Friday, March 24, 2023

Colorado Legislature Considering Making it Easier to Prevail on CCPA Claims

House Bill 23-1192 (“HB 23-1192”) is one of the proposed bills making its way through the Colorado legislative session this year.  It purports to create additional protections in the Colorado Consumer Protection Act (“CCPA”), but instead threatens to put construction professionals at an increased risk during litigation.  Under the scope of the proposed bill, many construction contracts, as drafted, could automatically add up to $250,000 to any claim by lowering the standard for what constitutes an “unfair or deceptive trade practice.”  Further, it would remove elements of a CCPA claim currently required by law to prove that an unfair or deceptive trade practice “constitutes a significant impact to the public.”  This bill still has a way to go before becoming law, but given its progress thus far, we believe it is highly probable that it will be enacted unless there is substantial pushback.  For the reasons discussed below, we urge all construction professionals to take necessary action to obstruct this bill, and particularly Section 1 of the bill, from becoming enacted.

The most concerning proposed amendments to the CCPA, through Section 1 of the bill, do the following:

  • Remove the knowingly or recklessly mental state from the general unfair or deceptive trade practice provision concerning an unfair, unconscionable, deceptive, knowingly false, or fraudulent act or practice;
  • Establish as a deceptive trade practice the act of including in a contract offered to or entered into with a consumer a term that is substantively unconscionable or void as against public policy as of the time of the contract’s execution;
  • Establish that evidence that a person has engaged in an unfair or deceptive trade practice constitutes a significant impact to the public.

Why Should Builders or Insurers Care?

In a construction defect action, the remedy available to a plaintiff for proving that a defendant has violated the CCPA is three times the amount of actual damages (or “treble damages”) plus attorneys’ fees, not to exceed $250,000 (adjusted for inflation).  Under the CCPA, treble damages have been reserved for cases in which the evidence showed that the defendant engaged in “bad faith” conduct.  The Colorado Supreme Court has indicated that a CCPA violation requires proof that the defendant knowingly engaged in a deceptive trade practice.[1]  Colorado Court of Appeals panels have subsequently interpreted “bad faith” conduct to require an intent to deceive, or a finding that defendant knew or should have known its actions were deceiving.  In other words, there has always been a higher standard of proof for the defendant’s mental state.  One case in particular, Gen. Steel Domestic Sales, LLC v. Hogan & Hartson, LLP, 230 P.3d 1275, 1282 (Colo. App. 2010) explained: “it simply is inconsistent for the General Assembly to have included a practice with no subjective intent element under the category of deceptive trade practices” (holding that the General Assembly intended the CCPA deceptive trade practice of “bait and switch” advertising to include the element of intent to deceive, even though the subsection’s language did not expressly contain the word “intent”).  These cases have continuously held that the CCPA was always meant to require proof of intent, and that negligence or honest mistakes are insufficient to rise to the level of a CCPA violation and resulting treble damages.  This makes sense—if what is at stake is the higher punishment of treble damages, what is wrong with having a higher standard of proof for the required mental state?  This proposed bill, however, attempts to strip the CCPA of an elevated mental state standard while maintaining an elevated remedy.  It is critical that construction professionals and insurers push back on this change and reinforce the pragmatic principle that intent is the cornerstone of any unfair or deceptive trade practice for purposes of the CCPA.

The proposed bill, if passed, will allow for any provision of a contract entered into by, or even so much as offered to, a consumer, which contains a term that is substantially unconscionable or void as against public policy to be automatically established as a deceptive trade practice.  This alone will have widespread ramifications.  As one of many possible examples, this could even include any disclaimer of implied warranties in current residential construction contracts.  Though currently unenforceable in a court of law pursuant to the Homeowner Protection Act, the bill would go a step further and make inclusion of disclaimers of implied warranties in a residential setting automatic evidence of a deceptive trade practice, as it has already been determined to be void as against public policy.[2]  Therefore, any contract with such a provision would open up any case to a maximum of an extra $250,000 right off the bat.  The potential effect on what typically may have been perceived as lower-risk cases is staggering.  Any case in litigation would present an opportunity for plaintiffs to be awarded three times the amount of actual damages that a case is worth, plus attorneys’ fees, if able to prove that any term in a contract (which can often be lengthy) is “substantially unconscionable or void as against public policy.”  

