Colorado Senate Bill 13-052 Dies in Committee

On April 17, 2013, the Colorado Senate Judiciary Committee voted, along party lines, to postpone indefinitely SB 52. Here is a link to the Denver Business Journal's story regarding the bill and its untimely demise: "Lawmakers kill lawsuit limits on condo defects."

Unfortunately, it will be at least another year before the legislature will have the ability to provide some much needed relief to the Colorado construction industry. I would like to thank those who came out to support Senate Bill 52 and those who contacted legislators to urge their support. As noted by the Denver Business Journal, "[Senator ] Scheffel is a resilient legislator — this is the man who's brought bills pushing some form of business personal property tax relief for five straight years — and you can bet he'll be back with some effort at limited construction-defects tort reform next year." 

Until then, please feel free to contact me by e-mail at mclain@hhmrlaw.com or by telephone at (303) 987-9870 if you have any questions regarding construction law in Colorado. 

- David M. McLain

Update on Colorado Senate Bill 13-052

Here is an update regarding SB 52 from Amie Mayhew, Executive Director of the Colorado Association of Home Builders:

Yesterday, the Senate Judiciary Committee heard the proponents testimony on SB-52.  Because the Senate was due back on the floor by 5:00 they were not able to hear all of the opponents or to deliberate.  

SB-52 has been scheduled for tomorrow, Wednesday, April 17th at 1:30 p.m. In room 356 – the Committee will hear from the rest of the opponents and will then vote on the bill.  If you can't join us at the Capitol, you can listen to the hearing online by clicking here.  When you arrive on this page after 1:30 p.m. - you'll need to click on "Listen to Event."  

A huge thank you to all of the witnesses who testified in favor of SB-52 for us yesterday!  

• Mayor Marc Williams, Arvada
• John Covert, MetroStudy
• Tom Clark, Metro Denver Economic Development Corp., the Denver Metro Chamber of Commerce and C3, The Colorado Competitive Council
• Brittany Morse-Saunders – Downtown Denver Partnership
• Mike Fitzgerald – Denver South Economic Development Partnership
• Gary Frisch, Professional Independent Insurance Agents of Colorado
• Tony Milo - Colorado Contractors Association and Michael Gifford Associated General Contractors 
• Ken McLagan, Hyder Construction 
• Mike Wisneski and Kevin Eronimous – AIA Colorado
• Wendy Amann, American Council of Engineering Companies of Colorado, Allen Lisowoy, Colorado Association of Geotechnical Engineers, Andrew Kelsey, Structural Engineers Association of Colorado
• Mark Trenka – Colorado Association of REALTORS
• Chetter Latcham, Shea Homes
• Gary Godden, Godden, Sudek Architects 
• Chris Pressley, Meritage
• Eric Eckberg, Village Homes
• Rip Reid, Standard Pacific
• Tom Hall, Renaissance Homes
• Ryan Warren, Polsinelli Shughart 
• Dennis Polk, Holley, Albertson & Polk
• David McLain, Higgins, Hopkins, McLain & Roswell 

I believe that the names in bold are those witnesses who are members of the CAHB. I will provide an additional update after tomorrow's hearing. In the interim, please feel free to contact me with any questions you may have regarding Senate Bill 13-052 or construction litigation in Colorado. I can be reached by telephone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

- David M. McLain

Colorado Senate Bill 13-052 Has Been Scheduled for its First Hearing April 15th in the Senate Judiciary Committee

After a long wait, Colorado SB 13-52 has been scheduled for its first hearing in the Senate Judiciary Committee on Monday, April 15th at 1:30. The long delay in hearing was caused by a desire to wait for the release of a study to determine why there are so few construction professionals willing to build for-sale multi-family projects, particularly those along the Denver Metro Area's growing web of mass transit lines. Unfortunately, it appears as though there may be a wrench in the works with respect to this study, and it may not be forthcoming after all.  

As currently drafted Senate Bill 52 contains the following four parts:

Section 1 creates the "Transit-oriented Development Claims Act of 2013."

Section 2 institutes a right to repair for construction professionals that receive a notice of claim with respect to a construction defect in a transit-oriented development.

