Is there coverage for contruction defect claims in Colorado? Part 2: Did we go from bad to worse?

In Greystone Const., Inc. v. National Fire & Marine Ins. Co., 649 F.Supp. 2d 1213 (D. Colo. 2009), a contractor and one of its insurers brought an action against a second insurer after the second insurer refused to fund the contractor’s defense in construction defect actions brought by homeowners.

Relying heavily upon the reasoning of the General Sec. Indem. Co. of Arizona v. Mountain States Mut. Cas. Co., 205 P.3d 529 (Colo. App. 2009) court, the Federal District Court for Colorado closely examined whether the plaintiff’s complaints for damages that would constitute an “occurrence” under the relevant insurance policy. The court found only “conclusory references to consequential damages,” and a failure “to provide specifics by which [the insurance carrier] or [the] court could ascertain what those damages were and whether they involved something other than [the subcontractor’s] work product.” Greystone Const., 649 F.Supp. 2d at 1220. The Court went on to state that property damage only to the home itself was insufficient to create a duty to defend or indemnify under the subject commercial general liability insurance policy. Id.

This case emphasizes the need to be especially diligent and thorough when drafting complaints in construction defect matters. Additionally, the Greystone case makes clear that general allegations of “consequential damages” without specific explanation as to the nature of such damages, may fail to trigger insurance coverage and therefore an insurance carrier’s duty to defend or to indemnify.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

Is there coverage for contruction defect claims in Colorado? Part 1: It's not looking good.

In General Security Indemnity Co. of Arizona v. Mountain States Mut. Cas. Co., 205 P.3d 529 (Colo. App. 2009), a framing subcontractor’s insurer brought a contribution and indemnification action against a sub-subcontractor’s commercial general liability insurers. The framer’s carrier sought relief for the sub-sub’s insurer’s failure to fund the framing subcontractor’s defense costs related to the third-party complaint filed by the general contractor.

The Court of Appeals held that complaints in construction defect actions that allege only poor workmanship do not allege an “occurrence” sufficient to trigger a duty to defend in the typical CGL policies. The Court of Appeals, in reaching its decision, adopted the reasoning of the Cyprus Amax Minerals, Hecla Mining Co. v. New Hampshire Ins. Co., and Union Ins. Co. v. Hottenstein courts. The court cited these cases in support of the following principles:

• In determining whether a duty to defend exists, a trial court must limit its examination to the four corners of the underlying complaint. Cyprus Amax Minerals Co. v. Lexington Ins. Co., 74 P.3d 294, 299 (Colo. 2003);
• An insurer’s duty to defend arises when the underlying complaint against the insured alleges any facts that might fall within the coverage of the policy. Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1089 (Colo.1991);
• Poor workmanship constituting a breach of contract is generally not an accident that constitutes a covered occurrence. Union Ins. Co. v. Hottenstein, 83 P.3d 1196, 1199 (Colo. App. 2003).

Litigants seeking recovery of damages for construction defects under an insurance policy must be especially diligent and thorough when drafting their complaints. In practical terms, this means inclusion of any known damage resulting from defective workmanship. Unfortunately, in many cases, resulting damage may not be apparent until long after a complaint is drafted and experts have had a chance to inspect the work of a given construction professional.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

The outlook for construction projects in Colorado is not too rosy.

In an article in today's online edition of the Denver Business Journal, Cathy Proctor reported that 85% of the contractors surveyed in Colorado by the AGC expect there to be no growth in 2010.  Of the 52 contractors surveyed in Colorado (out of 700 surveyed nationally) an overwhelming majority stated that they did not believe any growth would occur until 2011, or later.

Ninety percent of the Colorado contractors surveyed said that they had lower profits in 2009 than in years past, and 11% reported that they suffered losses.  85% of the contractors reported that they laid off employees in 2009 and 25% reported that they will lay off more people in 2010.

80% of the AGC's Colorado chapter members renewed their memberships for 2010, and 20 new companies have joined.  Overall, the AGC's Colorado chapter expects to lose 10% of its membership this year.