To the extent that a contract contains a term or provision that is against public policy, there is already a remedy for the plaintiff in that it is unenforceable.  To the extent that the construction professional has misrepresented or failed to disclose a material fact, there is already a remedy for the plaintiff through the various Colorado statutes and case law addressing matters of negligent misrepresentation or nondisclosure.  To that end, it is also unclear what functional difference this bill would make between bringing a claim for a CCPA violation and bringing a misrepresentation or a failure to disclose claim.  Courts have held that “where the statement alleged to constitute a misrepresentation properly may be characterized as a contractual promise as opposed to tortious misrepresentation, the distinction between tort and contract law will be observed, and no claim will lie under the CCPA (Rhino Linings USA, Inc. v. Rocky Mountain Rhino Lining, Inc., 62 P.3d 142, 148 (Colo. 2003) (where promisor fails to perform mutually bargained-for and agreed-upon promise, remedy is action for breach)).  Although the CCPA was not intended to supersede contract law, this bill improperly attempts to broaden the CCPA’s scope which ultimately will just confuse the litigation process and blur the lines between tort and contract law.

We encourage construction professionals to fight against this proposed bill, especially Section 1, as it creates an unreasonable burden for construction professionals in attempting to draft contracts that simultaneously allow for fair and free enterprise and the ability to protect itself from unreasonable and frivolous lawsuits.

This third proposed change is counter-intuitive and runs afoul of “public impact” case law.  While it is certainly possible that some single transactions may have the potential for broader public impact, it would be antithetical to assert that all of a given category of single transactions necessarily constitute a significant impact to the public.  Numerous Colorado courts, including the Colorado Supreme Court, have scrutinized cases alleging CCPA violations involving single transactions in order to separate those that have already injured other consumers or have the “potential for repetition” to do so in the future, from those that are just “run-of-the-mill fraud claims” and affect only those involved in the transaction at issue.  Yet this bill seeks to broaden the scope of “public impact” to provide that any evidence that a person has engaged in an unfair or deceptive trade practice automatically constitutes a significant impact to the public.  Though supporters of this bill may argue that courts in other states have found a single transaction sufficient in this regard in order to, essentially, stop fraud before it has the opportunity to affect the public, it simply makes no sense that in order to prevail on a “public impact” claim, a plaintiff would not then need to prove actual or potential public impact.  The snowball effect of allowing what would typically be a single, private transaction to the otherwise uninvolved public could be immensely damaging in the long run for construction professionals.

Additional Considerations

Insurance carriers often do not include CCPA violations as part of their coverage in litigation matters.  Remedies for CCPA violations have been punitive damages for evidence of intentional wrongdoing, and therefore have fallen outside the scope of professional liability coverage offered to construction professionals for claims arising from work done on a construction project.  As described above, a relatively low actual damages case could open the door to treble damages automatically, and not having coverage for the vast majority of the awarded damages would be significantly damaging to each impacted construction professional on each affected case.

What can you do about it?

We urge you to immediately speak to your industry organizations, lobbyists, or anyone within your company that is in a position to speak out against this bill.  The potential impact to each and every construction defect action could be tremendously damaging.  The intended reach of this bill goes far beyond the intent of the Colorado Consumer Protection Act and its current threshold for what it takes to establish an unfair or deceptive trade practice.  If you want to protect your business from the potential of an extra, automatic $250,000 tacked on to every construction defect action, we urge you to act now.

For additional information regarding HB 23-1192, you can reach Rachael Bandeira at (303) 653-0043 or my e-mail at bandeira@hhmrlaw.com. 