Section 3 institutes a binding arbitration requirement for claims against construction professionals with respect to transit-oriented development. This section also makes construction professionals immune to suit for environmental conditions including noise, odors, light, temperatures, humidity, vibrations, and smoke or fumes causally related to transit, commercial, public, or retail use.

Finally, with respect to construction defect actions in general, Section 4 clarifies that the 90-day tolling provision found within C.R.S. § 13-80-104 for third-party claims against downstream construction professionals tolls the running of the statute of limitation and the statute of repose applicable to those claims.

Current supporters of Senate Bill 13-052 include:

·       American Institute of Architects ·       Associated Builders & Contractors ·       American Council of Engineering Companies ·       Associated General Contractors of Colorado ·       Colorado Association of Geotechnical Engineers ·       Colorado Association of Home Builders ·       Colorado Association of Mechanical & Plumbing Contractors ·       Colorado Association of REALTORS ·       Colorado Civil Justice League ·       C3, the Colorado Competitive Council ·       Colorado Concern ·       Colorado Contractors Association ·       Denver Metro Chamber of Commerce ·       Denver South Economic Development Partnership ·       Denver Water ·       Douglas County Business Alliance ·       Downtown Denver Partnership ·       Hispanic Contractors of Colorado ·       Housing Colorado ·       Independent Bankers of Colorado ·       Independent Electrical Contractors of Colorado ·       International Electrical Contractors ·       Mayor Jim Gunning, Lone Tree ·       Mayor Bob Murphy, Lakewood ·       Mayor Marc Williams, Arvada ·       Mayor Heidi Williams, Thornton ·       Metro Denver Economic Development Corp. ·       Metro North Chamber of Commerce ·       NAIOP Colorado ·       Professional Independent Insurance Agents of Colorado ·       Rocky Mt. Chapter, National Electrical Contractors Association ·       Structural Engineers Association of Colorado

The Senate Judiciary Committee is made up of five members, including Senator Guzman, the Chairman, Senator Ulibarri, the Vice-Chairman, Senator Aguilar, Senator King, and Senator Lundberg. If you are available to come to support the bill on Monday, please make a point of it.

To learn more about SB 52 or construction litigation in Colorado, you can reach David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

Travelers v. Larimer County and the Concept of Covered Cause of Loss

Travelers Indemnity Company (“Travelers”) recently won a decision against Larimer County regarding a claim for damage caused to the roofs of several buildings at the County Fairgrounds.  Travelers Indemnity Company v. Board of County Commissioners for Larimer County, Slip Copy, 2013 WL 238865, p. 1 (10^th Cir. 2013).  Larimer County alleged, in district court, that snowstorms and the weight of the snow build-up caused damage to the roof structures.  Id.  After the district court found for Travelers on a motion for summary judgment, Larimer County appealed the ruling, claiming that Traveler’s was obligated under the insurance policy to pay for repair costs to portions of the roofing structure.  Id.

The underlying claim for repairs originates with several snowstorms that caused damage to several buildings on the County Fairgrounds.  The damage claimed was widespread to the roof structures, evidenced by rolling and buckling purlins (horizontal beams running along the length of the roof, resting upon the principal rafters at right angles and supporting the ordinary rafters).  Travelers denied the claim based on its own investigation which concluded the damage was caused by design and construction defects, and therefore excluded from coverage under the insurance policy.

The relevant language of Larimer County’s insurance policy with Travelers (the “Policy”) states that Travelers will “pay for direct physical loss or damage” to the property if that damage is “caused by or resulting from a Covered Cause of Loss.”  Id.  Covered Loss is defined in the Policy as “risks of direct physical loss unless that loss is excluded” by other provisions in the Policy.  Id.  The language of the defective construction exclusion states, “in the event that an excluded cause of loss . . . results in a Covered Cause of Loss, [Travelers] will be liable only for such resulting loss or damage.”  Id. 

The Court focused on the specific language providing that where “an excluded clause of loss -here, defective construction- “results in a Covered Cause of Loss,” any resulting loss is covered.  Id. at 2.  Essentially, even though a construction defect is not covered by the Policy, if that defect causes (or results in) a Covered Cause of Loss, and then that Covered Cause results in property damage, the resulting property loss is covered.  Id.  In effect, the exception provides for coverage only when the excluded cause becomes a new causal agent that itself causes resultant damage.  Id. 

