The Colorado Court of Appeals recently handed down an opinion clarifying when the knowledge of a general contractor can be imputed to a developer. In the case of Jehly v. Brown, 327 P.3d (Colo. App. 2013), the Court of Appeals held 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 this case, Brown, the developer, owned real property in Teller County and hired a general contractor to build a single-family house. Sometime before or during the construction, the general contractor became aware that part of the home site was located in a designated floodplain. Although the general contractor was aware that part of the home site was located in a floodplain, he continued to build the home without informing Brown of the floodplain designation.
Once the home was complete, Brown sold the property to the Jehlys. Brown completed a Seller’s Property Disclosure Form regarding the condition of the house and property, but failed to identify that the home site was located in a governmentally designated floodplain.
Approximately five years after purchasing the home, heavy rains caused severe flooding and damage to the basement. The Jehlys sued Brown for fraudulent concealment, alleging that he fraudulently concealed knowledge of the floodplain in order to entice the Jehlys to purchase the property. The Jehlys asserted that the general contractor’s knowledge that the home site was located in a designated floodplain should be imputed to Brown. The trial court ruled in Brown’s favor, finding that the Jehlys failed to show Brown had any actual knowledge that the home site was located in a floodplain.
On appeal, the Court of Appeals upheld the trial court’s ruling that the general contractor’s knowledge cannot be imputed to Brown to support a claim of fraudulent concealment. The Court of Appeals in its ruling stated that “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.” Id. The Court further added “when an agent has information that he has a duty to disclose, the principal may be liable except where actual knowledge is important.” Id.
It is important to note that while the Court held that a general contractor’s knowledge cannot be imputed to a developer in the context of a fraudulent concealment claim, this result would not follow for causes of action that lack an actual knowledge requirement. A court could impute the general contractor’s knowledge to a developer under a negligence based claim or other claim where actual knowledge is not required. Therefore, it is important for developers to stay apprised of such information and not merely turn a blind eye in hopes of claiming they didn’t have actual knowledge.
To learn more about the Jehly v. Brown decision or for additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.