[1] Crowe v. Tull, 126 P.3d 196, 204 (Colo. 2006).

[2] See, David M. McLain, “The Great Fallacy: If Builders Would Just Build It Right There Would Be No Construction Defect Litigation,” January 19, 2015, http://www.coloradoconstructionlitigation.com/2015/01/

Friday, February 24, 2023

Dave McLain included in the 2023 edition of The Best Lawyers in America

Colleagues and friends:

I am pleased to share with you that I have been recognized in the 2023 edition of The Best Lawyers in America for my work in construction law.  This honor comes as a surprise and is a testament to the dedication and hard work of my team at Higgins, Hopkins, McLain & Roswell, LLC.

As many of you know, my practice focuses on the defense of complex construction lawsuits on behalf of developers, general contractors, and other construction professionals.  I have been fortunate enough to work with some of the largest home builders and general contractors in the state and country, regional and custom builders, and numerous insurance carriers over the years.  Through these experiences, I have been able to gain valuable insights into the construction industry, and I am proud to be considered an expert in this field.

I would like to take this opportunity to thank my colleagues and clients for their trust and support. I am grateful for the opportunity to work alongside some of the best legal minds in Colorado and to represent some of the most reputable businesses in the construction industry.  I would also like to extend my congratulations to all the other attorneys who have been recognized in the 2023 edition of The Best Lawyers in America.  It is an honor to be counted among such a talented group of legal professionals.

Thank you all for your continued support and for making this recognition possible.

Sincerely,

David M. McLain

Wednesday, January 18, 2023

Monday, August 15, 2022

Anti-Concurrent Causation Endorsements in CGL Insurance Policies: A Word of Caution

While I have not performed exhaustive research into the origin of anti-concurrent causation (“ACC”) endorsements on insurance policies, or how or when they migrated from first-party property policies to commercial general liability (“CGL”) policies, they have done so.  The result for Colorado’s construction professionals may rear its ugly head as an unwelcome and surprise outright declination of coverage for construction defect claims.

ACC endorsements state that if there are two causes of damage: one of which is covered by a policy and one of which is not, the carrier can invoke the ACC endorsement to disclaim coverage for all of the damage.  An exemplar ACC endorsement is ISO Form CG 21 67, entitled “Fungi or Bacteria Exclusion.”  The pertinent language of the endorsement reads:

 This insurance does not apply to:

*          *          *

“Bodily injury” or “property damage” which would not have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any “fungi” or bacteria on or within a building or structure, including its contents, regardless of whether any other cause, event, material or product contributed concurrently or in any sequence to such injury or damage.  (Emphasis added) 

You can read the remainder of the article on the Colorado Builder Magazine website.

You can reach Dave McLain by telephone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com should you wish to discuss the potential impact of anti-concurrent causation endorsements in commercial general liability insurance policies or construction law in Colorado.

Monday, July 25, 2022

Municipal Ordinances Create Additional Opportunities for the Defense of Construction Defect Claims in Colorado

Municipal ordinances may provide additional defenses for construction professionals where state law does not provide sufficient protection for Colorado’s builders.  Colorado state law can be a minefield of potential liability for construction professionals.  Even though the state legislature has stated that it must “recognize that Construction defect laws are an existing policy issue that many developers indicate adds to for-sale costs,” the legislature has remained hesitant to provide any meaningful protection from construction defect claims, resulting in almost unlimited exposure for Colorado’s construction professionals. 

Given this background of state laws that do not go far enough in protecting Colorado’s construction professionals, it may be fruitful to review municipal ordinances for new defenses and to temper state law developments applicable to construction defect claims.  This is an area of law that is only just developing in Colorado.  In fact, the ordinances discussed in this article were only passed in the last two years with many cities only adopting the present versions of the ordinances in 2021.  The two model ordinances discussed below are potentially helpful in three ways.  The first model ordinance gives construction professionals a right to repair defects in the multi-family construction and in the common interest community context.  The second model ordinance is helpful in two ways.  First, it establishes that homeowners associations may not unilaterally circumvent ADR protections included in the original declarations for such communities.[1]  Second, the ordinance reduces the risk that strict liability will be imposed on a construction professional where a building code is violated.


