Monday, October 10, 2016

Colorado Court of Appeals Defines “Substantial Completion” for Subcontractors’ Work so as to Shorten the Period of Time in Which They Can Be Sued

Over the past few years, there has been a battle raging on in district courts and arbitration hearing rooms throughout Colorado regarding when a subcontractor’s work is to be deemed “substantially complete,” for purposes of triggering Colorado’s six-year statute of repose.  C.R.S. § 13-80-104 states, in pertinent part:

Notwithstanding any statutory provision to the contrary, all actions against any architect, contractor, builder or builder vendor, engineer, or inspector performing or furnishing the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property shall be brought within the time provided in section 13-80-102 after the claim for relief arises, and not thereafter, but in no case shall such an action be brought more than six years after the substantial completion of the improvement to the real property, except as provided in subsection (2) of this section.

*          *          *

(2) In case any such cause of action arises during the fifth or sixth year after substantial completion of the improvement to real property, said action shall be brought within two years after the date upon which said cause of action arises.

C.R.S. § 13-80-104 (emphasis added).

As the battle raged on at the trial court level, subcontractors and design professionals argued that their work should be deemed “substantially complete” when they finished their discrete scope of work within a project.  Developers and general contractors, seeking to maintain third-party claims against the subcontractors and design professionals, typically argued either that the subcontractors’ and design professionals’ work should be deemed “substantially complete” upon the issuance of the final certificate of occupancy on the project, or upon the issuance of the final certificate of occupancy for the last building within a project on which the subcontractor or design professional worked.  Trial court judges and arbitrators have been split on this issue, with perhaps a slight majority favoring one or the other approaches advocated by developers and general contractors, that the subcontractors’ and design professionals’ work is “substantially complete” upon the issuance of the last certificate of occupancy in a project (the minority view) or upon the issuance of the last certificate of occupancy for the last building within a project on which the subcontractor of design professional worked (the majority view).

When the Court of Appeals analyzed this issue in 2012, in Shaw Construction, LLC v. United Builder Services, 296 P.3d 145 (Colo. App. 2012), it held that: “an improvement may be a discrete component of an entire project, such as the last of multiple residential buildings. Therefore, we need not resolve subcontractors’ argument that an improvement should be determined even more narrowly on a trade-by-trade basis.”  Id. at 154.  This case did not fully resolve the issue and the battle raged on at the trial court level, with more than a few judges and arbiters commenting in their orders on the issue that the Shaw decision was not particularly helpful in explaining the applicable law.

At the beginning of September 2016, the Colorado Court of Appeals again weighed in on the definition of “substantial completion” for work completed by subcontractors and design professionals in Sierra Pacific Industries, Inc. v. Bradbury, 2016 WL 4699116 (Colo. App. September 8, 2016).  In discussing this issue, the Court of Appeals noted:

Our prior decisions have recognized that, depending upon the circumstances, “substantial completion” of a project can occur by the time mechanics’ liens could be filed “after the completion of the building, structure, or other improvement,” or, in the case of subcontractors working on the last building in a condominium complex, when a certificate of occupancy was issued.

But as the division in Shaw pointed out, CDARA does not define “substantial completion.” In 1986, an amendment removed the prior definition, “the degree of completion of an improvement to real property at which the owner can conveniently utilize the improvement for the purpose it was intended.”  The legislative history does not explain the reason for this deletion.

Id. at *4 (citations omitted).

In settling this dispute, at least for the time being, the Court of Appeals ruled that “a subcontractor has substantially completed its role in the improvement at issue when it finishes working on the improvement.”  Id. at *5.

The obvious impact of this ruling will be that if substantial completion of a subcontractor’s or design professional’s work is to be determined under Colorado case law, the claims against the subcontractor or design professional will become stale before the owner’s claims against the developer or general contractor.  For this reason, there will be a gap in the risk management program, such that developers and general contractors will be left holding the bag with respect to liability to the owner.

In order to combat the risk of this occurrence, it would behoove developers and general contractors to include clauses in their subcontract agreements contractually defining “substantial completion” in such a way as to make it contemporaneous with the substantial completion of the developer’s or general contractor’s work on the project.  By doing so, developers and general contractors can prevent their claims against subcontractors and design professionals from becoming stale before an owner’s claims against them become stale.

