Thursday, March 19, 2015

Press Release From the Colorado State Senate Regarding Senate Bill 91's Passage Out of Committee

FOR IMMEDIATE RELEASE
March 19, 2015
Contact: Sean Paige
Phone: (719) 337-0355


Construction Defect Fixes Advance in the Senate

Lawmakers last night took the first bipartisan step toward addressing Colorado’s affordable housing and starter home crunch, when the Senate Business, Labor, and Technology Committee passed Senate Bill 177, the so-called construction defect reform law, by a 6 to 2 vote.

The bill aims to clear-away barriers and disincentives to affordable and multi-family home construction in Colorado, by providing pathways to dispute resolution that don’t necessarily end in court. It does not prevent or discourage legal action by individual homeowners who choose that course of action. An ever-present threat of lawsuits has been cited by homebuilders and local officials as a major contributor to Colorado’s affordable housing crunch.

“This bipartisan bill is the end result of extensive study and deliberation by stakeholders, and between members of both parties, who share a common interest in removing barriers to affordable and multi-family housing construction in Colorado,” said Senate Majority Leader Mark Scheffel (R-Douglas County) after the bill’s passage. “The hands-on involvement of Sen. Jessie Ulibarri and other Democrats shows that this represents a reasonable modification of Colorado’s counterproductive construction defect laws.”

“Colorado’s economy is dependent on a strong housing market that includes diverse and attainable options. Despite strong demand, communities across Colorado face a growing shortage of one of the most critical options – condos and town homes. This shortage is due in part to concerns about the inconsistencies of how disputes are resolved that involve homeowners and developers,” said Sen. Jessie Ulibarri (D-Westminster). “Senate Bill 177 ensures that construction issues within a condo or town home community are addressed quickly and fairly for individual homeowners, while at the same time respecting each member of the condo community.”

Currently, if a handful of unit owners in a condo, apartment, or other multi-family housing community notice construction defects, the entire Homeowners Association can take legal action against the builder, dragging other unit owners, who may not have a problem, into a costly or risky legal battle that leaves their property in a lengthy state of limbo. This bill, if it becomes law, will require associations to get majority approval before taking such actions. It also creates easier and speedier methods for dispute resolution, short of taking the matter to court.

“If we want to keep Colorado an attractive place to live and work, we can’t be pricing people of modest means out of the housing with laws that make building those starter homes harder to find,” added Senate President Bill Cadman. “This bipartisan bill, if we can get it passed, will help make the dream a home ownership a little easier for Coloradans to achieve.”

The bill next will be heard by the entire Senate. Passage means it will move to the House of Representatives for action.

SB-177 isn’t the only construction defect-related bill being weighed by lawmakers at the moment. Senate Bill 91, authored by Sen. Ray Scott of Grand Junction, passed the Senate State Affairs Committee on Monday, further bolstering prospects that construction defect reform could happen this session.

The bill would help reduce homebuilder uncertainty by shortening by two years the period of time in which owners of their homes can request a fix. That still gives homeowners a six-year window in which to detect and report a potential problem, but doesn’t leave builders in the prolonged period of uncertainly they face now.

“This bill still offers homeowners plenty of protection against construction defects, but helps reduce some of the prolonged uncertainty and risk that now discourages the construction of multi-unit projects,” said Scott. “It’s hard for companies to offer affordable housing when the state’s flawed construction defect laws just add to the delays, uncertainties and costly risks these builders already face.”

SB-91 now moves to the Senate as a whole for debate.

Tuesday, March 17, 2015

Senate Bill 15-091 Passes Out of the Senate State, Veterans & Military Affairs Committee

As previously reported, Senator Scott's SB 91, as originally introduced, would have reduced Colorado's statute of repose for construction defect actions from eight years to four years.  Yesterday, the Senate State, Veterans & Military Affairs Committee heard Senate Bill 91 and, before passing the bill on a party line vote sending it back to the full Senate for consideration, made two substantive amendments. By one amendment, the Committee excluded any multi-family developments. The second amendment was to reduce the statute of repose from six years, currently on the books, to five years plus one more if the defect becomes manifest in the fifth year. 

If passed in its current form, the bill would only apply to single family homes and, with respect thereto, would reduce the statute of repose for construction defect claims from six years, plus two more for defects which become manifest in years five or six, to five years, plus one more for defects which become manifest in the fifth year.  

Friday, March 13, 2015

The First Hearing on SB 177 Has Been Scheduled - Call to Action!

SB177 is scheduled to be heard in the Senate Business, Labor, & Technology Committee (Room 271) on Wednesday, March 18th, at 1:30 p.m.  

