## Facts

- The Town of Alma contracted with AZCO Construction, Inc. to improve the town’s water distribution system, including installation of new water mains and connections to existing service lines.
- The contract included express warranty provisions requiring AZCO to guarantee workmanship and materials and to repair defects that became evident within one year after substantial completion/final payment.
- After completion and expiration of the one-year warranty period, the Town discovered leaks in the system AZCO constructed.
- AZCO declined to repair, asserting the warranty period had expired; the Town paid for repairs and sought reimbursement.
- The Town sued asserting, among other claims, breach of contract, breach of implied warranty of sound workmanship, and negligence, seeking repair costs and related economic damages tied to the defective work.
- The trial court dismissed the negligence claim under the economic loss rule; the court of appeals affirmed; the Colorado Supreme Court granted review limited to the negligence dismissal.

## Issues

1. Whether the economic loss rule bars a negligence claim by a contracting party against its contractor when the alleged construction defects cause only economic loss related to the contracted-for work.
2. Whether the contractor owed the Town a tort duty independent of the parties’ contract that would permit recovery in negligence for repair costs.

## Decision

- The Colorado Supreme Court affirmed dismissal of the Town’s negligence claim.
- The Court held the Town’s alleged injury was purely economic and concerned defects in the subject matter of the contract (the water system).
- The duties allegedly breached were defined by, and arose from, the parties’ contract and negotiated warranties.
- Because no independent tort duty was shown on these facts, the Town’s remedies were confined to contract law rather than negligence.

## Legal Principles

- Under Colorado’s economic loss rule, a party suffering only economic loss from breach of a contractual duty may not recover in tort absent a duty of care independent of the contract.
- Contract law protects expectancy interests and enforces bargained-for risk allocation; tort law generally addresses duties aimed at preventing physical injury or damage to persons or property.
- Damage consisting of repair/replacement costs and related losses for defects in the contracted-for product or work constitutes economic loss when it does not involve personal injury or damage to other property.
- Express contractual warranties are part of the parties’ allocation of responsibility and remedies; tort claims cannot be used to obtain protections beyond what the contract provides without an independent tort duty.

## Conclusion

The Court held that where parties are in contractual privity and the claimed damages are limited to economic losses from defects in the contracted-for construction work, negligence is barred by the economic loss rule unless the plaintiff establishes an independent tort duty separate from the contract.


Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256 (Colo. 2000)