To learn more about the Sierra Pacific case or to discuss updating your subcontract agreement to define substantial completion in such a way as to avoid the pitfall of the Sierra Pacific case, you can reach Dave McLain by telephone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

David M. McLain is a founding Member of Higgins, Hopkins, McLain & Roswell, LLC and is proud to have received the CLM designation as a Certified Litigation Management Professional.  When not representing Colorado’s construction professionals in construction defect litigation, Mr. McLain serves as a member of the Colorado Association of Home Builders’ Board of Directors, Executive Committee, and Government Affairs Committee, serving as the chairman of its Construction Defect Task Force.  In 2015, Law Week Colorado named Mr. McLain as the Barrister’s Best Construction Defects Lawyer for Defendants.

Thursday, September 22, 2016

Higgins, Hopkins, McLain & Roswell is looking for the next great associate attorney to add to our growing litigation team.

Higgins, Hopkins, McLain & Roswell, LLC is looking to add a new associate to our construction litigation and general casualty defense practice.  Our ideal candidate is one with three to five years of experience in the litigation of construction defect, personal injury, and/or general casualty claims.  We have a lot of trials and arbitrations on the calendar for the foreseeable future and we don’t expect to slow down any time soon, so we need an associate to participate in all facets of a busy litigation practice.

Instead of assigning new associates to the same, repetitive task in each case, we typically assign a new associate to a new file and mentor him or her on all aspects of that case as it proceeds through the initial investigation and pleading stages, written and testimonial discovery, motions practice and, eventually, trial or arbitration.  To be successful a candidate, you must be an optimist, well spoken, have exceptional research and writing skills, and be able to think on your feet.  Given that most of our files are document-intensive, you must also be very organized and detail-oriented.

To apply for the position, please send a cover letter, resume, and writing sample to our office administrator, Ms. Lauren Parks, Higgins, Hopkins, McLain & Roswell, LLC, 100 Garfield Street, Suite 300, Denver, CO 80206, or by e-mail at parks@hhmrlaw.com.

About HHMR:

Higgins, Hopkins, McLain & Roswell (“HHMR”) exists to embody and exemplify the principles of service and stewardship. In everything we do, we focus on serving our clients selflessly and to the best of our ability. In doing so, we always have in the forefront of our minds our obligation to act as the stewards of our clients’ trust, confidences, and resources.


HHMR is highly regarded for its expertise in construction law and the litigation of construction related claims, including the defense of large and complex construction defect matters. In addition to their construction law background, HHMR’s attorneys are well versed and experienced in tort, contract, property, and general casualty litigation ranging from products liability to personal injury and premises liability claims.

Saturday, July 23, 2016

David M. McLain to Speak at the CLM Claims College - School of Construction - Scholarships Available

I am happy to have been asked to serve as an instructor at this year's CLM Claims College – School of Construction, to be held at the Marriott Baltimore Waterfront in Baltimore, Maryland on Wednesday, September 7, 2016 through Saturday, September 10, 2016.

Overview of the 2016 School of Construction

Construction claims present  myriad complexities in claim handling. Construction defect lawsuits are often multi-party cases with cross claims and third-party claims between and among the numerous defendants. Insurance coverage is intertwined and complex due to the interplay of primary, excess, wrap, and additional insurers for the numerous defendants. All this is further complicated by statutes and regulations, inconsistent case law and procedural peculiarities throughout the United States. The economic stakes are high as the  damages claims can be in the multi-millions.

Competent construction claims handling requires an understanding of the distinct legal and practical  issues between commercial and residential claims. This is no place for the average adjuster and certainly no place for the adjuster who has not been properly trained.

The School of Construction will provide adjusters with the knowledge, tools, and understanding required to navigate these complex claims. Professionals seeking to expand their knowledge of construction risk concepts and seasoned professionals looking to move into construction claims are encouraged to attend.

Upon satisfactory completion of all three levels, graduates will receive the Certified Claims Professional (CCP) in Construction designation.