Please take a moment to urge your State Legislators to SUPPORT SENATE BILL 177 and help fix the defect in Colorado’s construction law.

A big hurdle to building more entry-level housing is a defect in state law that exposes homebuilders and homeowners to a high risk of expensive, time-consuming litigation. It is referred to as the construction defects law. It has created a climate that puts the chill on new construction of affordable, multi-family housing, scaring off investment in the affordable-housing market. 

Senate Bill 177, sponsored by Senators Scheffel & Ulibarri and Representatives DelGrosso & Singer, would begin to fix this problem and foster conditions that encourage builders to construct more affordable housing, provide increased homeownership opportunities for all Coloradans and stimulate our state's economy.


Monday, March 9, 2015

Another Municipality Takes Action to Address the Lack of Condominiums Being Built in its Jurisdiction

     
Whether you are in the market to downsize or are looking to be a first time home buyer, you have likely noticed that your housing options in Colorado have become extremely limited over the course of the last several years.  If you are a contractor and have worked on multi-family projects in the recent past, you know why the housing options are limited in the State of Colorado.  In the past two years, there have been studies commissioned and articles published in local periodicals investigating the extreme slowdown seen in the construction of owner-occupied multi-family housing, namely condominiums and townhomes.  Those of us involved in and with the construction industry are intimately familiar with the lengthy, complicated, and incredibly expensive construction defect litigation that has plagued multi-family construction in the State of Colorado and brought it to a virtual halt.
     
And now, local municipalities and elected officials are starting to take notice.  Most recently, the City of Lone Tree passed Ordinance No. 15-01, to become effective on April 1, 2015.  According to the City of Lone Tree, Ordinance No. 15-01 is “aimed at encouraging the development of owner-occupied, multi-family residential projects through the adoption of regulations designed to balance the risk and exposure to builders and developers of such projects, while still protecting homeowners from legitimate construction defect claims.” 

The Lone Tree ordinance functions very similarly to the current state laws concerning construction defects.  Under the Lone Tree ordinance, a homeowner who discovers a construction defect must send written notice of the defect via certified mail or personal delivery to the responsible builder, contractor, or design professional.  The homeowner is required to provide dates and times within 28 days for the builder to access the property for inspection and/or testing purposes.  The builder is required to acknowledge receipt of the notice within 14 days, or the protections of the ordinance do not apply, and the homeowner may file suit.  Similar to the state law, the builder may offer to repair the defect within 30 days after the initial inspection, or 28 days after notice of the claim.  Under the Lone Tree ordinance, however, the homeowner may deliver a written objection to the builder’s offer to repair “if the claimant believes in good faith that the proposed repairs will not remedy the alleged defect.”  The builder is then allowed ten days within which to modify the repair proposal in accordance with the homeowner’s objections or propose alternatives.  The Lone Tree ordinance precludes a builder from making any repairs while an objection is pending.  A homeowner may still file a lawsuit if not satisfied by the repairs or the offer of repairs. 

Under the Lone Tree ordinance, a condominium owners association must obtain the written consent of 51% of the homeowners to commence legal action, and such consent must be obtained within 60 days after notice of the alleged defect is sent to the builder.  The ordinance also touches on amendment or deletion of the alternative dispute resolution provisions typically found in the homeowners association’s governing documents.  The ordinance provides that any subsequent amendment to the declaration that removes or amends the arbitration or mediation requirement is not effective for any construction defect claim based on an act or omission already discovered.            

The City of Lone Tree should be applauded for having the courage to take action to address the lack of owner-occupied condominium units, particularly in its transit-oriented zones around light rail stations.  If you have any questions about the City of Lone Tree ordinance, or the state laws concerning construction defect actions, you can reach Heather Anderson Thomas at (303) 653-0044 or by e-mail at Anderson@hhmrlaw.com.

Wednesday, February 18, 2015

Higgins, Hopkins, McLain & Roswell is on the Lookout for a New Associate

Higgins, Hopkins, McLain & Roswell, LLC, a boutique firm located in Cherry Creek, has an immediate opening for a litigation associate with 1 – 3 years of experience in construction litigation or the defense of general casualty claims.  To be a successful candidate, you must be an optimist, be well spoken, have exceptional research and writing skills, and be able to think on your feet.  Given that our files are document-intensive, you must be very organized and detail-oriented.  Experience with deposing witnesses and some trial experience a plus.

We offer a competitive salary, which is commensurate with experience, and excellent benefits.  