1.                  Model Ordinance One: Durango, Colorado Code of Ordinances Sec. 6-151, et seq. – Builders have a right to repair alleged construction defects in common interest communities and multi-family construction claims. 

Unlike the Colorado Construction Defect Action Reform Act, C.R.S. § 13-20-801, et seq. (“CDARA”), which only gives contractors the right to offer a repair but does not give the contractor the right to make repairs, the Durango Code of Ordinances Sec. 6-151, et seq., gives construction professionals the actual right to repair alleged construction defects in a “unit in a condominium or in a multi-family building in a common interest community.”  The ordinance contains notice requirements akin to the CDARA notice of claim procedures with which a builder must comply.  If the construction professional adheres to the notice provisions, the ordinance states: “If the builder elects to repair the construction defect, it has the right to do so and the claimant may not, directly or indirectly, impair, impede or prohibit the builder from making repairs.”  A claimant may still bring a claim after repairs are completed but only if it “believe[s] in good faith that the repairs made do not resolve the construction defects.”  A construction professional should consult with an attorney before electing to invoke this right to repair since the performance of repairs could renew the statute of limitations and repose periods if the repairs are later found to be defective as claimants will argue that the statute of limitations and repose periods start anew, at least as to the repairs, and that they run from the date of the repairs rather than from the original construction of the condition and because the ordinance imposes of two-year warranty on repairs.  A construction professional wishing to avail itself of the right to repair afforded by the ordinance should also consult with an attorney to discuss the potential negative implications to its insurance coverage caused by the performance of repairs.

Durango is not the only municipality that adopted a right to repair in the multi-family context.  Wheat Ridge, Aurora, Broomfield, Centennial, Lone Tree, and Commerce City all have similar ordinances and others may follow suit.  This right to repair in multi-family construction and common interest communities is a trend of which to be aware on a statewide basis given that this model ordinance only began showing up in municipal codes over the past two years.


2.       Model Statute Type Two: Denver, Colorado Code of Ordinances Sec. 10.204 –   Unilateral amendments to declarations in common interest communities seeking to modify or eliminate an HOA’s ADR obligations are unenforceable. 

Denver Ordinance Sec. 10.204 is a straightforward ordinance that renders any unilateral attempt by a homeowners’ association to alter a declaration to modify or eliminate its ADR obligations unenforceable if the original declaration prohibited such alterations.[2]  Thus, if a declaration includes a binding and unalterable requirement that construction defect claims must be submitted to ADR, the Denver ordinance gives effect to the provision in the declaration and prohibits HOAs from shirking their ADR obligation.  To ensure enforceability, the ordinance even includes pre-approved language to be included in a declaration:

 

The terms and provisions of the Declaration requiring alternative dispute resolution for construction defect claims inure to the benefit of Declarant, are enforceable by Declarant and shall not ever be amended without the written consent of Declarant and without regard to whether Declarant owns any portion of the Real Estate at the time of such amendment.  BY TAKING TITLE TO A UNIT, DECLARATION REQUIRING ALTERNATIVE DISPUTE RESOLUTION OF CONSTRUCTION DEFECT CLAIMS ARE A SIGNIFICANT INDUCEMENT TO THE DECLARANT'S WILLINGNESS TO DEVELOP AND SELL THE UNITS AND THAT IN THE ABSENCE OF THE ALTERNATIVE DISPUTE RESOLUTION PROVISIONS CONTAINED IN THE DECLARATION, DECLARANT WOULD HAVE BEEN UNABLE AND UNWILLING TO DEVELOP AND SELL THE UNITS FOR THE PRICES PAID BY THE ORIGINAL PURCHASERS.