About the Claims and Litigation Management Alliance

The Claims and Litigation Management (CLM) Alliance is the only national organization created to meet the needs of professionals in the claims and litigation management industries. Founded in 2007, the CLM currently has more than 30,000 Members and Fellows — a number that grows by hundreds each month.


Scholarships Available

As an instructor, I have the ability to offer three scholarships (registration fee only) to industry professionals (insurance - risk, adjusters, claims, etc. and corporate) to attend Claims College.  In order to attend, you need not to be a current CLM Fellow – however you will need to register (at no cost) to receive the scholarship. If you are interested in attending, please let me know by August 1st so that I can put you in touch with the proper person at the CLM to register.  I look forward to the event and hope that there are folks out there interested in taking advantage of the scholarships.

About Me

I am a founding member of Higgins, Hopkins, McLain & Roswell, LLC, a firm which specializes in construction law and construction litigation throughout Colorado.  I completed the Claims and Litigation Management Alliance Litigation Management Institute, earning the designation from that organization as a Certified Litigation Management Professional and have a general civil litigation practice with an emphasis on the defense of complex construction lawsuits on behalf of developers and general contractors.  As a result of the experience gained by defending some of Colorado’s largest construction defect lawsuits, developers, general contractors, and subcontractors seek me out to consult on risk avoidance and risk management strategies.  In 2015, Law Week Colorado named me as the Barrister’s Best Construction Defects Lawyer for Defendants. I am an AV® Preeminent™ Peer Review Rated attorney by Martindale-Hubbell and am a regular speaker at local, regional, and national seminars regarding construction defect litigation.

Monday, June 20, 2016

Colorado Supreme Court Grants the Petition for Writ of Certiorari in Vallagio v. Metropolitan Homes

We have previously reported on the Vallagio v. Metropolitan Homes case, in which the Colorado Court of Appeals upheld a provision in an association's declaration of covenants, conditions, and restrictions, which required declarant consent before an arbitration provision could be amended out of the document.  To read the past articles on the case, please review Vallagio v. Metropolitan Homes: The Colorado Court of Appeals' Decision Protecting a Declarant’s Right to Arbitration in Construction Defect Cases and The Vallagio HOA Appeals the Decision from the Colorado Court of Appeals.  

Today, the Colorado Supreme Court granted the association's petition for writ of certiorari, en banc, on the following reframed issues:
Whether the court of appeals erred by holding as a matter of first impression that Colorado’s Common Interest Ownership Act (“CCIOA”) permits a developer-declarant to reserve the power to veto unit owner votes to amend common interest community declarations.
 
Whether the court of appeals erred in holding that Colorado’s Consumer Protection Act (“CCPA”) claims are subject to pre-dispute mandatory arbitration provisions where this Court previously held, “We leave open the question of whether CCPA claims might be deemed non-arbitrable,” Ingold v. AIMCO/Bluffs, LLC Apartments, 159 P.3d 116, 122 n.5 (Colo. 2007).

The Supreme Court denied the petition for writ of certiorari on all other issues.

For more information about the Vallagio case or construction law in Colorado, you can reach David M. McLain by e-mail at mclain@hhmrlaw.com or by telephone at (303) 987-9870.

Thursday, May 5, 2016

HOA Coalition Statement on Construction-Defects Transparency Legislation


FOR IMMEDIATE RELEASE
Contact: Bill Ray / 303-885-1881

DENVER—The Homeownership Opportunity Alliance—a broad coalition of business groups, builders, elected officials and affordable housing advocates—provided the following statements on reports that there will be no construction-defects transparency legislation this session:

“We are disappointed that negotiations broke down today and that event was immediately turned into an effort to use the media to score political points. The Homeownership Opportunity Alliance has worked on this issue for three years, and we are committed to finding a resolution that will address Colorado’s housing needs, especially through the development of attainable condominiums,” said Tom Clark, Chief Executive Officer of the Metro Denver Economic Development Corporation. “We understand the importance of this issue for our state, for working families, for first-time homebuyers and for anyone along the housing spectrum who is struggling to find a home. That's why we will remain committed to working on this issue.”                                                                                                                                                                                                
The Homeownership Opportunity Alliance’s diverse coalition includes more than 50 organizations from across Colorado. The coalition also includes individual mayors and 14 different communities that have passed local ordinances to address attainable condominium development.

