Tuesday, September 25, 2018

THE “RIGHT TO REPAIR” CONSTRUCTION DEFECTS IN THE ROCKY MOUNTAIN AND PLAINS REGION

In excess of 30 states have enacted tort reform legislation requiring property owners to notify construction professionals of the presence of alleged construction defects prior to the commencement of a lawsuit. These statutes also often permit construction professionals to make an offer of repair within a statutorily defined period of time after receipt of a notice of claim letter. Undoubtedly, the notice-of-claim process has played a meaningful part in bringing construction professionals and claimants to timely resolutions of construction defect concerns in isolated instances.
 
However, while these statutes are commonly referred to as “right of repair” legislation, their practical effect is often reduced to little more than procedural empty gestures serving as a prelude to litigation. This article will briefly survey the “right to repair” statutes in Colorado, Montana, North Dakota and South Dakota. In Nebraska, New Mexico, Utah and Wyoming there is no right to repair or notice-of claim statue.
 
COLORADO
Pursuant to C.R.S. § 13-20-803.5, the “right of repair” process begins when a property owner delivers a “notice of claim” letter to the construction professional. The construction professional then has 30 days to inspect the property, according to C.R.S. § 13-20-803.5(2). Upon completing the inspection, the construction professional has an additional 30 days to offer to settle the alleged construction defects by means of payment or by offering to remedy the alleged construction defects through remedial work. “A written offer to remedy the construction defect shall include a report of the inspection, the findings and results of the inspection, a description of the additional construction work necessary to remedy the defect described in the notice of claim and all damage to the improvement to real property caused by the defect, and a timetable for the completion of the remedial construction work” as stated in C.R.S § 13-20-803.5(3).
 
However, an owner is under no obligation to accept a construction professional’s offer of monetary compensation or repairs, regardless of how reasonable it may be based on C.R.S § 13-20-803.5(6). Recognizing the practical reality that the “right of repair” exists in name only for Colorado construction professionals, Colorado’s legislature introduced House Bill 17-1169 on February 6, 2017. HB 17-1169 would have statutorily permitted construction professionals to perform repairs in response to a notice of claim letter. In the words of the bill: “[i]f the Construction Professional [were to give] notice of an election to repair the defect in accordance with [the statute], the Claimant shall provide the construction professional with unfettered access to the subject property as necessary to correct the construction defect. . .” Unfortunately, on March 1, 2017, Colorado’s House Committee elected to postpone any vote on HB-1169 indefinitely. 
 
In sum, in Colorado, construction professionals have the right to offer to make a repair. Owners have no obligation to accept a construction professional’s offer of repair.
 
MONTANA 
Montana’s construction defect statute is substantially similar to that of Colorado’s. Specifically, M.C.A. § 70-19-427 requires a residential homeowner to serve a written notice of claim on the construction professional prior to the commencement of a lawsuit. The notice of claim must state that the homeowner is asserting a construction defect claim against the construction professional and must describe the claim in reasonable detail. Thereafter, the construction professional has 21 days to respond to the homeowner by proposing an inspection of the property, offering to compromise or settle through a financial settlement or repair, or denying liability. As with Colorado’s statute, the homeowner is under no obligation to accept a construction professional’s offer.
 
Additionally, M.C.A. § 70-19-427(3)(b) allows the homeowner to reject the inspection proposal. Nevertheless, if the homeowner elects to allow the construction professional to inspect the property, within 14 days following the completion of the inspection, the construction professional is obliged to provide the homeowner with an offer to compromise via a monetary payment, a written offer to remedy the claim through a combination of repair and monetary payment, or a written statement setting forth the reasons why the construction professional will not proceed to remedy the alleged defect. The homeowner must then, within 30 days, accept or reject the construction professional’s proposed resolution. If the homeowner rejects the offer of repair or settlement presented by the construction professional, the homeowner must serve written notice of the homeowner’s rejection to the construction professional. After delivery of the homeowner’s rejection of the proposed settlement, the homeowner is free to commence a lawsuit against the construction professional.

