Colorado Contractor May be Awarded Damages for impairment of Bonding Capacity
In Denny Const., Inc. v. City and County of Denver ex rel. Bd. of Water Com'rs. (1/09), a case of vital importance to contractors, the Colorado Supreme Court speaks to the issue of whether or not damages for impaired bonding capacity are recoverable, and by what standard such damages may be proved.
Denny Construction, Inc., (Contractor) was the successful bidder and was awarded a contract by the Denver Board of Water Commissioners (“Board”) to build a new headquarters building for the Board. During the course of construction, the contractor asked for extensions of time to complete the contract due to bad weather. The Board denied the extensions and ultimately declared the Contractor in default of the contract. As a result of the claimed default, Contractor’s surety reduced Contractor’s bonding capacity and later refused to underwrite bonds for the Contractor at all. Further, Contractor could not obtain bonds from another surety, which prevented Contractor from bidding on future public works projects-- about one-half of Contractor’s business.
In a suit brought by a subcontractor against Contractor and the Board, seeking payment for work performed on the project, Contractor filed a cross-claim against the Board requesting damages for breach of contract and other legal theories. After the subcontractor settled its case, the jury found in favor of Contractor and against the Board on Contractor’s breach of contract claims, and awarded damages of $845,000 for lost profits. On appeal, the Colorado Court of Appeals reversed the verdict, holding that lost profits because of impaired bonding capacity are “speculative as a matter of law,” and that in any event damages for impaired bonding ability “were not reasonably foreseeable” because there was no evidence that the Board actually knew that Contractor would lose profits if its bonding capacity were impaired.
The Colorado Supreme Court agreed to hear the case and reversed the court of appeals, holding (1) that lost profits due to impaired bonding capacity, like all claims for lost profits, are not speculative as a matter of law, but need only be proved with reasonable certainty, and (2) in order to prove lost profits, the plaintiff/contractor need not prove that the owner/defendant subjectively knew that the contractor would suffer lost profits due to impaired bonding capacity, but whether the owner/defendant knew or should have known that such loss would probably occur.
