensure that all homeowners are protected equally.
3. Preventing Unfair Burdens on Homeowners – When a construction professional’s negligence results in costly repairs, homeowners should not be forced to bear the financial burden, or to seek recourse only from the party with whom they have contracted.  They should be free to sue the party that caused the damage, in negligence, regardless of whether they are the first or subsequent purchaser.  In short, S.B. 25-185 ensures that responsible parties are held accountable for the harm they cause.

 Conclusion

S.B. 25-185 represents a step forward in ensuring fairness and accountability in Colorado’s construction industry.  By clarifying that construction professionals owe independent duties of care to all homeowners, this legislation restores the ability of homeowners to seek justice when faced with construction defects.  The Appleby decision misread existing law and created unnecessary obstacles for homeowners — S.B. 25-185 will legislatively correct that mistake, ensuring that Yacht Club II remains the controlling precedent.  As the Appleby decision makes clear, Colorado courts have long struggled with the application of the economic loss rule in construction defect cases — this bill provides the clarity and consumer protection that homeowners deserve.  We urge lawmakers and industry stakeholders to support S.B. 25-185 to ensure that all homeowners have the right to hold negligent construction professionals accountable.