NORTH DAKOTA
North Dakota’s statutory construction defect notice and offer of repair requirements are unique compared to the foregoing states. Specifically, N.D.C. § 43-07-26 precludes residential homeowners from undertaking any repair, other than emergency repairs, or commencing a lawsuit prior to providing notice to the construction professional of the alleged defect. Thereafter, “within a reasonable time after receiving the notice, the contractor shall inspect the defect and provide a response to the purchaser or owner, and, if appropriate, remedy the defect within a reasonable time thereafter,” according to N.D.C. § 43-07-26. Compared to the language of the other states examined in this article, North Dakota has, by far, the most favorable statutory regime for construction professionals. The homeowner must allow the construction professional to inspect the property and the construction professional is actually afforded the “right to repair.”
 
SOUTH DAKOTA
Pursuant to S.D.C.L. § 21-1-16, South Dakota maintains a statutory regime requiring residential homeowners, prior to commencing an action, to serve a written notice on construction professionals setting forth the alleged construction defects present at the property. Additionally, the statute requires that the residential homeowner allow the construction professional to inspect the property within 30 days after service of the notice and allow the construction professional to make a written offer to repair or an offer of monetary settlement. While the homeowner is under no obligation to allow the construction professional to perform the repair offered, if any, the homeowner is required to wait until 30 days after the notice of claim is served on the construction professional or until the construction professional refuses to remedy the alleged construction defect prior to commencing suit.
 
CONCLUSION 
The statutory right to repair for construction professionals is often an illusory remedy under the current statutory framework. While the legislative intent in enacting construction defect reform statutes was presumably to streamline construction defect litigation, these right-to-repair provisions are often rendered ineffective as a result of property owners’ ability to refuse reasonable repairs.
For additional information regarding the construction professionals’ “right to repair" or about construction defect litigation in Colorado, generally, you can reach Jean Meyer by telephone at (303) 987-9815 or by e-mail at meyer@hhmrlaw.com and/or Sheri Roswell by telephone at (303) 987- 9812 or by e-mail at roswell@hhmrlaw.com.



Thursday, September 6, 2018

Governmental Immunity Waived for Independent Contractor - Lopez v. City of Grand Junction


On July 12, 2018, the Colorado Court of Appeals announced its decision in Lopez v. City of Grand Junction, 2018 WL 3384674 (Colo. App. 2018). The Court considered whether immunity is waived under Colorado’s Governmental Immunity Act (“CGIA”), pursuant to section C.R.S. § 24-10-106(1)(f), in situations where the public entity hired an independent contractor to perform the work. The Court held that if the public entity would have been liable under the CGIA for the conduct that caused the injury, had it performed the work itself, then it is liable for the work performed by its independent contractor.

While the CGIA provides immunity to the government, pursuant to C.R.S. § 24-10-106(1)(f), the government waives immunity for injuries resulting from the operation and maintenance of any public sanitation or electrical facility. The City of Grand Junction contracted with Apeiron Utility Construction (“Apeiron”) to perform maintenance of a public traffic light. During such maintenance, Apeiron breached a natural gas line that leaked into a sewer main located nearby. The gas migrated to the plaintiffs’ home and entered the basement, resulting in an explosion and injuries. 

The city filed a motion to dismiss for immunity under the CGIA and the plaintiffs argued that the city waived its immunity under the CGIA because the explosion resulted from the operation and maintenance of a public sanitation facility. The trial court held a Trinity hearing and granted the city’s motion to dismiss. See Trinity Broadcasting of Denver, Inc. v. City of Westminster, 848 P.2d 916 (Colo. 1993) (holding that a court may hold a Trinity hearing where the injured plaintiffs bear the burden of proving the court’s subject matter jurisdiction under the CGIA and that immunity has been waived). Tidwell ex rel. Tidwell v. City & Cty. Of Denver, 83 P.3d 75, 85 (Colo. 2003). The Court of Appeals reversed in part, and affirmed in part, holding:

1. Reversed—the waiver of immunity applies even if the operation or maintenance was performed by an independent contractor. 
2. Affirmed—the dismissal of the negligence claim as to the city’s operation and maintenance of its sewer line as the evidence did not support an immunity waiver.

Waiver of Immunity for Work Performed by Independent Contractor

The Court of Appeals relied upon Springer v. City & County of Denver, 13 P.3d 794 (Colo. 2000). The CGIA establishes governmental immunity from suit for public entities and their employees in tort cases, but also waives immunity in certain circumstances. C.R.S. § 24-10-106; Springer at 792. The Court in Springer reviewed three aspects of section 1(c) of the CGIA and determined:

1. A public entity lacks immunity when it creates the acts, as well as its omission, in failing to reasonably discover and correct an unsafe condition. Id. at 801.
2. If the CGIA waiver were construed to exclude the acts or omission of the independent contractor, a public entity could avoid responsibility by contracting out its work to others, nullifying the purpose and effect of the waiver. Id. at 801-2.
3. The General Assembly’s intent, to hold a public entity responsible for the acts of its independent contractor, is consistent with longstanding principles of tort lability. Id. at 802 (citing Restatement (Second) of Torts § 422 (Am. Law Inst. 1965).