With the industry having its back against the wall anyway, I think this is an opportune time for plaintiffs' lawyers to pick a fight in the legislature for construction defect measures favorable to owners.  Who will be around to oppose them?  If companies are facing losses and layoffs, will anyone be up for the fight against the plaintiffs' lawyers at the state legislature?  HHMR, for one thing, will be around and up for the fight!

If you would like to be added to my e-mail distribrution list, which will cover legislative issues in more depth, will share strategic information, and will contain specific calls for action, please e-mail me at mclain@hhmrlaw.com or visit the Governmental Affairs page on our website.

Recoverability of prejudgment interest in Colorado construction defect lawsuits.

In Goodyear Tire & Rubber Co. v. Holmes, 193 P.3d 821 (Colo. 2008), a homeowner brought an action against the manufacturer of a defective Entran II hose used in an embedded heating system. The homeowner sought to recover the cost of replacing the entire heating system. The rubber hose that was part of the system began to leak in 1993. After the hose continued to leak for several years, despite numerous repairs, the homeowner replaced the entire heating system in 2001 and 2002. In a suit against the manufacturer of the hose, the homeowner sought and recovered the costs of replacing the heating system. The homeowner also moved, post trial, for prejudgment interest under C.R.S. § 5-12-102, as of the date of the installation of the defective hose in 1991. The homeowner’s motion was denied. On appeal, the Court of Appeals, relying on Mesa Sand & Gravel Co. v. Landfill, Inc., 776 P.2d 362 (Colo. 1989), held that prejudgment interest should run from the time of installation of the defective hose in 1991.

After granting certiorari, the Supreme Court held that: 1) “wrongful withholding” occurred, for purposes of the accrual of prejudgment interest in replacement cost cases involving damage to property, after the plaintiff was wronged, disapproving of Porter Constr. Services, Inc. v. Ehrhardt, Keefe, Steiner and Hottman, P.C., 131 P.3d 1115 (Colo. App. 2005) and Isbill Associates, Inc. v. Denver, 666 P.2d 1117 (Colo. App. 1983); and 2) prejudgment interest started accruing on the date homeowner replaced the heating system rather than on the date the defective hose was installed.

Plaintiffs’ attorneys in construction cases have historically relied upon accrual of interest from the time of incorporation of defective construction elements to pay their contingent fees, leaving the homeowners with a greater portion of the jury award or settlement amount. The Goodyear case has left such attorneys scrambling to address this issue at the legislature. There will be more to come on this issue as the 2010 Colorado legislative session continues and plaintiff attorneys attempt to circumvent this ruling.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

Thermo Development v. Central Masonry Corp. Explained

In Thermo Development, Inc. v. Central Masonry Corp., 195 P.3d 1166 (Colo. App. 2008), the developers brought an action for contribution and indemnity against masonry and plaster subcontractors upon settling a water intrusion claim asserted by a condominium owner and condominium association. The developers argued that C.R.S. § 13-80-104(1)(b)(II)(B) permitted them to file claims against the subcontractors within ninety days of settling the underlying claims regardless of whether the applicable six-year statute of repose had expired. In response, the subcontractors argued that the ninety-day tolling provision provided by the statute served only to toll the statute of limitations, and not the statute of repose. The trial court agreed that the ninety-day tolling provision applied to the statute of limitations only and the developers appealed.

The Court of Appeals affirmed the trial court’s decision, determining that the plain language of C.R.S. § 13-80-104, the General Assembly’s intent when enacting the statute, and the preexisting case law all supported its interpretation that the ninety-day tolling provision afforded under C.R.S. § 13-80-104(1)(b)(II)(B) applies only when a claim arises, and must be brought, for purposes of the two-year statute of limitations under section C.R.S. § 13-80-102.

