The Subrogation Strategist

In Forest City Stapleton, Inc. v. Rodgers, 393 P.3d 487 (Colo. 2017), the Supreme Court of Colorado considered whether a home buyer needed privity of contract to pursue an implied warranty of suitability claim against a developer who sold a vacant lot to a professional builder. Finding that that warranty of suitability claims are contractual claims, the court held that the home buyer needed to be in privity of contract with the developer.

As stated in Forest City Stapleton, Forest City Stapleton, Inc. (FSC) created a master plan for a mixed-use development at a former airport site and sold vacant residential lots to home builders. Applicable to this case, FSC sold a vacant lot to Infinity Home Collection at Stapleton, LLC (Infinity), a company with whom Tad Rogers (Rogers) contracted to build a home. Rogers paid Infinity to include a basement in the home and the home, as constructed, included a foundation drain system.

After Rogers moved into the home, the sump pump discharged frequently. Upon investigation, Rogers allegedly discovered a high water table and calcite leaching from the recycled concrete aggregate base course used to construct the roads. According to Rogers, the high water table and calcite leaching made his basement uninhabitable. Consequently, Rogers sued FSC alleging, among other things, that FSC breached its implied warranty of suitability.  The jury found for Rogers on this claim. FSC appealed the jury’s finding and, eventually, the Supreme Court of Colorado granted certiorari to consider whether an implied warranty of suitability can exist between a developer who sells a vacant lot and a homeowner who is not the first purchaser of that lot.

As noted by the Supreme Court of Colorado, although Colorado courts have recognized both the implied warranty of habitability and suitability in the construction context, these warranties arise from contractual relationships between the parties. Recognizing this principle, the court held that, because Rogers was not in privity of contract with FSC, he was not entitled to pursue a claim against FSC for breach of the implied warranty of suitability. In support of its holding, the court noted that Infinity, not FSC, had superior knowledge and expertise with respect to building the basement at issue. Moreover, Infinity improved and finished the lot and sold both the house and the lot to Rodgers. Thus, the court stated that the policy rationale for imposing an implied warranty on FSC did not exist.

Based on the court’s analysis, going forward, subrogation professionals involved in construction defect cases will need to establish privity of contract in order to pursue claims against a developer based on a purported breach of the implied warranty of suitability.