New Laws to Take Effect January 1, 2011

Last week's Capitol Close-Up, a weekly legislative update from the Colorado Association of Home Builders, included a great synopsis of two new laws, which will become effective January 1, 2011.  The update reads as follows:

Capitol Close-Up

Monday, December 20, 2010

Below is information on two pieces of legislation that will become effective January 1, 2011 that directly affect home builders in Colorado. Please review the information below and attached and contact your legal council with any questions you might have.

HB10-1278

HB10-1278 (attached) creates an HOA Information & Resource Center to be housed within the Colorado Division of Real Estate and overseen by the HOA Information Officer. The purpose of the Resource Center is to “provide information on the rights and duties of unit owners, developers and associations under the Colorado Common Interest Ownership Act.”

The costs associated with the HOA Information & Resource Center and the HOA Information Officer will be paid for through a mandatory registration for HOAs. The effective date of the registration process is January 1, 2011; however because of delays in setting up the registration process, the Division of Real Estate adopted emergency rules on December 15, 2010 that grant a temporary registration to all HOAs that is valid until March 1, 2011. A copy of the emergency rules is attached to this email as is a memo from the newly appointed HOA Information Officer.

Every association (whether or not they are declarant controlled), except voluntary associations, will be required to register on a yearly basis; however, the following categories of associations will not be required to pay the registration fee:

• Associations with annual revenue of $5,000 or less; and

• Associations not authorized to levy assessments and do not have any revenue.

Associations that fail to register or keep a registration current are subject to the following steep penalties, including not being permitted to foreclose upon the association’s statutory liens or enforce existing covenants.

Please make sure that any HOAs that you control are ready to comply with this requirement by March 1, 2011. Please contact your legal council with any questions you have or for additional information.

HB10-1358

HB10-1358 (attached) requires that, effective January 1, 2011, every person that builds a new single-family detached residence for which a buyer is under contract shall offer the buyer the opportunity to select one or more Water Smart Home options for the residence. Please see the attached bill for a list of options that satisfy this requirement be sure that your contracts include this option by January 1, 2011. Please contact your legal council with any questions you have or for additional information.

If you would like any of the referenced attachments, please call me at (303) 987-9813 or send me an e-mail at mclain@hhmrlaw.com.  To learn more about the Colorado Association of Home Builders, you can visit its website here.

The Case Behind Colorado HB 10-1394?

If you have followed the events in Colorado’s legislature this year related to the construction industry, then you’re most likely familiar with the recent passage of HB 10-1394. HB 10-1394, now codified at C.R.S. § 10-4-110.4 and C.R.S. § 13-20-808, provides courts guidance when interpreting commercial general liability policies issued to construction professionals. Interestingly, although the bill may be inextricably linked with General Security Indemnity Co. of Arizona v. Mountain States Mutual Casualty Co., 205 P.3d 529 (Colo. App. 2009) and Greystone Construction, Inc. v. National Fire & Marine Ins. Co., 649 F. Supp. 2d 1213 (D. Colo. 2009), it may very well be that the lesser known United States Fire Insurance Company v. Pinkard Construction Company, Civil Action No. 09-CV-01854-MSK-MJW, and its underlying dispute, Legacy Apartments v. Pinkard Construction Company, Case No. 2003 CV 703, Boulder County Dist. Ct., was the driving force behind the bill.

The Pinkard cases arise from allegations of defective construction of an apartment complex in Longmont, Colorado. Pinkard, as the builder of the apartment complex, demanded that its general liability insurers, including United States Fire Insurance, defend and indemnify it against the claims brought against it by the apartment owners. United States Fire moved for summary judgment against Pinkard, arguing that Colorado law does not construe property damage caused by poor workmanship to constitute an occurrence under the standard language in general liability policies—the same substantive argument that we’ve become familiar with via the General Security and Greystone cases. Along with responding to United States Fire’s summary judgment argument, Pinkard implored the United States District Court to certify the issue to the Colorado Supreme Court.