In light of the Court of Appeals’ decision, general contractors and developers should be particularly mindful of the timing issues associated with their claims against subcontractors and design professionals. The applicable statute of repose in Colorado, codified at C.R.S. § 13-80-104(1)(a) and (2), requires that all actions against any construction professional (including those providing design, planning, construction, supervision, inspection, or observation functions) must be brought no more than six years after substantial completion of the improvement to the real property, unless the claims arise during the fifth or sixth year after substantial completion, in which case the statute of repose is extended by two years. General contractors and developers are subject to the same statute of limitations and repose as are homeowners and homeowner associations. As such, a general contractor or developer which intends to bring claims against subcontractors or design professionals, in response to claims asserted by a homeowner or homeowner association, must ensure that their claims are brought within two years after a claim arises (or ninety days after settlement of the claim), an in no case after the applicable statute of repose has expired.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

Colorado Homeowner Protection Act of 2010. Much ado about nothing or Trojan horse?

For those of you not glued to your computer screens watching the streaming coverage of the first day of the sixty-seventh Colorado General Assembly, Senator Morse introduced SB 10-045, "A bill for an act concerning increasing the rights of homeowners, and, in connection therewith, enacting the 'Homeowner Protection Act of 2010.'"  The bill was assigned to the Senate State, Veterans, and Military Affairs Committee, chaired by Senator Heath.  The interesting thing about the HPA of 2010 is that it has nothing to do with construction defects, as we had expected.

The bill requires the holder of a residential mortgage to send written notice to a debtor 60 days prior to filing a foreclosure, increases the requirements for such notice, and requires that the holder "negotiate for a mutually acceptable agreement prior to commencing a foreclosure."  It also requires a holder to participate in, and pay for, mediation before a court can issue an order authorizing sale under a residential mortgage loan.  The bill also provides for sanctions for any party who fails to appear for a mediation, fails to provide documents requested by the mediator, or fails to negotiate "in good faith."

Even though the bill currently has nothing to do with construction defects, the bill's title is so broad that I fear it may later be used as a Trojan horse and transformed into a construction defects bill.  As of this week, a certain plaintiffs' attorney had disavowed any knowledge of a plan to introduce construction defects legislation this year.

Obviously, we will closely watch this bill to ensure that it remains much ado about nothing.  If so, and there is no construction defect legislation to fight this year, perhaps the building community can run its own legislation on the General Securty and Thermo-Development issues.  Stay tuned. 

If you would like to be added to my e-mail distribrution list, which will cover legislative issues in more depth, will share strategic information, and will contain specific calls for action, please e-mail me at mclain@hhmrlaw.com.

First day of the 2010 Colorado legislative session.

Today is the first day of the 2010 legislative session of the Colorado General Assembly.  Hang on to your hats for the next 120 days, as it promises to be in interesting ride.  According to the session preview from the Colorado Civil Justice League, the plaintiffs' bar has made it clear that it intends to support legislation allowing for attorneys' fees in construction defect cases.  Obviously this would incentivize plaintiffs' attorneys to bring even more claims against Colorado builders, which need as much support as possible in these trying economic times.

The CCJL's prediction that the bill will take the form of an attorneys' fees bill is a little different than what we had heard about the bill pertaining to prejudgment interest.  Either way, it will nothing more than a mechanism for plaintiffs' attorneys to line their pockets with the money of Colorado's construction professionals and their insurers.

Stay tuned.  Senator Morse's construction defect bill may be intoduced as early as today.  If you would like to discuss the prospects of the upcoming session, please call me at (303) 987-9813 or e-mail me at mclain@hhmrlaw.com. 

DRI's Construction Litigation Desk Reference Now Available.

The 2010 Construction Litigation Desk Reference, published by DRI - The Voice of the Defense Bar, is now available.  DRI is the international organization of attorneys defending the interests of business and individuals in civil litigation. DRI provides numerous educational and informational resources to DRI members and offers many opportunities for liaison among defense trial lawyers, Corporate America, and state and local defense organizations.

The new Construction Litigation Desk Reference is a collection of state-by-state chapters focused on the most important current issues in construction litigation. Topics addressed include: insurance (including "your work" exclusion, "occurrence" defined, and similar significant subtopics); causes of action (including contract, tort, strict liability, warranty, green building); construction/materialman's lien; surety/bond issues; defenses (including statutes of limitation and repose, contributory and comparative negligence, economic loss doctrine); arbitration/ ADR; measure and types of damages. The authors include dozens of experienced defense attorneys-members of the DRI Construction Law Committee. The efforts of the authors and editors have resulted in a unique Desk Reference for construction lawyers. The reader of this new publication will not only gain an up-to-date overview of the current law in his or her jurisdiction, but will be able to research the law of other jurisdictions.