Denver, Colorado Code of Ordinances Sec. 10.204(1) (emphasis in original).

Developers wishing to enforce an ADR provision in a declaration should begin including language like the proposed language above if they have not already.


3.                  Model Statute Type Two (Part Two): Denver, Colorado Code of Ordinances Sec. 10.202 – Code violations not an independent basis for construction defect claims or negligence per se claims, nor may courts impose strict liability for a code violation.

The same ordinance discussed in Section 2, above, also expressly states that a violation of certain specified city building codes “or a failure to substantially comply with any such code may not be used to support or prove any construction defect claim, regardless of the statutory or common law theory under which the claim is asserted.”  There is an exception when a homeowner can show that the non-conformance with the code resulted in: (1) actual damage to real or personal property; (2) actual loss of the use of real or personal property; (3) bodily injury or wrongful death; or (4) a risk of bodily injury or death to, or a threat to the life, health, or safety of, the occupants of residential real property.

The ordinance states definitively that: “Under no circumstances shall a violation of any city building code [as set out elsewhere in the city ordinances], or a failure to substantially comply with any such code, support or prove a construction defect claim based upon a theory of strict liability, or under the common law doctrine of negligence per se.”  Where members of the plaintiffs’ bar regularly use certain Colorado case law, interpreting state law, to assert that builders are essentially subject to strict liability for violations of the building code, ordinances such as this one could be a valuable tool to rebut claims alleging strict liability and may force plaintiffs to fully prove their claim as they would have to with any claim for allegedly negligent construction.  Parker, Fort Collins, and Westminster have already passed similar ordinances.  As with the right to repair ordinances, these ordinances were only enacted over the past two years and lend support to the notion that municipal ordinances are a rapidly changing source of construction defect law.

Conclusion

While there is not yet a large body of municipal construction defect law on which defense attorneys can rely, and while we have yet to see cases challenging the application of local ordinances based on preemption by state law, recent developments in municipal law are encouraging and warrant continued review as local jurisdictions take part in the regulation of construction defect claims.  Where so many of the local jurisdictions discussed in this article have only adopted their construction defect ordinances in the past two years, it is reasonable
to conclude that more local jurisdictions may adopt useful regulations moving forward and construction defect attorneys should continue to monitor legal developments at the local level.

For additional information regarding local construction defect ordinances and their potential benefit to Colorado’s construction professionals, you can reach Ricky Nolen by e-mail at
nolen@hhmrlaw.com or by telephone at (303) 653-0042.

[1] This is a codification of the Colorado Supreme Court decision in Vallagio at Inverness Residential Condo. Ass’n v. Metro.  Homes, Inc., 395 P.3d 788 (Colo. 2017), which may remain in effect even if Vallagio were to be overturned.

[2] This also is a local codification of the Vallagio decision, which may remain in force should the Colorado Supreme Court later overrule Vallagio.

Monday, July 18, 2022

U.S. District Court of Colorado Interprets Insurance Policy’s Faulty Workmanship Exclusion and Exception for Ensuing Damage

Recently, the United States District Court for the District of Colorado interpreted a faulty workmanship exclusion in a property insurance policy in The Lodge at Mountain Village Owner Association v. Eighteen Certain Underwriters of Lloyd’s of London, 22 U.S Dist. Ct LEXIS 48883*, decided on March 18, 2022.  The Court held that the faulty workmanship exclusion at issue extended to preclude coverage for later ensuing damage that arose from the faulty workmanship, even though the damage was weather related, because faulty workmanship was the primary cause of the ensuing damage.

The claims in The Lodge at Mountain Village arose from maintenance work performed on log siding at three multi-unit condominium buildings in Telluride.  The maintenance work to the log siding included staining, finishing, and chinking repairs to joints between the logs.  About a year after completion of the work, The Lodge at Mountain Village Owners Association (“The Lodge”) notified the maintenance contractor that logs were extremely weathered and that its work was defective.  The Lodge retained an expert who prepared a report stating that the log finish and underlying wood was deteriorating because of the contractor’s work and that some areas were not properly protected from exposure to snow, rain, and brine from ice-melting salt.  The Lodge pursued and settled its claims against the contractor.