Interested candidates should submit their resume, references, and writing samples to:


Jennifer Tate


PLEASE, NO CALLS OR AGENCIES

Tuesday, February 17, 2015

Colorado Senate Bill 15-177: This Year’s Attempt at Reasonable Construction Defect Reform

On February 10, 2015, Senators Scheffel and Ulibarri introduced Senate Bill 15-177, which is sponsored in the House by Representatives DelGrosso and Singer. SB 15-177 amends the prerequisites, found in the Colorado Common Interest Ownership Act (“CCIOA”), for an association to file a construction defect action.  The bill has been assigned to the Senate Committee on Business, Labor, and Technology but not yet scheduled for hearing.

The major points of the bill include: 1) enforcement of a mediation or arbitration provision contained in the original governing documents of a common interest community, even if subsequently amended or removed; 2) the addition of a requirement that mediation take place before a construction defect action can be filed; 3) heightened requirements that an association board provide advanced notice to all unit owners, together with a disclosure of projected costs, duration, and financial impact of the construction defect claim; 4) the addition of a requirement that the board obtain the written consent of a majority of the owners of units, and; 5) a requirement that prior to the purchase and sale of a property in a common interest community, the purchaser receive notice that binding arbitration may be required for certain disputes.

One of the most significant aspects of Senate Bill 15-177 is the addition of section (1)(a)(III) to Colorado Revised Statute § 38-33.3-124. The proposed language for section (1)(a)(III), states:

The General Assembly further finds and declares that when the governing documents of a common interest community contain a requirement that construction defect claims be submitted to mediation or arbitration, that requirement represents a commitment on the part of the unit owners and the association on which development parties are entitled to rely. Therefore, a later amendment to the governing documents that removes or amends the mediation or arbitration requirement should not apply to claims that are described in the mediation or arbitration requirements of the governing documents.

The addition of this language would have a effect on the forum in which construction defect actions are litigated. Currently, associations are free to amend any provision contained in their governing documents, including any mediation or arbitration provision inserted by the developer. Associations routinely amend their governing documents just prior to filing a construction defect action in district court in order to avoid submitting their case to binding arbitration. If Senate Bill 15-177 is passed in its current form, the majority of construction defect actions would likely be subject to binding arbitration. I anticipate this provision of the bill will receive strong opposition from association representatives and construction defect plaintiffs’ attorneys who wish to litigate their cases in district court.

The second major addition contained in SB 15-177 is the addition of section (1.5) to Colorado Revised Statute § 38-33.3-303.5. The proposed language requires that a construction defect claim be submitted to mediation prior to the filing of an action. The proposed language in its entirety states:

(1.5) As a condition precedent to any construction defect claim, the parties must submit the matter to mediation before a neutral third party mutually selected by the parties to the construction defect claim. If the parties are not able to agree upon a mediator, they may use an alternative selection method specified in the governing documents or, if no alternative selection method is specified, may petition the district court in the jurisdiction in which the common interest community is located to appoint a mediator for the construction defect claim.

Senate Bill 15-177 also expands upon the required disclosures contained in the C.R.S. § 38.33.3-303.5. Colorado Revised Statute § 38.33.3-303.5 in its current form only requires the disclosure of: (I) The nature of the action and relief sought; and (II) The expenses and fees that the executive board anticipates will be incurred in prosecuting the action. Senate Bill 15-177 seeks to add more specific disclosure requirements to C.R.S. § 38.33.3-303(II) including the disclosure of:  (A) Attorneys’ fees, consultant fees, expert witness fees, and court costs; (B) The impact on the value of units subject to the construction defect claim; (C) The impact on the marketability of units subject to the construction defect action; (D) The impact on the marketability of units not containing any design or construction defects; (E) The manner in which the association is planning on funding the construction defect action; and (F) The anticipated duration and likelihood of success of the construction defect action.

Additionally, the bill requires the association board to obtain the informed consent of a majority of unit owners prior to pursuing a construction defect action and seeks to add the following language to Colorado Revised Statute § 38-33.3-303.5:

 (II) The construction defect claim is not authorized unless the executive board obtains the written consent of the owners, other than the declarant, of units to which at least a majority of the total votes, excluding votes allocated to units owned by declarant, in the association are allocated, after giving notice in accordance with this subsection (2). The consent must be obtained directly and not as a result of proxy voting.

Finally, Senate Bill 15-177 seeks to add to the disclosures required prior to the purchase and sale of property in a common interest community to provide notice that construction defect actions may be subject to binding arbitration. The proposed language to be added to C.R.S. § 38-35.7-102 is as follows:

THE BYLAWS OR RULES AND REGULATIONS OF THE ASSOCIATION MAY REQUIRE THAT CERTAIN DISPUTES BE RESOLVED BY MANDATORY, BINDING ARBITRATION.