The Court of Appeals noted, “[A]s a logical matter, any attribution of Apeiron’s conduct to the City will only matter—for purposes of waiver—if the conduct would have waived the City’s immunity had the City itself committed this act.” If so, the city’s immunity is waived if plaintiffs can show the injuries resulted from the specific conduct. See C.R.S. § 24-10-106(1)(f); Tidwell at 86. This does not require a showing that the injuries were “caused by” the conduct. Tidwell at 86. Rather, there must be at least a “minimal causal connection’ between the injuries and the specified conduct. Id. The trial court found, by way of the undisputed facts, that the injuries resulted from the conduct of Apeiron striking and breaching the gas line. As such, this conduct would have waived the city’s immunity had the city itself committed this act.

While a person hiring an independent contractor is generally not liable for the negligence of the independent contractor, there are widely recognized exceptions to this rule, such as when a public entity retains possession of its premises during the contractor’s performance of its work on the premises. See Huddleston ex rel. Huddleston v. Union Rural Elect. Ass’n, 841 P.2d 282, 288 (Colo. 1992); Restatement (Second) of Torts § 422. Another widely recognized common law principle of liability attributed to the conduct of the independent contractor to the employer is when the maintenance is inherently dangerous. Restatement (Second) of Torts § 427.  The city did not dispute that it retained possession of the property during Apeiron’s work, or that the work was inherently dangerous.  Thus, the independent contractor exceptions applied.

The Court reversed, finding the city would have been liable for the alleged injuries under the CGIA had it performed the work itself.  Thus, immunity was waived under the CGIA in this instance.

Operation and Maintenance of the Sewer System

Plaintiffs argued that the sewer main was not in the same general state of repair as when it was installed. Plaintiffs contend that roots had grown into the sewer main creating gaps for the gas to enter. C.R.S. § 24-10-106(1)(f) waives immunity if the injury results from the public entity’s failure to keep the public facility “in the same general state of being, repair, or efficiency as initially constructed. C.R.S. § 24-10-103(2.5). 

The trial court found that at the time of the explosion, the sewer main was intact and in good condition, and functioned at or near the same efficiency in 2013 as it had been when installed in the 1940’s. The Court of Appeals deferred to the trial court’s factual finding, citing City & County of Denver v. Dennis, 418 P.3d 489 (Colo. 2018) (“On review, we defer to the district court’s factual findings unless they are clearly erroneous and unsupported by the record”). As the Court of Appeals did not find the factual findings erroneous and unsupported by the record, the Court affirmed the trial court, finding Plaintiffs did not meet their burden to prove a waiver under C.R.S. § 24-10-106(1)(f).

Conclusion

We believe Lopez to be potentially problematic for contractors hired by governments in situations where they have agreed to indemnify the governmental entity for claims arising from their work.  In those situations where the CGIA will not apply, contractors cannot rely on it to shield them from ultimately liability to the governmental entity.  With this in mind, this opinion was not released for publication as a petition for rehearing or a petition for certiorari in the Colorado Supreme Court may be pending. Thus, the Colorado Supreme Court may review this opinion.

For additional information regarding Lopez v. City of Grand Junction or about construction defect litigation in Colorado, generally, you can reach Frank Ingham by telephone at (303) 653-0046 or by e-mail at ingham@hhmrlaw.com.

Wednesday, April 18, 2018

Scholarships Available for the 2018 CLM Claims College – School of Construction


I am happy to have been asked to serve as an Executive Council member and 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 5, 2018 through Saturday, September 8, 2018.

Overview of the 2018 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 EC and 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 May 8th 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.

Wednesday, March 28, 2018

The Curious Case of the Three Year Statute of Limitations for Construction Earth Movers


On March 6, 2018, Judge Edward Moss of Adams County issued a noteworthy, if bizarre, order concluding that construction excavators and earthmovers are uniquely subject to a three year statute of limitations. By way of background, in Colorado, per C.R.S. § 13-80-104, those furnishing the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property (“Construction Professionals”) are subject to the two year statute of limitations as set forth in C.R.S. § 13-80-102.