A year after filing suit against the contractor, but before settling those claims, The Lodge filed an insurance claim with its first-party property insurance carrier.  The insurance policy provided coverage for “All Risks of Direct Physical Loss or Damage except as hereinafter excluded.”  With respect to applicable exclusions, the policy stated that it did not insure against “the cost of making good defective design or specifications, faulty material, or faulty workmanship, unless physical loss or damage by a peril not excluded ensues and then this policy shall only cover for such ensuing loss or damage . . .”  The policy also excluded “ordinary wear and tear” and “gradual deterioration,” with the same language that “unless physical loss or damage by a peril not excluded ensues and then this policy shall only cover for such ensuing loss or damage.”  The insurance carrier denied the loss pursuant to the exclusions for faulty material, faulty workmanship, gradual deterioration, and ordinary wear and tear.  The Lodge then had its expert provide an additional report, which described damage that was due to the failed chinking sealant and that areas with failed chinking had increased moisture due to rain and melting snow events.  The Lodge provided this letter report to its insurance carrier and asked that it reopen the claim, describing the loss as damage that resulted from faulty workmanship, but noting that the damage ensued after the faulty workmanship.  The insurance carrier denied the claim a second time.

The Lodge then filed suit against its insurance carrier and the independent insurance adjuster that investigated the claim, asserting claims of breach of contract, statutory bad faith, and common law bad faith.  The parties agreed that the damage arose from faulty workmanship.  The question addressed by the Court was whether the ensuing damage was covered by the insurance policy.  The Lodge’s argument was essentially that the contractor did not cause the damage itself, but that it was caused by later moisture intrusion from rain and snow.  The Court noted that, though courts around the country have reached mixed results regarding ensuing damage caused by excluded perils, they all agree with the principle that “the exception cannot be allowed to swallow the exclusion.”  Therefore, the Court found that the cause of the damage claimed by The Lodge was the construction defect, not a later covered peril.  There was no dispute that the damage to the logs was caused by the contractor’s failure to properly seal the logs, which led to water penetrating behind them, which the Court found to have unambiguously fallen within the exclusion for faulty workmanship.  The court noted that, to read the policy as The Lodge requested, would have resulted in coverage for the very damage caused by the construction defect, which was excluded under the policy.  In other words, it would allow the exception to swallow the exclusion.

The Court went on to analyze whether the damage would similarly be excluded by the ordinary wear and tear and gradual deterioration exclusions.  The Lodge argued that the damage was due to moisture from rain and snow.  The Lodge had described such damage in its complaint and discovery responses as resulting from “slow, hidden, and repeated intrusion of water,” which was “slow and discrete,” and “gradual and progressive.”  Based on this description, the Court found that The Lodge’s argument that the damage was due to later rain and snow intrusion would similarly result in a lack of coverage for the damage because it would fall under the policy’s exclusion for gradual deterioration.

The Court also held that another basis to dismiss The Lodge’s breach of contract claim against the insurer was that The Lodge had failed to notify the insurer of the claim until at least 24 months after it discovered the damage.  The Court held that it was undisputable, as a matter of law, that The Lodge did not notify its insurance carrier of the claim within a reasonable time as required by the insurance policy.  Therefore, the Court dismissed The Lodge’s breach of contract claim for this additional reason.

Since the Court dismissed The Lodge’s breach of contract claim against its insurance carrier, there was no basis for its bad faith claims against the carrier as a matter of law.  This opinion upholds the U.S. District Court’s inclination to interpret insurance policy language strictly, and to not permit an insured to use an exception to an exclusion to serve as a means for the insured to get around an exclusion.  Also, it provides guidance to policyholders that damage arising from defective workmanship will not be covered where there is a faulty workmanship exclusion unless there is a subsequent loss legitimately caused by a covered peril.