Senate Bill 15-177, once passed, will represent a significant change to the current state of construction defect litigation in Colorado. While the proposals in Senate Bill 15-177 would have a beneficial impact on Colorado construction professionals, the bill will likely be met with strong opposition. We will continue to watch the legislature for bills impacting construction law in Colorado and will monitor the progress of such bills, including Senate Bill 15-177.


If you have any questions regarding construction law or the litigation of construction defect claims in Colorado, you can reach Zach McLeroy by e-mail at McLeroy@hhmrlaw.com or by telephone at (303) 987-9816.

Monday, February 9, 2015

Insurer’s Duty to Defend: When is it Triggered? When is it Not?

In Colorado it is well recognized that an insurer has a broad duty to defend its policyholder against pending claims.  An insurer’s duty to defend is triggered when the underlying complaint against the insured alleges any set of facts that might fall within the coverage policy. Greystone Construction, Inc. v. National Fire & Marine Insurance, Co., 661 F.3d 1272, 1284 (10th Cir. 2011). Even if the insurer’s duty to defend is not clear from the pleadings filed against the insured, the insurer’s duty to defend is triggered if the claim is potentially or arguably within the policy coverage. Id. If there is any doubt as to whether a theory of recovery falls within the policy coverage, such doubt is decided in favor of the insured and the insurer’s duty to defend is triggered. Id.  In order to avoid this duty to defend, an insurer must show that an exemption to the policy applies and that no other basis exists for coverage under the policy.
 
In Cornella Brothers, Inc. v. Liberty Mutual Fire Insurance Company, 2014 WL 321335 (D. Colo. Jan. 29, 2015), the Court was to determine whether Liberty Mutual Fire Insurance Company (“Liberty Mutual”) had a duty to defend a lawsuit filed against its insured, Cornella Brothers, Inc. (“Cornella”). The underlying lawsuit alleged construction defects at a recharging facility. Upon being named a party to the underlying litigation, Cornella provided notice to Liberty Mutual and demanded that Liberty Mutual defend Cornella.

The Court first considered how the “your work” exclusion in the CGL policy might affect Liberty Mutual’s duty to defend. The exclusion applied to property damage to “your work” arising out of it or any part of it. The Court reasoned, even if the principal claims fall within the “your work” policy exclusion, it does not necessary follow that Liberty Mutual has no duty to defend. As stated in Greystone, if the allegations of the underlying complaint state any claim that “is potentially or arguably within the policy coverage” or that otherwise raise some doubt as to whether a theory of recovery within the policy coverage has been pleaded, the insurer has a duty to defend. Greystone, 661 F.3d at 1284.

Cornella’s argument for coverage by Liberty Mutual was based on two damage allegations in the underlying complaint. Cornella first argued that Liberty Mutual’s duty to defend was triggered by the language in the complaint that the alleged defects will result in the loss of access to additional water rights. The Court determined that the complaint alleged a loss of a chance at greater access to water rights and not the loss of water rights itself. The Court was not persuaded that the loss of a chance at greater water rights triggered insurance coverage. The Court recognized that while the loss of actual water rights might trigger coverage, the loss of a chance does not trigger the same obligation.

Cornella also relied on the language in the complaint, “damage to property of other,” to trigger a duty to defend. However, it is clear under Colorado law that vague and conclusory allegations alone do not trigger coverage. See Land v. Auto-Owners Ins. Co., 551 Fed.Appex. 795, 800, (10th Cir. 2013); TCD, Inc. v. Am. Family Mut. Ins. Co., 296 P.3d 255, 259 (Colo.Ct.App. 2012). To trigger coverage, more is needed from the insured, including a plausible theory explaining what the phrase is referencing and how the alleged damage triggers the duty to defend. Cornella’s mere reliance on the “damage to property of other” language alone was insufficient to trigger coverage.

While an insurer’s duty to defend is broadly construed, it is not triggered in every case. As in Cornella Brothers, Inc. v. Liberty Mutual Fire Insurance Company, an insurer’s duty to defend will not be triggered when the alleged damage is the loss of a chance at a future benefit or by vague and conclusory language.


To learn more about the Cornella Brothers, Inc. v. Liberty Mutual Fire Insurance Company decision or construction law in Colorado, you can reach Zach McLeroy by e-mail at McLeroy@hhmrlaw.com or by telephone at (303) 987-9816.

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.