Court Decision May Impact Damages Awarded in Construction Defect Cases Involving Associations
On October 6, 2008 the Colorado Supreme Court rendered a decision which may have a material impact on the calculations of damages in construction defect cases involving associations. The Supreme Court in Goodyear Tire & Rubber Company v. Holmes Case No. 07SC263 stated that pre-judgment interest may be awarded not from the date the injury occured but rather from the date the association incurred a reduction in value of their property or the date the association made the repairs.
Prior to this ruling, prejudgment interest on damages had been calculated from the date of substantial completion of the improvements in an association. This enabled associations to be awarded prejudgment interest on damages prior to the date the defects were discovered. Under this case, prejudgment interest is limited to the date the property was "wrongfully withheld" or the time the association made repairs. In the case of associations, this may not be until the notice of claim is sent or when their is a reduction in value of the property, which includes a reduction in value as a result of the defect case reducing the value of the Unit. This could mean that up to two years or more of prejudgment interest may no longer be available to a prevailing party in a construction defect case. Associations must now consider the timing of filing a construction defect action in so as to minimize the impact on the owners while maximizing the potential recovery in a construction defect act.