Because of our experience in construction litigation, DRI asked the attorneys of Higgins, Hopkins, McLain & Roswell, LLC to author the chapter of the Desk Reference covering Colorado law.  To obtain a copy of the Desk Reference, visit the DRI website.  If you would like to obtain information about Colorado law only, please feel free to contact me for a copy of HHMR's Overview of Construction Defect Litigation in Colorado.  I can be reached by phone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

Homeowner Protection Act of 2010. Here we go again.

According to the latest available information, it appears as though Senator Morse will introduce the Homeowner Protection Act of 2010 as early as next Wednesday, January 13th.  Although Senator Morse has not shared drafts of this bill, insiders anticipate that it will have roughly the same provisions as did last year's, unsuccessful, Homeowner Protection Act of 2009.  This bill will be the plaintiffs' attorneys' attempt to regain the ability to recover prejudgment interest, which the Colorado Supreme Court took away in the Goodyear decision.

Now is the time to start paying attention and getting involved as it looks like it will be another tough fight.  If you would like to be added to my e-mail distribrution list, which will cover legislative issues in more depth, will share strategic information, and will contain specific calls for action, please contact me at mclain@hhmrlaw.com.  I look forward to helping the CAHB defeat the bill this year, just as we did last year.

Another verdict in a recent multifamily construction defect lawsuit.

The December 14th volume of the Jury Verdict Reporter of Colorado contained a write up regarding the Whispering Pines Townhomes Association v. Whispering Pines Company, Inc. suit, tried before Judge Lyman in Archuleta County District Court July 29 through August 17, 2009.  According to the association's website, Whispering Pines is a community of 59 townhomes located in 17 buildings in Pagosa Springs.

The HOA alleged $8.9 million in cost of repair damages.  This included repairs alleged to be necessary to the masonry, roofs, and various other building components.  The final demand before trial, according to defendants' counsel, was $4 million.  The final offer before trial, according to the defendants' attorney, was $1.5 million.

Experts for the plaintiff included Scott Dinslage, Carl Mangone, Jon Wagener, Robert Kitchell, and Ed Glassgow.  Experts for the defendants included Frank Harrison, Dan Wilkins, Bruce Buttner, and Art Klein.  

At the end of the trial, the jury returned verdict in favor of the HOA on all claims, including negligence, negligence per se, breach of the implied warranty of habitability, and violation of Colorado soils disclosure statute.  The breakdown of the damages awarded to the HOA was as follows:

• $300,000 for roofs;
• $195,000 for grading and drainage;
• $600,000 for wall systems;
• $1,185,000 for life-safety issues;
• $48,000 for structural repairs;
• $225,000 for decks;
• $589,000 for concrete;
• $30,000 for framing;
• $10,000 for cosmetic repairs;
• $254,560 for architectural engineering fees;
• $318,200 for contingency fees;
• $477,300 for general conditions;
• $50,000 for construction management; and
• $102,760 for previous repairs performed by the HOA.

Of the $4,077,882 awarded to the HOA, 93% was attributed to the negligence of Whispering Pine Company, Inc. and 7% was attributed to the HOA's failure to mitigate its damages. 

You can read, from the HOA's perspective, about the outfall of the case in the HOA's September 2009 and October 2009 newsletters here.  Interestingly enough, at least as of the end of the third quarter of 2009, the money awarded by the jury had not hit the HOA's operating account.  It will be interesting to check back periodically to see if and when the HOA recovers any money and, more interestingly, in what amount.  You can review the HOA's financials here.  To read the Pagosa Sun's coverage of the verdict, view the story here.

To learn more about construction defect litigation in Colorado, please contact me for a copy of our Overview of Construction Defect Litigation in Colorado. I can be reached at (303) 987-9813 or mclain@hhmrlaw.com.

Request for help in building an e-mail distribution list for the upcoming Colorado legislative session.