“Affordable and attainable housing has been a top priority of the 41-member Metro Mayors Caucus for decades,” said Lakewood Mayor Adam Paul. “Throughout this process, we have partnered with affordable housing advocates and the business community because we know that providing a spectrum of housing, from millennials to seniors, is so critical to creating and maintaining inclusive communities."

“While we are disappointed that we could not convince the other side to increase transparency and give homeowners a voice in whether their most precious asset—their home—is tied up in long and costly litigation, we are not without hope,” Mayor Paul continued. “In more than 14 communities, representing nearly 2.4 million Coloradans, we have taken steps to ensure that homeowners receive information and have a say in whether their board engages in litigation that could leave them unable to sell or refinance their home—and on the line for costly assessments. We will continue to pursue transparency and accountability at the local level through the passage of local ordinances.”

The coalition also has featured our state’s leading affordable-housing advocates, including Housing Colorado, Habitat for Humanity and the Urban Land Conservancy.

“Housing Colorado’s interest in this issue has always been—and will remain—seeking reform that will result in more affordable, entry-level homeownership opportunities for moderate income Coloradans,” said Sara Reynolds, executive director of Housing Colorado. “We are profoundly disappointed that once again, the opportunity for meaningful reform on construction-defects litigation has failed due to long-standing and entrenched political alliances."

“The construction defects issue is a complex one, but the tools were available to provide a common-sense solution that would address many of the flaws in our current system.  The opportunity has been lost.  With median home prices leaping 12 percent in just one year alone, homeownership will continue to get farther and farther out of reach for hundreds of thousands of Coloradans,” Reynolds concluded.

Homeownership Opportunity Alliance Coalition

American Council of Engineering Companies of Colorado
American Institute of Architects – Colorado Chapter
American Subcontractors Association
Apartment Association of Metro Denver
Associated Builders and Contractors, Rocky Mountain
Associated General Contractors
Aurora Economic Development Council
Building Jobs 4 Colorado
Cherry Creek Area Business Alliance
Colorado Apartment Association
Colorado Association of Commerce and Industry
Colorado Association of Home Builders
CO Association of Mechanical and Plumbing Contractors
CO Association of Plumbing-Heating-Cooling Contractors
Colorado Association of REALTORS
Colorado Bankers Association
Colorado BUILDS
Colorado Business Roundtable
Colorado Civil Justice League
Colorado Competitive Council
Colorado Concern
Colorado Contractors Association
Colorado Mortgage Lenders Association
Colorado Municipal League
Colorado Springs Business Alliance
Colorado Women's Chamber of Commerce
Denver Metro Chamber of Commerce
Denver South Economic Development Partnership
Douglas County Business Alliance
Douglas County Commissioners
Downtown Denver Partnership
Economic Development Council of Colorado
Habitat for Humanity
Hispanic Chamber of Commerce of Metro Denver
Hispanic Contractors of Colorado
Home Builders Association of Metro Denver
Hope Communities
Housing and Building Association of Colorado Springs
Housing Colorado
Independent Bankers of Colorado
Independent Electrical Contractors
International Council of Shopping Centers
Land Title Association
Mechanical Contractors Association of Colorado
Mechanical Service Contractors of Colorado
Metro Denver Economic Development Corporation
Metro Mayors Caucus
NAIOP Colorado
National Electrical Contractors
NFIB—Colorado
Parker Area Chamber of Commerce
Sheet Metal and Air Conditioning Contractors
South Metro Denver Chamber
Transit Alliance

Urban Land Conservancy

Tuesday, May 3, 2016

KF-103 v. American Family Mutual Insurance: Tenth Circuit Upholds the “Complaint Rule”

In Colorado, the “complaint rule” requires insurance carriers to provide a defense to its insured when the allegations contained in the complaint allege any set of facts that may fall within an insurance policy.  Some insurers have pushed back on this rule arguing that it may cause an insurer to exercise its duty to defend although the underlying facts ultimately do not fall within the policy.

