Friday, April 30, 2010

Colorado HB 10-1394 Passed out of Committee and Onto the Senate Floor

On Wednesday, the Senate Business, Labor & Technology Committee considered HB 10-1394 and referred the bill, unamended, to the Senate Committee of the Whole.  The bill is currently calandered for Second Reading in the Senate on Monday, May 3rd.

Prior to the hearing on Wedneday, stakeholders from all affected industries (homeowners, builders, subcontractors, insurers, and insurance brokers) met for about an hour and a half to discuss the concerns expressed by those opposed to the bill.  In light of the fact that the opponnts of the bill did not present any alternative language, the bill ultimately went to the committee unamended, and with no potential amendments produced.

The one thing that came to light during the meeting was that Trey Rogers has recently been hired by Crum & Forster to defeat the measure.  For those who don't know, Mr. Rogers was, until March 1st of this year, Governor Ritter's Chief Legal Counsel.  As of March 1st, Mr. Rogers returned to private practice with Rothergerber, Johnson & Lyons, where he had been a partner prior to his working for the Governor.  According to ColoradoPols.com, "Of course, Trey Rogers has been more than just 'Chief Legal Counsel' under Ritter. Rogers has always been one of Ritter's closest advisors, on both political and policy questions, and his departure from the office will certainly change the way things are done (or not done) as the Governor enters his final 10 months in office."

During his participation in the stakeholders meeting, Mr. Rogers made very clear that his client, Crum & Forster, was opposed to the bill and believed that the two cases in question, General Security and Greystone, were good law.  This is directly contrary to the comments made by Cathleen Heintz of Hall & Evans on behalf of her clients, which are lobbying organizations for the insurance industry.  During her testimony on the House side, Ms. Heintz conceded that General Security and Greystone "took this rule [i.e., the restriction on coverage for construction defect claims] too far. . .  This was a shock, not only to the construction industry, but also to the insurance industry.  This is not the rule of law.  This is not the way the courts have ruled in other jurisdictions.  The courts took it too far."

Apparently, according to Mr. Rogers, the courts did not take their decisions too far for Crum & Forster.  The question I have is this, if Crum & Forster believes that General Security and Greystone are good law, and should be left alone, essentially eliminating coverage for construction defects altogether, under any circumstance, why would any construction company buy its policies?  I also wonder whether Mr. Rogers' involvement on behalf of Crum & Forster will increase the chance that Governor Ritter will veto the bill, if passed by the legislature.

I understand that there are still discussions going on between the parties to address the carriers' concerns regarding Section 1 of the bill pertaining to the "your work" exclusion.  They have proposed language drafted by the ISO to alleviate any concern that a CGL policy would be turned into some type of surety bond or warranty.  It will be interesting to see if these negotiations ultimately turn into a floor amendment on Monday.

Wednesday, April 28, 2010

Setting the Record Straight: The Colorado Association of Home Builders' Response to the ASA's Claims Regarding HB 10-1394

Yesterday I posted the American Subcontractors Association of Colorado's opposition piece to Colorado House Bill 10-1394.  Upon returning to my office, I found in my inbox the documents prepared by the Colorado Association of Home Builders to set the record straight.
Correcting the Record:
Response to American Subcontractors Association of Colorado
Opposition to HB-1394

What this bill does:

