Damage Disclosure Update

June 1, 2014

By: Michael J. Dommermuth

Open Road, Colorado Automobile Dealers Association Newsletter

Colorado law requires dealers to make written disclosure of known material damage to a vehicle prior to a sale.  Failure to make proper written disclosure can constitute a deceptive trade practice subjecting a dealer to treble damages plus attorneys' fees.

The widespread use of CARFAX and other vehicle history reports has resulted in a considerable number of claims alleging failure to disclose.  Consumers are filing complaints with the Auto Industry Division ("AID") or filing lawsuits or demands for arbitration because of an alleged failure to disclose.  Often these complaints arise years after the sale when the consumer seeks to sell or trade in the vehicle.

A consumer complaint to the AID alleging a failure to disclose material damage can result in the AID conducting an audit of a dealer's transactions.  That audit would include a review of three months of transactions to determine if any of the vehicles sold had prior damage.  If the AID sees any evidence of prior damage in a vehicle history report, the AID investigators will contact the consumer to determine if disclosure was made.  Obviously, an audit and calls to consumers would be a very bad situation for dealers.

Dealers typically try to defend material non-disclosure claims by arguing that either the damage was not known to them or that the damage was not material.  Both defenses are problematic.  It is difficult to argue that the damage was unknown if it appears on a vehicle history report or the damage is easily detectible when the car is being reconditioned.  Likewise, the argument that the damage was not material is subjective.  Colorado case law establishes that the issue of materiality is a question of fact, which means virtually any damage is potentially material.  Because there is no clear definition of what constitutes material damage, there is always a risk that an arbitrator, judge, or jury can find even minor damage to be material.

We recommend that dealers provide customers with a current vehicle history report prior to the sale, and retain a copy with the customer's signature in the deal jacket.  The Colorado Auto Dealers Association provides a form for written disclosures of material damage that can be used in conjunction with a vehicle history report.  This form was prepared by Fairfield and Woods, P.C. attorney Michael Dommermuth, and can be obtained from CADA by calling (303) 831-1722.  By following this recommendation, you can comply with your obligations under Colorado law and avoid potential consumer claims.

This Article is published for general information, not to provide specific legal advice.  The application of any matter discussed in this article to anyone's particular situation requires knowledge and analysis by a lawyer of the specific facts involved.

Copyright 2014 Fairfield and Woods, P.C., ALL RIGHTS RESERVED.

Comments or inquiries may be directed to Michael J. Dommermuth.