The United States District Court denied Pinkard’s motion to certify because the same substantive question, “Is damage to nondefective portions of a structure caused by conditions resulting from a subcontractor’s defective work product a covered ‘occurrence’ under Colorado law?” had already been certified by the 10th Circuit Court of Appeals. The Court also denied United States Fire’s motion for summary judgment on the basis that the Colorado Supreme Court’s answer to the certified question would most likely resolve the parties’ dispute. Unfortunately, the Colorado Supreme Court has since declined to accept the certified question, thereby leaving the resolution of this issue unsettled to this day. Even so, given that the issue remains on appeal in Greystone, as well as in United Fire & Casualty Co. v. Boulder Plaza Residential, No. 06-cv-0037-PAB-CBS, a resolution to the question may not be that far off.

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 Court of Appeals Defines Actual Damage Claims Under CDARA

The Colorado Court of Appeals in Hildebrand v. New Vista Homes II, LLC, 08CA2645, 2010 WL 4492356 (Colo. App. Nov. 10, 2010) held that part-time resident/owners of a home can receive inconvenience damages arising from the negligently built home. This case, which is an excellent example of how to prove many issues in construction litigation,[1] may now be the leading case in the area of construction defect damages.

Mark A. Hildebrand (Junior) and Mark L. Hildebrand (Senior) purchased a home built by New Vista Homes II, LLC (New Vista). After the basement floor was damaged from ground movement, they sued both New Vista and Richard Reeves, a manager of New Vista, for a variety of issues, including negligence and the Construction Defect Action Reform Act (CDARA).

Junior was a full-time resident of the home. In addition to the severely cracked slab, Junior was distressed because the home in its current condition was no longer his sanctuary. He also had been angry and sleepless over the condition of his home and could not allow his children near the stairs. The court held that Junior was entitled to inconvenience damages under CDARA.

Senior did not live in the home, or in the state of Colorado, but he would “periodically come out to visit.” Senior also testified he would have liked to put his ping-pong and pool tables down in the basement, but could not because of the condition down there. The Court held that enough evidence of derivative inconvenience damages was present for a jury to decide what damages Senior suffered for his limited use of the home.

The court explained that the plain language of CDARA limits the amount of damages against a construction professional to “actual damages.” C.R.S. § 13-20-806(1). Those in construction defect litigation can readily recite that actual damages means the lesser of: 1) the fair market value of the real property without the alleged construction defect; 2) the replacement cost of the real property; or, 3) the cost to repair the alleged construction defect. C.R.S. § 13-20-802.5(2).

However, the court explained, CDARA also allows for personal injury damages, limited by C.R.S. § 13-20-806(4). C.R.S. § 13-20-806(4), allows non-economic loss and derivative non-economic loss, defined by C.R.S. § 13-21-102.5, up to $250,000. Finally, C.R.S. § 13-21-102.5 defines non-economic loss to include pain and suffering, inconvenience, emotional distress, and impairment of the quality of life.

Therefore, if you follow the trail of definitions that begins in CDARA, you have a case for inconvenience and derivative inconvenience damages under CDARA.

That said, this case does not answer all questions about non-economic damages under CDARA. The instant case involved only one single-family home. There are arguments for both future plaintiff and defense attorneys regarding whether homeowners associations have standing to bring non-economic damage claims for their residents. The Hildebrand court also differentiated an owner/visitor, such as Senior, from a traditional landlord. Because a landlord does not have an equal right of enjoyment of the property due to the lease, a landlord cannot recover non-economic damages. Hildebrand at *13. Yet, this analysis begs the question regarding whether an investor with full rights of enjoyment to a home could recover for non-economic damages for an empty home with construction defects.

In conclusion, I still must ask rhetorically if this ruling on non-economic damages, especially derivative non-economic damages, is in the spirit of tort reform that the Colorado Legislature intended with CDARA. Although this recent case can be limited on its facts, it certainly has opened a door when it comes to plaintiffs’ claims of emotional harm under CDARA.

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

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[1] The court also discussed negligence, negligent misrepresentation, soil disclosure, implied warranty of habitability, CCPA, and pre-judgment interest.