Fraudulent Concealment Claims Require Actual, Rather Than Imputed, Knowledge

To prevail on a fraudulent concealment claim in Colorado, one must prove: (1) concealment of a material fact that in good conscience should be disclosed; (2) knowledge of the concealment by the party defending against the claim; (3) ignorance of the fact concealed by the party asserting the claim; (4) the defending party’s intent that the concealment be acted upon; and (5) action based on the concealment resulting in damages. Kopeikin v. Merchs. Mortg. & Trust Corp., 679 P.2d 599, 601 (Colo. 1984). Recently, in Jehly v. Brown, the Colorado Court of Appeals analyzed whether “imputed” knowledge can satisfy the knowledge requirement of a fraudulent concealment claim. Jehly v. Brown, 2014 COA 39 (Colo. App. Mar. 27, 2014). The Court determined that imputed knowledge is not adequate to state the claim.

The facts of the case were straightforward. Mr. Brown hired a contractor to build a house on his property. During construction, the contractor discovered that part of the property was located in a floodplain, but did not communicate that information to Mr. Brown. After the house was complete, the Jehlys and Mr. Brown entered into a contract for the Jehlys to buy the house. Mr. Brown did not make a direct statement in the contract regarding floodplain issues, and, instead, filled out the seller’s property disclosure form by writing “new construction” across every page. About five years after the purchase, the Jehlys’ basement flooded and they sued Mr. Brown claiming he fraudulently concealed that the house was built in a floodplain. The trial court ruled in Mr. Brown’s favor based on his testimony that he did not know the house was built in a floodplain.

On appeal, the Jehlys argued the trial court erred by not imputing to Mr. Brown the general contractor’s knowledge that the property was partially in the floodplain. The Court of Appeals rejected the argument concluding that fraudulent concealment must be based on actual, rather than imputed, knowledge. The court emphasized that the contractor was not a party to the buy-sell agreement and was not acting as the Defendant’s agent with regard to the sale. Rather, he was simply the builder of the house that was later sold.

Jehly confirms that, in fraudulent concealment claims, the defendants’ actual knowledge is crucial. Accordingly, when analyzing a potential fraudulent concealment claim, it is important to examine the evidence regarding the defendants’ actual knowledge. Also, to avoid such claims, or make recovery as easy as possible, contracting parties should work to include in the contract the representations and bases on which each party is entering into the contract.

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