  • Myth: It dismantles the current Commercial General Liability (CGL) form.
    • Fact: All the bill does is require certain rules of interpretation be followed when interpreting a CGL policy. For example, the court would be required to:
      • Read the entire policy harmoniously;
      • Reach a just and reasonable result; and
      • Construe ambiguous policies in favor of coverage.
    • Fact: It defines an “accident” as it was always understood before General Security was decided. It does NOT require the insurance company to fix mere faulty work. It DOES say that if the work causes damage to other property, that it is an accident.
      • Most importantly, the bill says, “NOTHING IN THIS [DEFINITION OF AN ACCIDENT] CREATES INSURANCE COVERAGE NOT INCLUDED IN THE CONTRACT OF INSURANCE.”
      • Therefore all exclusions to coverage remain untouched – for example the “Your Work Product” exclusion which excludes coverage for faulty workmanship is not affected because that exclusion does not even mention the word “accident,” the only definition the bill deals with.
  • Myth: If passed, insurance companies will leave the state and premiums will go through the roof.
    • Fact: both allegations have been proven wrong historically.
      • First, before the Court issued its decision on General Security, the insurance industry issued policies in this state and paid claims under the exact same definition of an “accident” as is contained in the bill. Reversing General Security merely puts us back where we were and ensures contractors have the coverage for which they have paid premium dollars.
      • Second, many insurance companies issued policies for years with the basic “Montrose” exclusion that excluded coverage for damage that the insured knew existed before the policy was issued. This bill merely puts us back where we were then and prohibits the abusive practice of denying claims based on damage no one knew about before the policy was issued. What these insurance companies are doing would be akin to a health insurer saying you had a “pre-existing condition” if you had a tumor that had started to grow before you became insured EVEN IF NO ONE KNEW ABOUT IT.
  • Myth: The bill is unnecessary because CGL policies have properly covered contractors for claims.
    • Fact: In the General Security and Greystone and decisions, the Court held that there is NO coverage for construction defects under a CGL policy.
    • Those Courts did not look beyond the definition of an “occurrence” and through this myopic view found no coverage. HB-1394 would require courts to look at the ENTIRE policy, a much for fair and reasonable approach.
  • Myth: No other state has seen the need to make such sweeping changes.
    • Fact: General Security is a Colorado decision, hence HB-1394 is a Colorado solution.
    • Fact: these are not “sweeping changes’, they merely return the policy of the state to that which existed before General Security and Greystone took away coverage that clearly exists for contractors.
  • There is a FUNDAMENTAL MISUNDERSTANDING in the subcontractors’ position that is being driven by the fear mongering of the insurance industry:
    • This bill does NOT require coverage for faulty work.
    • It defines an accident as including the work of the contractor, but leaves intact the ability of the insurance company to exclude coverage for bad workmanship EVEN if caused by an accident (the statute expressly says it does not create coverage not otherwise included in the contract of insurance).
    • The only place in an insurance policy where the word “accident” is even mentioned is in the definition of an “occurrence.” All policies, if properly interpreted, start out covering everything caused by an accident and then exclude that which the insurer does not wish to cover. HB-1394 does not change the ability of the insurer to exclude coverage for faulty work, even if caused by an “accident” which gives rise to an “occurrence.”
The other responsive piece being circulated by the CAHB states:

Correcting the Record


Response to the American Subcontractors Association of Colorado
Opposition to HB-1394


What the bill does:
  • Myth: The bill attempts to correct recent court decisions involving construction defect cases in Colorado.
  • Fact: The bill targets two CGL policy provisions that insurers have been abusing to deny claims: (a) Insurance industry attorneys have already admitted in their testimony during a House committee hearing that both the General Security and Greystone cases were wrongly decided and must be fixed – this is accomplished by Part 1 of the Bill; (b) The insurance industry has been collecting premiums to cover long-term progressive damage claims, but then they deny those claims by the use of “Super-Montrose” exclusions. Part 2 of the Bill curtails these unfair practices.
  • Myth: The bill dismantles the insurance industry's comprehensive general liability policy, (CGL), designed and approved by the National Association of Insurance Commissioners (NAIC) and other insurance professional associations.
  • Fact: Wrong. The Bill is narrowly targeted to two problems insurers themselves created by taking unfair advantage of anti-trust exemptions that allow them to impose standardized policy forms.
  • Myth: The bill denies insurance companies the tools they need to protect insureds (subcontractors) from fraudulent and unsubstantiated construction defect claims.
  • Fact: Wrong. Nowhere in the Bill does it do this.
  • Myth: If passed, you will see an exodus of insurance companies leaving the state, which in turn will drive premium costs through the roof. Many construction companies will be unable to obtain insurance and will be available only at a price far beyond the reach of most small and medium sized subcontractor businesses.
  • Fact: Wrong. Currently, insurers are arguing there is zero coverage for property damage arising from latent construction defects, yet they have taken contractors’ premiums for years while representing there is such coverage. If a structure burns down after sale because of an unknown and hidden construction defect, such as a wiring short, insurers are telling builders “tough luck.”
  • Myth: This bill encourages poor workmanship and lower safety standards by requiring insurance companies to cover improperly performed work.
  • Fact: Wrong. Nowhere does the Bill require insurers to pay for the cost of redoing substandard work, or to pay for delays, or to pay for completing punch lists, or for anyone to take chances with safety.
The Truth: If developers and builders cannot restore the basic coverage that insurers have represented since 1986, in their marketing materials and presentations to insurance commissioners, that these CGL policies afford coverage for actual property damage caused by negligence, developers and builders will not be able to build and subcontractors will have no work.