In KF 103-CV, LLC v. American Family Mutual Insurance Company, 2015 WL 6517782, the Tenth Circuit of the United States Court of Appeals upheld the complaint rule.  In its decision, the Tenth Circuit cited several Colorado state court rulings recognizing the courts’ intent to incentivize insurers to defend policies that may facially fall within the terms of the policy.  Where there is uncertainty about coverage, the Tenth Circuit cited a Colorado Supreme Court case stating, “[t]he appropriate course of action for an insurer who believes that it is under no obligation to defend, is to provide a defense to the insured under the reservation of its rights.” 

KF 103 v. American Family arose out of an underlying easement dispute.  KF 103 purchased a piece of property from the Infinity Group and, as a condition of the purchasing agreement, KF 103 required the Infinity Group to make improvements to an intersection near the property.  Several neighbors complained, contending that the improvements interfered with their easements adjacent to the property.

KF 103 brought a quiet title action and, on October 13, 2010, the state district court ruled that the improvement was trespass and intentional damage to the easement, ordering KF 103 to restore the easement.  In a second hearing to determine remedies, the El Paso County Court held KF 103 liable for trespass, conspiracy to trespass, and negligence.  KF 103 requested that American Family reimburse it for its attorney’s fees and defense costs, which it refused.  KF 103 then brought suit against American Family alleging breach of contract and bad faith for its refusal to defend.  The case was removed to federal district court where American Family was found to have no duty to defend KF 103 because the claims did not fall within the coverage.  KF 103 appealed.

The Tenth Circuit opined that, to date, neither the Colorado Supreme Court nor the Colorado Court of Appeals have recognized any exceptions to the complaint rule.  The Court explained that Colorado courts are reluctant to do so to protect an insured party’s reasonable expectation that “[b]y purchasing insurance … he will not be required to furnish the cost of defending actions that facially fall within the terms of the policy.”  Cotter Corp v. Am. Empire Surplus Lines Ins. Co., 90 P.3d 814, 828 (Colo. 2004) (en banc).  The Tenth Circuit further stated that Colorado courts acknowledge the purpose of insurance coverage and place the burden on the insurer, rather than the insured, to “accommodate the uncertainty of what the underlying litigation might reveal regarding the duty to defend.”    

Specific to KF 103, its general liability insurance policy with American Family covered damages that KF 103 “becomes legally obligated to pay” because of “property damage” resulting from an “occurrence.”  Additionally, the policy excluded damages “expected or intended from the standpoint of the insured.”  To determine whether American Family had a duty, the Tenth Circuit analyzed only “the factual allegations in the complaint, and not the legal claims …” Gerrity Co. v. CIGNA Prop. & Cas. Ins. Co., 850 P.2d 606, 607 (Colo. App. 1993). 

American Family argued that the claims, like trespass, brought against KF 103 are intentional torts and therefore, excluded from the policy.  However, the Tenth Circuit found that volitional acts do not always have “expected or intended” damages.  Trespass only requires the intent to do the act that itself constitutes, or inevitably causes—the intrusion; intent to violate property rights is not required.  Burt v. Beautiful Savior Lutheran Church, 809 P.2d 1064, 1067 (Colo. App. 1990).  Thus, KF 103 could be liable for trespass because it intended to alter the property but still covered by the policy because it did not intend to harm the neighbors’ easement rights. 

Furthermore, the Tenth Circuit found that where the allegations asserted KF 103 was deliberate in its actions, they also asserted KF 103 was reckless as an alternative.  Recklessness is not necessarily conduct causing damage that is “expected or intended” from the standpoint of the insured.  Because there is some doubt as to whether the damage to the easement rights was “expected or intended,” the Tenth Circuit held that the allegations are arguably covered by the policy as an occurrence.  It stated that terms of an insurance policy should be construed broadly in favor of a duty to defend.  The district court decision was reversed and remanded finding that American Family had a duty to defend.

The complaint rule remains the general rule.  Developments in KF 103 v. American Family indicate that some Colorado courts view intentional claims as exclusions to insurance policies.  However, the Tenth Circuit challenges such courts to place the burden on the insurer regarding the duty to defend, then conduct a more in-depth analysis of exclusions of intentional claims.

For more information regarding the KF 103 decision or Colorado construction litigation, you can reach Adria Robinson by e-mail at robinson@hhmrlaw.com or by telephone at (303) 987-9814.

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.