In relation to the facts of the case, the Court found that while the defective condition of the roof may have acted as a causal agent to damage the purlins, the purlins themselves are not a Covered Cause of Loss resulting in additional damage.  Id.  Larimer County was only claiming a loss for the damage to the purlins, not that the damage to the purlins caused some other loss or property damage.  Id. 

The Court stated that the claimed damage was the displacement of the purlins and the unambiguous language of the exclusion precludes coverage.  The Court agreed with the district trial court and affirmed the summary judgment. 

To learn morTravelers Indemnity Company v. Board of County Commissioners for Larimer County case or about construction litigation in Colorado, you can reach Brady Iandiorio at (303) 987-9816 or iandiorio@hhmrlaw.com.

Colorado Oil and Gas Conservation Commission Approves New Setback Rules

The following comes from a recent Capitol Close-Up, a legislative update from Amie Mayhew, Chief Executive Officer - Colorado Association of Home Builders:

On February 11^th, the Colorado Oil and Gas Conservation Commission (“COGCC”) voted 8-1 to approve a new set of setback rules.  One substantive change is to the effective date in Rule 604, which will be August 1, 2013 rather than July 1, 2013. A brief summary of the rules as they impact CAHB members is below:

·                     Designated Setback Locations for Oil and Gas Locations will be 500 feet from building units, 1,000 feet from High Occupancy Building Units, and 350 feet from Designated Outside Activity Areas;

·                     Waivers are required from Building Unit owners within 500 feet of a proposed Oil and Gas Location in Urban Mitigation Areas.  If waivers cannot be obtained, the operator can seek a variance from the Director, and if not granted, have a hearing before the Commission;

·                     Rule 604(b)(2) exempts Existing Surface Use Agreements or Site Specific Development Plans;

·                     Rule 604(b)(3) exempts Surface Development after August 1, 2013 pursuant to a Surface Use Agreement or Site Specific Development Plan;

·                     Rule 604(c) Mitigation Measures will be required within Designated Setback Locations statewide.

CAHB also was persuasive in arguing for the inclusion of setback exception language (“grandfathering”) of Existing Surface Use Agreements or Site Specific Development Plans and for future Surface Development Pursuant to Surface Use Agreements or Site Specific Development Plans in the final Rules as adopted by the Commission in Rule 604(b)(2) and 604(b)(3).  COGCC staff did not include these two exceptions in their initial draft rules, and it was made clear that the inclusion of these exceptions was a result of CAHB’s efforts.  CAHB also succeeded in maintaining the exception for Existing Surface Use Agreements or Site Specific Development Plans as a mandatory exception through the use of the word “shall” rather than a permissive exception through the use of the word “may” as advocated by several parties and supported by some Commissioners.

Finally, CAHB, along with other parties and stakeholders, was influential in eliminating the consent requirement from adjacent land owners.  While waivers are still required in Urban Mitigation Areas, a variance process now exists, eliminating the veto power of adjacent land owners as the initial draft Rules had provided.

CAHB was extremely influential in both the stakeholder and the rule-drafting processes.  While firmly opposed to the setback distances, CAHB’s narrow definitions of High Occupancy Building Units in the 100 Series Definitions tied to other statutory definitions were incorporated, drastically reducing uncertainty in the application and impact of the 1,000 foot setbacks.

Please contact Amie Mayhew at the CAHB office with any questions or concerns you have.  Amie can be reached by phone at (303) 691-2242 or by e-mail at amie@hbacolorado.com.

Colorado HB 13-1090: Concerning Payment of Amounts Due Under a Construction Agreement

On January 17, 2013 Representative Fischer introduced House Bill 13-1090 into the Colorado House of Representatives. HB 1090 was assigned the House Business, Labor, Economic and Workforce Development Committee.