The Truth: Florida and Texas have done by court decision what this Bill accomplishes with its Part 1 by legislation. In neither state did premiums abnormally rise or was there a loss of insurance availability.


The Truth: Part 2 of the Bill still allows insurers to use “Montrose” exclusions to avoid insuring losses known to the insured before a policy issues. Part 2 simply prevents them from using self-serving “Super-Montrose” exclusions from avoiding insuring losses completely unknown to the insured that is, protecting against the kind of risk for which insurance is obtained.


Why the bill is UNNECESSARY: The existing comprehensive general liability policy (CGL) is the standard in the construction industry. It has properly covered all policy holders for claims that have arisen for damage to other parties from work of the insured. Nothing has occurred in any Colorado Court findings that justifies altering the fundamental principles on which these policies have been written.


The Truth: Insurers are denying claims once covered by their policies due to a recent Court decision that was set-up by insurers on both sides of the case – no builders, contractors or property owners were parties to this decision.


No other state has seen any need or made any attempt to enact such sweeping change.


The Truth: This is because states across the nation, like Florida, Texas, Tennessee, Mississippi, Montana, etc. have eliminated these abusive insurance positions by court decision. Colorado construction professionals cannot wait for a case to wind its way through our over-burdened judicial system to the Colorado Supreme Court for a fix years down the line.
What you can do!  Vote no on HB10-1394. The passage of this bill threatens an industry that is already experiencing 25% unemployment and limited work opportunities. Increasing the cost of insurance and reducing the amount of companies that will do business is contrary to good business practices. You want a viable construction industry, not one that is incapable of working under the public policy created by HB10-1394. Vote no on HB10-1394.
The Truth: Even while our economy turns around, developers and builders cannot and will not build when their insurers are telling them their standardized CGL policies will not cover them if the structure they are building burns or collapses or otherwise suffers serious property damage after sale due to an unknown and hidden construction defect.


The Bottom Line: Without this Bill, construction professionals have no insurance. With this Bill, they will again have insurance. The insurance industry’s BIG LIE is that the policies they are selling today offer protection. In fact, they offer none. The insurance industry’s other BIG LIE is that they will stop writing insurance if the Bill passes (how many times have we heard this over the years?). This has not occurred in other states that have fixed the same problems that this Bill fixes.

What I have a hard time figuring out is how the builders and subcontractors can be at odds over this bill.  In the end, do they not both rely on CGL policies to respond and protect them from construction defect claims?  The only thing I can figure is that the subcontractors have never borne the brunt of paying out big judgments or settlements in construction defect cases.  Consequently, they may care less than do builders whether they actually get the coverage for which they bargained when purchasing CGL policies.  In the long run, the benefit to subcontractors of having premiums remain as low as possible is probably more important to them than that the policies respond to construction defect claims.  Then again, I may be wrong.

Colorado House Bill 10-1394 will be heard this afternoon in the Senate Business, Labor & Technology Committee in Senate Committee Room 354.  If you cannot make it down to the Capitol this afternoon, you can listen to the hearing live over the internet by visiting this page.

Tuesday, April 27, 2010

American Subcontractors Association of Colorado Opposes Colorado House Bill 10-1394

In a new set of talking points being circulated around the Colorado Capitol, the American Subcontractors Association of Colorado has recently come out against HB 10-1394.  The circulation from the ASA states:

American Subcontractors Association of Colorado Opposes HB10-1394
Sponsored by Rep. Joe Rice and Sen. Mark Scheffel
"Concerning Commercial Liability Insurance Policies
Issued to Construction Professionals"
What the bill does: The bill attempts to correct re'cent court decisions involving construction defect cases in Colorado. The bill dismantles the insurance industry's comprehensive general liability policy, (CGL) designed and approved by the National Association of Insurance Commissioners (NAIC) and other insurance professional associations. The bill denies insurance companies the tools they need to protect insureds (subcontractors) from fraudulent and unsubstantiated construction defect claims.
If passed, you will see an exodus of insurance companies leaving the state, which in turn will drive premium costs through the roof. Many construction companies will be unable to obtain insurance and will be available only at a price far beyond the reach of most small and medium sized subcontractor businesses. This bill encourages poor workmanship and lower safety standards by requiring insurance companies' to cover improperly performed work.
Why the bill is UNNECESSARY: The existing comprehensive general liability policy (CGL) is the standard in the construction industry. It has properly covered all policy holders for claims that have arisen for damage to other parties from work of the insured. Nothing has occurred in any Colorado Court findings that justifies altering the fundamental principles on which these policies have been written. No other state has seen any need or made any attempt to enact such sweeping change.
What you can do! Vote no on HB10-1394. The passage of this bill threatens an industry that is already experiencing 25% unemployment and limited work opportunities. Increasing the cost of insurance and reducing the amount of companies that will do business is contrary to good business practices. You want a viable construction industry, not one that is incapable of working under the public policy created by HB10-1394. Vote no on HB10-1394.
In other news, I have heard through the grapevine that other carriers, including American Safety, AIX, Century, and Hudson are also making noises about leaving the Colorado market should HB 10-1394 become law.  The bill will be heard tomorrow in the Senate Business, Labor & Technology Committee tomorrow at 1:30 in Senate Committee Room 354.