However, it appears that things are not so simple in Adams County. In the case, Paul Heap, et al. v. Asphalt Specialties Co., Inc. et al., Case No. 2017CV30842 (Adams County, Mar. 6, 2018), the Court was presented with the following undisputed timeline: the Defendants began excavation related work and erosion control and flood mitigation on the construction project in March 2015; alleged defects with the Defendants’ work manifested on May 1, 2015, and; Plaintiffs filed their Complaint May 29, 2017. Based on a straightforward reading of the two-year statute limitations, the Plaintiffs’ claims should have been time barred.

However, the Plaintiffs, in their Response to the Summary Judgment Based on the Statute of Limitations, raised the argument that because the Defendants’ work included “the intentional use of excavators, earthmovers, trucks, and other motor vehicles to excavate, remove and relocate dirt,” the Plaintiffs’ claims should be evaluated under the three-year statute of limitations for “[a]ll tort actions for bodily injury or property damage arising out of the use or operation of a motor vehicle” as set forth in C.R.S. § 13-80-101.

As surprising as it may seem, the Court agreed with the Plaintiffs’ argument, remarking as follows: “[c]learly, there is some casual connection between the use of excavators, earthmovers, [and] trucks. . . to excavate, remove and relocate dirt.” Because the Court found that C.R.S. § 13-80-101 and C.R.S. § 13-80-102 were in conflict in the context of the facts before the Court, the Court applied the legal standards for conflicting statutes of limitations. Applying the legal standards for conflicting statutes of limitations, the Court concluded that three-year state of limitations prevailed and thus the Plaintiffs’ claims were timely.

Going forward, careful practitioners should be aware of and consider the nuance in Colorado’s statute of limitations now potentially applicable to earth mover Construction Professionals. For additional information regarding Colorado’s statute of limitations for Construction Professionals or about construction defect litigation in Colorado, generally, you can reach Jean Meyer by telephone at (303) 987-9815 or by e-mail at meyer@hhmrlaw.com.

Tuesday, March 27, 2018

Dave McLain to Speak at the MBA's Condominium Lending Workshop 2018



I am honored to have been invited to speak at the Mortgage Bankers Association Condominium Lending Workshop 2018.  I will be participating as a panelist on the Condo Defect Panel: The CO Perspective, along with Nate Santillanes, CRIS, Director - Risk Management, CoBiz Insurance and moderated by Katie Fritch, Bank Officer - UW Support Manager, Flagstar Bank.

Come learn what's new in condo lending.


Back by Popular Demand...

MBA's Condominium Lending Workshop is back!  We heard you loud and clean and are pleased to once again offer our one-day workshop on this specialized area of lending.  This workshop brings together strategic leaders of condo lending as well as project approval managers, with other experts, including government agency and GSE leadership.  Through panel presentations and interactive discussions, our expert speakers will cover the following topics:
  • Update from FHA
  • GSE and Lender Perspectives on Project Approvals
  • Overview of Condo Markets
  • Condo Litigation Challenges
  • Flood and other Insurance Issues
  • Lending on New Construction Condos

This is a unique opportunity to come together with others that specialize in condo lending to get the latest updates and discuss challenges and opportunities in an interactive setting.  The majority of the workshop agenda takes place on April 11th, kicking off with an evening networking reception on April 10th.

Register Now



Wednesday, March 21, 2018

The next evolution in Colorado construction defect litigation? Single-family home builders could be in the crosshairs.

I recently had the opportunity to write an article for Colorado Builder Magazine, a snippet of which appears here.
Since the 1990's, construction defect litigation has focused on condominiums and townhomes. By representing homeowner associations instead of individual owners, plaintiffs' attorneys can more easily aggregate claims, thereby increasing exponentially the claimed damages.
*     *     *
In a new twist, the Latitude at Vista Ridge Homeowners Association in Erie filed a construction defect lawsuit claiming damages for construction defects in the single-family homes owned by its members.  This is the first instance, of which I am aware, in which an association has sued for alleged defects in single-family homes.
For additional information regarding the Latitude at Vista Ridge lawsuit or the disturbing new trend in Colorado construction defect litigation, you can visit the Colorado Builder website and view the entire article here.  You can also reach me by e-mail at mclain@hhmrlaw.com or by phone at (303) 987-9813.