As we near another legislative session, I am in the process of refining the manner in which I communicate with those interested in construction defect legislation in Colorado, including builders, subcontractors, design professionals, insurers, and attorneys. Instead of ham and egging my communications through a combination of my own Outlook e-mails and co-opting the CDLA listserv (I apologize for my e-mails last year) I will be using a more professional means of communication, probably through a program such as Constant Contact or iContact.


I am now in the process of building my list of recipients, and would like your help in doing that. If you would like to be added to the list, please let me know. Also, please consider providing me with the e-mail addresses of people you think would like to receive communications regarding construction defect legislation (a .csv file will probably work best) or, alternatively, please send out an e-mail to your own e-mail distribution lists asking people to contact me if they would like to be added. My e-mail address is mclain@hhmrlaw.com. I assure you that the purpose of these e-mail will be for informational purposes only, unless we are looking for help in any regard, i.e., looking for people with information regarding specific cases, etc. We will not be using these lists to market, in any form or fashion.  We have our website for that.

I thank you in advance for your help in this project.  If all goes well, we should have the new system up and running this week or next.  With the session starting in a week, there is no time like the present.

Regards,

David M. McLain

Verdict in a recent case involving a trip-and-fall accident on construction site.

According to the November 23, 2009 Jury Verdct Reporter of Colorado (which I assume got held up in the mail somewhere), there was a trial last summer in El Paso County District Court involving a sub-subcontractor (Barnett) claiming to have been injured on a residential construction site.  Barnett claimed to have been injured when he fell off a ramp leading to the entrance of a townhome that was under construction, injuring his knee resulting in physical impairment and physical limitations.  According to the defendant, Peak Framing, Barnett had walked up and down the ramp several times on the day of the accident before he fell.  There were no witnesses to the accident.  The final demand before trial was $48,750 and the final offer was $15,000.  After a four-day jury trial, the jury returned a verdict for the defendant.

In an interesting twist, the jury was advised that the plaintiff held a medical marijuana certificate, which, according to the plaintiff, was needed to alleviate the knee pain from his construction site fall.  According to the defendant, the plaintiff had also applied for a medical marijuana certificate for neck pain.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

Bill addressing construction defects likely will return.

According to Paula Moore's recent article in the Denver Business Journal, it is likely that plaintiffs' attorneys will run another bill this year similar to Senate Bill 09-246, also known as the Homeowner Protection Act of 2009 (HPA of 2009).  That bill, sponsored by Senator Morse, was intended to legislatively overturn the 2008 Goodyear Tire & Rubber Co. v. Holmes decision of the Colorado Supreme Court.  Goodyear, 193 P.3d 821 (Colo. 2008).  Not happy with the ruling that homeowners cannot recover prejudgment interest on damages based on an anticipated future cost of repair, plaintiffs' attorneys ran the HPA of 2009 to regain that interest.

Rumors are circulating that the plaintiffs' attorneys that brought us the HPA of 2009 are working on a draft bill which is supposed to be more saleable at the legislature than was the HPA of 2009, which was ultimately withdrawn by Senator Morse because of strenuous opposition from builders, deverlopers, contractors and those that rely on the jobs that they bring into the state.

I hope to begin our coalition building strategy via e-mail later this week or next.  If you would like to be added to my e-mail distribution list, please contact me at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.  Higgins, Hopkins, McLain & Roswell will again be very much involved in the fight against the plaintiffs' attorneys' attempts to reopen the floodgates of construction defect litigation and to gain the leverage necessary to extort unreasonable settlements from the construction community.

Ten days until the start of the 2010 Colorado legislative session.

As previously reported, I will be serving as a voting member of the 2010 Colorado Association of Home Builders Government Affairs Committee.  Based on my experience in litigating construction defect cases on behalf of general contractors and developers throughout Colorado, I have been asked to serve on the Construction Defect Task Force. 

As in years past, I anticipate that I will again be very active in getting news from the Capitol out to the building community and in mustering support and resources needed to resist the plaintiffs' attorneys' legislative agenda.  To accomplish this, while being sensitive to not publicising our strategy, I will be communicating on legislative issues primarily by e-mail. 

If you would like to be added to my e-mail distribution list, please contact me at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.