Saturday, April 24, 2010

Colorado House Bill 10-1394 Passes Out of the House and Moves on to the Senate

On April 21st, House Bill 10-1394 passed Second Reading in the House, after being amended.  The current version of the bill, found here, had two significant amendments prior to its passage out of the House.  First, in section one of the bill, the language of section 13-20-808(3)(a)(VI) was changed to read:

THE WORK OF A CONSTRUCTION PROFESSIONAL THAT RESULTS IN PROPERTY DAMAGE, INCLUDING DAMAGE TO THE WORK ITSELF OR OTHER WORK, IS AN ACCIDENT UNLESS THE PROPERTY DAMAGE IS INTENDED AND EXPECTED BY THE INSURED, BUT NOTHING IN THIS SUBPARAGRAPH (VI) CREATES INSURANCE COVERAGE NOT INCLUDED IN THE CONTRACT OF INSURANCE.
The last sentence was added to assuage the insurance industry's concerns that the new law would essentially convert every CGL policy into some form of a surety bond or warranty covering faulty workmanship.  The second significant amendment, in section two of the bill, changed section 10-4-110.4(2) to read:
(a) A PROVISION IN A LIABILITY INSURANCE POLICY ISSUED TO A CONSTRUCTION PROFESSIONAL EXCLUDING OR LIMITING COVERAGE FOR ONE OR MORE CLAIMS ARISING FROM BODILY INJURY, PROPERTY DAMAGE, ADVERTISING INJURY, OR PERSONAL INJURY THAT OCCURS BEFORE THE POLICY'S INCEPTION DATE AND THAT CONTINUES, WORSENS, OR PROGRESSES WHEN THE POLICY IS IN EFFECT IS VOID AND UNENFORCEABLE UNLESS THE EXCLUSION OR LIMITATION APPLIES ONLY IF THE INSURED HAD ACTUAL KNOWLEDGE OF THE INJURY OR DAMAGES BEFORE THE POLICY'S INCEPTION DATE. 
(b) AN INSURED'S KNOWLEDGE OF ORDINARY WARRANTY OR PUNCH LIST SERVICE DOES NOT CONSTITUTE ACTUAL KNOWLEDGE FOR THE PURPOSES OF PARAGRAPH (a) THIS SUBSECTION (2).
The bill, as originally introduced, made void both "Montrose" and "super-Montrose" exclusions.  Beause of pressure from the insurance industry, the bill was amended so as to make void only "super-Montrose" exclusions. 

On April 22nd, HB 10-1394 passed Third Reading in the House on a 61-0 vote.  The bill was introduced into the Senate on April 23rd and assigned to the Business, Labor and Technology Committee.  With most of the discrepancies between the stakeholders now ironed out, it is anticipated that the bill will move through the Senate quickly, receiving only minor corrective amendments.

It remains to be seen what effect HB 10-1394 will have on the cost and availability of CGL coverage for construction companies in Colorado.  The word on the street is that some carriers that relied heavily on super-Montrose exclusions, such as National Fire & Marine and Crum & Forster, have already announced that they will no longer issue CGL policies to construction companies in Colorado.

If you have any questions regarding HB 10-1394 any other bills making their way through the legislature this year, please contact me at mclain@hhmrlaw.com or by telephone at (303) 987-9813.

Friday, April 16, 2010

House Bill 10-1394 Continues its Journey Through the Colorado Legislature

As previously reported, HB 10-1394 was introduced into the Colorado House of Representatives on April 1, 2010.  For information or background regarding the bill, you can read our previous blog entry here.  The bill was amended by the House Business Affairs and Labor Committee and passed out of the committee on an 11-0 vote on April 7th.  The bill is currently scheduled for Second Reading in the House on April 20th.