Monday, December 18, 2017

Association Insurance Company v. Carbondale Glen Lot E-8, LLC: Federal Court reaffirms that there is no duty to defend or indemnify a builder for defective construction work

In a case that squarely confronts the juxtaposition of an insurer’s duty to defend or indemnify its insured for construction related defects, the United States District Court for the District of Colorado recently granted an insurer’s motion for summary judgment on both matters against a construction subrogee, in Ass’n Ins. Co. v. Carbondale Glen Lot E-8, LLC, No. 15-cv-02025-RPM, 2016 WL 9735743, at *1 (D. Colo. Oct. 10. 2017).

Mountainview Construction Services, LLC (“MCS”) served as the general contractor for the construction of a residence on a lot owned by Glen Lot E-8, LLC (“E-8”).  MCS took out a Commercial General Liability Policy (“Policy”) with Association Insurance Company (“AIC”) that provided coverage to MCS for the relevant time period for the construction of the residence.  E-8 then asserted a series of claims against MCS, based on the allegation that MCS and its subcontractors defectively constructed the home by, among other things, building the residence two feet too high in violation of applicable codes.  E-8 also argued that MCS and its subcontractors made significant alterations and/or deviations from the original project specifications without obtaining E-8’s consent or approval from relevant authorities.   MCS tendered the claim to AIC for defense and indemnity.  In turn, AIC declined coverage on the argument that the Policy precluded any coverage for defective work MCS may have performed on the project, absent damage to person or other property.

MCS and E-8 subsequently settled all of E-8’s claims against MCS.  As part of the settlement terms, however, MCS assigned all of its rights against AIC to E-8 related to AIC’s refusal to defend and indemnify MCS.  In the ensuing action by E-8 against AIC, AIC moved for summary judgment on its declaratory judgment claim.  In doing so, AIC argued that the relevant Policy language prevented it from defending or indemnifying MCS for the allegations contained in E-8’s operative complaint against MCS in the underlying action.

In holding that AIC did not owe MCS any duty to defend it for E-8’s claims, Judge Richard Matsch first delved into the relevant language of the Policy.  Indeed, the Policy provided in pertinent part that AIC would cover and pay sums to MCS for “bodily injury” or “property damage” to property which the Policy covered.  The Policy, however, defined property damage as follows:

a. Physical injury to tangible property, including all resulting loss of use of that property.  All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured.  All such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.

Construing the foregoing language, the Judge Matsch held that AIC did not have a duty to defend MCS against E-8’s claims because E-8 did not allege “physical injury to tangible property,” or “loss of use of tangible property that is not physically injured.”  Rather, E-8’s allegations against MCS made clear that its grievance stemmed from a defectively built house.  What is more, E-8 never implied in its complaint that the flawed workmanship “caused the loss of use of some other tangible property that was not physically injured.”  The court also stressed that the Policy’s exclusionary language that prohibited coverage for faulty workmanship, effectively put an end to any duty on AIC’s part to defend or indemnify MCS for any defect, deficiency, or inadequacy germane to MSC’s work on the project.

Having been precluded from coverage based on the Policy language, E-8 then argued that C.R.S. § 13-20-808 effectively mandated a duty to defend on AIC’s part since the duty is triggered where there is a “potentially covered liability” against a “construction professional concerning a construction defect.”  Even so, the court noted that the duty to defend under the statute is still subject to the express terms of the Policy language between an insurer and its insured, and the duty is not triggered where the claims at issue are not covered by the insurance policy.  For the foregoing reasons, the court held that AIC had no duty to defend or indemnify MCS pursuant to the Policy.  Accordingly, the court entered summary judgment in AIC’s favor and dismissed all of E-8’s counterclaims against AIC.

In application, the ruling reaffirms the well-established principle that the express terms of a policy will continue to be the benchmark with which courts determine an insurer’s duty to provide coverage, in the absence of any contravention of public policy.  Further, policy language that expressly discounts coverage for a contractor’s substandard work on a project, absent injury to person or other property, remain enforceable provisions.  The public policy underlying this appears to be the need to discourage shoddy workmanship and to provide contractors the incentive to avoid preventable defective work during the construction of a project.   


For more information about the Association Insurance Company v. Carbondale Glen Lot E-8, LLC case or about construction law in Colorado, you can reach Olayinka Hamza by e-mail at hamza@hhmrlaw.com or by telephone at (720) 630-2709.

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.