For additional information regarding The Lodge at Mountain Village Owner Association v. Eighteen Certain Underwriters of Lloyd’s of London case, or Colorado construction law, generally, you can reach Carin Ramirez by e-mail at ramirez@hhmrlaw.com or by telephone at (303) 987-7140.

Monday, May 23, 2022

Colorado’s Workers’ Compensation Act and the Construction Industry

In general, issues relating to employment law occur in all industries. However, some issues are more likely to be raised in certain employment contexts. For example, office work environments tend to give rise to harassment and discrimination claims while wage and hour disputes and workplace safety claims are common in the oil and gas industry. In the construction industry, employers must be especially cognizant of discrimination and harassment claims, employee misclassification claims, workplace safety issues, and wage and hour claims. In the context of workers’ compensation claims, construction projects often create unusual situations due to the contractual relationships between the parties.

Even relatively simple construction of a single-family residence involves several levels of contracting, including between the owner and general contractor, between the owner or general contractor and design team, between the general contractor and subcontractors, and between the prime subcontractors and lower tiered sub-subcontractors. In most circumstances, this would not be an issue. However, when an injured worker makes a workers’ compensation claim, the contractual relationships among the various entities involved in a project can have a significant impact on which party or parties could be liable for the injury.

Under Colorado’s workers’ compensation scheme, an employee injured while performing services within the purpose and scope of his or her employment is entitled to receive compensation for any medical expenses and lost wages. See C.R.S. § 8-40-101, et seq. The purpose of this law is to ensure that the employee receives timely compensation without having to invest time and money into filing a lawsuit. To protect the employer, workers’ compensation is the exclusive remedy for the employee, provided the employer has workers’ compensation insurance and the injury is not intentionally self-inflicted. To further ensure the employee is compensated for an injury, Colorado provides any person or entity conducting business by contracting out work is considered a statutory employer and is liable for workers’ compensation. If the statutory requirements are met, workers’ compensation is the exclusive remedy for each statutory employer.

In a construction context, this workers’ compensation scheme can create issues for the various parties involved. If, for example, an employee of a plumbing subcontractor is injured by falling debris from the roof, the plumbing subcontractor, the general contractor, and the property owner would be statutory employers for the purposes of a workers’ compensation claim. Further, once the compensation claim is paid, the plumbing subcontractor, general contractor, and property owner would be protected from claims resulting from the injury, regardless of which entity paid the claim. This includes subrogation claims brought by a workers’ compensation carrier. However, subcontractors who are not in the same chain of contracting as the plumbing subcontractor could be sued for negligence and/or premises liability. In the example above, both the workers’ compensation carrier and the injured employee could sue the roofing subcontractor and any other subcontractor who may have been involved. The responsible subcontractors would not be able to seek contribution or indemnity from the plumbing subcontractor, general contractor, or property owner because of the protections afforded by Colorado’s Workers’ Compensation Act.

To protect themselves against workers’ compensation related claims, subcontractors must ensure that they have adequate insurance coverage for personal injury matters. If a subcontractor subcontracts out a portion of its scope of work, it must ensure that every entity in the chain of contracting has adequate insurance coverage. This requires more than simply requesting a certificate of insurance. The subcontractor may want to consider having an attorney or its insurance broker review the policy to ensure coverage is adequate or get an affirmative acknowledgement from the carrier that coverage exists. Otherwise, a subcontractor could discover that the entity which caused the injury does not have adequate coverage only after an incident occurs, thereby exposing the subcontractor to a potential claim.

For additional information regarding the effect of Colorado’s Workers’ Compensation Act on the construction industry, feel free to reach out to Jordan Kaplan by e-mail at kaplan@hhmrlaw.com or by telephone at (303) 987-9811.

Disclaimer

The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.