The bill, sponsored by Senator Tochtrop in the Senate, sets the following requirements for both private and public construction contracts:

• The owner and contractor must make regular progress payments approximately every 30 days to contractors and subcontractors for work actually performed.
• To receive the progress payments, the contractor and subcontractor must submit a progress payment invoice plus any required documents.
• A contractor must pass on the progress payment to the subcontractor within 5 days or by the end of the billing cycle.
• Interest accrues on unpaid progress payments.
• A contract may extend a billing cycle to 60 days, but the contract must duly warn of this.
• An owner or contractor may only retain 5% of each progress payment to ensure work is done properly.
• If a subcontractor's work is done before the whole project is done, the subcontractor may apply to be paid the retained 5%. The owner and contractor must pay the retainage if the work is done correctly and the subcontractor gives waivers and the proper documents.
• A person who retains from a payment must give the contractor or subcontractor a chance to cure the default.
• The owner and contractor must pay for changes made to the contract. If they cannot agree on the price, the person doing the work may bill monthly at cost plus 15% or terminate performance.
• A contractor or subcontractor is authorized to suspend performance after 15 days’ notice if the owner or contractor fails to make progress payments.
• After suspending performance, the contractor or subcontractor is obliged to resume work after being paid for the work and reasonable costs and interest.
• A contractor or subcontractor may not suspend performance if the failure to make a payment is due to a failure of the contractor or subcontractor or a dispute about the construction.
• The bill voids any provision in a construction contract that does not comply with these requirements.

There is a lot of opposition to the bill from within the construction industry, mostly framed as a dispute between general contractors, developers, and owners on one side and subcontractors on the other. The bill was originally scheduled for hearing this afternoon, but has been given late bill status and taken off of the calendar. It is my understanding that it was taken off the calendar so that an amendment could be drafted to remove public projects, with the hope of reducing the opposition to the bill.  

The Colorado Supreme Court holds that loans made to a construction company are not subject to the Mechanic’s Lien Trust Fund Statute

In a prior blog post, we summarized the Court of Appeals decision in the case of AC Excavating, Inc. v. Yale, ___ P. 3d. ___, 2010 WL 3432219 (Colo. App. Sept. 2, 2010) which provided an interpretation of the Colorado Mechanic’s Lien Trust Fund Statute, C.R.S. § 38-22-127 (hereafter “the Trust Fund Statute”).  A divided Court of Appeals reversed the trial court, and held that capital loans infused into a limited liability company which performed construction could be subject to the provisions of the Trust Fund Statute. 

The Court of Appeals reasoned that this determination was necessary because the statute was considered applicable to “all funds disbursed on a construction project.” Additionally, the Court of Appeals held that the intent of the provider of funds was not relevant, and that the statute applied “irrespective of the [originator of the funds]’s intended use of the funds.”

This decision was reviewed by the Colorado Supreme Court in an opinion released on February 4, 2013, and it reversed the Court of Appeals’ decision. See, Yale v. AC Excavating, Inc., ___ P. 3d. ___, 2013 WL 441895 (Colo. Feb. 4, 2013). The Supreme Court strongly disagreed that loaned or infused capital funds which were obtained by the general contractor entity were “funds disbursed on a construction project,” simply because some of the infused monies were used for operational purposes to pay down specific project obligations.  The Supreme Court held, contrary to the Court of Appeals, that only certain funds were subject to the constraints of the Trust Fund Statute and that capital loans were not included among such funds and sources of funds.

The Supreme Court’s decision was one of statutory construction applied to largely undisputed facts.  In holding that capital funds received or loaned to a contactor entity were not subject to statutory claims under C.R.S. § 38-22-127,  the Court stated that the Trust Fund Statute requires that contractors and subcontractors hold only certain funds in trust for payment of subcontractors, laborers, and suppliers.  The funds held in trust for those purposes are limited to all funds disbursed to any contractor or subcontractor under any building, construction, or remodeling contract on any construction project.  

This applied interpretation of the statute necessarily excluded any funds that were received to fund general operations of a construction company, as distinct from funds received in the usual course of payment for work performed in connection with construction.  The Supreme Court also held that the testimony of a company manager for the construction company concerning the purpose and source of the funds in question was proper evidence to be heard by the trial court.  The Court further held that a construction business does not hold all funds in trust, even where the company is generally in the construction business, has only a single project, and has only a single bank account for that project.

For additional information regarding the Yale v. AC Excavating case, mechanic’s lien claims in Colorado, or operation of Colorado’s Mechanic’s Lien Trust Fund Statute, you can reach Buck Mann by calling him at (303) 987-7143 or by e-mailing him at mann@hhmrlaw.com.