January 12, 2009

Loss-of-Bonding-Capacity Claims Are Back in Colorado

By Tim Gordon

Denny Construction v. Denver (Colo. 2009)

Reversing a Court of Appeals opinion, the Colorado Supreme Court holds that impaired bonding capacity claims are not speculative as a matter of law.  Instead, like all claims for lost profits, they must be established with reasonable certainty.  Far from finding such a claim speculative as a matter of law as the Court of Appeals did, the Colorado Supreme Court lends support for such a claim:

“At bottom, then, a reduction in bonding capacity indicates a reduction in responsibility, which, in turn, will impair a contractor’s ability to obtain public works contracts. This is not speculation; on the contrary, it is the intended function of the bonding system.”

As for the issue of foreseeability, the Court held that it does not matter whether or not the owner actually knew that the contractor would suffer lost profits due to impaired bonding capacity.  Instead, the question for foreseeability is whether the owner knew or should have known that such loss would probably occur.

Although the Colorado Supreme Court recited the evidence that supported the jury’s award of lost profits for impaired bonding capacity, the Court “d[id] not reach the question of whether the claim of lost profits was established with reasonable certainty in this case.”  So apparently the Court of Appeals will now have to decide on remand whether or not lost profits were established with the requisite certainty.  Thus, Denny Construction only stands for the general proposition that impaired bonding capacity claims are not speculative as a matter of law, and is of limited precedential value without a determination as to whether or not the evidence in Denny Construction was enough to actually establish a claim for impaired bonding capacity with reasonable certainty.

The opinion is at least a good example of why owners should include waivers of consequential damages in their construction contracts.

Download the slip opinion

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