Over the last few weeks, the stakeholders have had numerous conversations and meetings regarding the bill to work through differences and to determine whether compromises can be reached on the insurance carriers' concerns.  The carriers' first main concern is related to the language in the bill that "the work of a construction professional that results in property damage, including damage to the work itself, is an accident unless the property damage is intended and expected by the insured."  The concern is that this clause will turn the typical CGL policy into a surety bond or warranty.  The carriers' second concern is the prohibition, in section two of the bill, on "Montrose" and "super-Montrose" type endorsements.  The carriers' position can best be summed up in the following "call to action," which has been circulated throughout the Capitol:
CALL TO ACTION --- HB 10-1394 CONCERING COMMERCIAL LIABILITY INSURANCE POLICIES ISSUED TO CONSTRUCTION PROFESSIONALS 
IT IS IMPORTANT TO CONTRACT YOUR STATE REPRESENTATIVE TODAY!!

This bill is an attempt to address a court decision, General Security Indemnity Company of Arizona v Mountain States Mutual Casualty Company 205 P.3D 529 (Colo. App. 2009), which adversely interpreted coverage under a general liability policy according to the Colorado Association of Homebuilders (CAHB) and others. The decision stated that that there is no duty to defend faulty construction work claims for faulty work performed by a general contractor’s subcontractors. To correct this decision the bill requires that “The work of a construction professional that results in property damage, including damage to the work itself (boldface is used here for emphasis) other work, or property, is an accident unless the property damage is intended and expected from the standpoint of the insured.”

Our concern is that this language would now require a general liability policy to guarantee the quality of a contractor’s work much like a performance bond or warranty. This is contrary to our understanding of the intent of the general liability policy, which is to cover the consequential damage resulting from faulty work, but not the faulty work itself.

Section 2 of the bill poses additional problems. Page 7, line 3 (2) is as follows: “…..an insurer shall not issue a liability insurance policy to a construction professional that includes a provision that excludes or limits coverage under the policy for one or more claims arising from bodily injury, property damage, advertising injury, or personal injury that occurred before the inception date of the policy and is otherwise afforded coverage by the policy.” The effect of this wording would prohibit carriers from using any type of prior acts exclusions or Montrose endorsements (continuous or progressive damages not known, but occurring prior to the effective date of coverage). The only exception in the bill would be prior acts that could lead to a claim the insured had “actual knowledge” of and failed to disclose to the insurer. In other words if a contractor discloses prior acts that caused a loss or could cause a loss and the insurer writes a policy the insurer would on the hook for the coverage of these prior acts.

To put it simply, the bill would make insurers guarantors of the quality of a contractor’s work and require insurers to cover occurrences, including faulty work, which took place prior to the effective date of a policy. It is our opinion that this bill would result in many carriers deciding to no longer write general liability insurance for contractors. Carriers that decide to stay in the marketplace will undoubtedly be offering general liability policies with substantially higher premiums than what is currently available.

Also, since carriers would now have to price to cover prior occurrences it is our belief that the preferred rating approach will be to now write contractors on a claims made policy form. Since the statute of repose in Colorado is eight (8) years these claims made policies would have a retro date of eight years prior to the effective date, which would make these policies very expensive. 
This bill passed out of the House Business Affairs committee by an 11-0 vote. It is scheduled for second reading in the House on Friday April 16, 2010. While our side continues to work with the proponents of the bill on alternative language, the vote looms and we need to get our message out to your representatives about the adverse effect this bill would have on the construction industry.

Your message to your representatives should be as follows:

 
• The Professional Independent Insurance Agents of Colorado oppose the passage of HB 1394.

 
• This bill would legislate policy language for a general liability policy. This is something that no other state has enacted.

 
• The proposed bill will cause carriers to either refuse to write general liability insurance for contractors or offer a product with significantly higher premiums that will negatively impact Colorado business.

 
• Legislation that would have this kind of effect on Colorado business will negatively impact job creation in an industry that already has an unemployment rate in excess of 20%.

 
• The increased insurance costs to contractors will be passed along to the State and other public entities and there may be fewer contractors in business to provide bids for public entity work.
For their part, the proponents of the bill have been circulating the following talking point throughout the Capitol:
HB-1394 – Myth vs. Reality


 
Myth – The bill allows the “stacking” of insurance policies.

 
Reality – Under HB-1394, insurance companies will not be able to exclude coverage for damages that the builder did not know about but became apparent during the policy’s term. HB-1394 DOES NOT change the current ability of insurance companies to exclude damages that a builder knew existed in subsequent insurance policies to cover construction defects. The Bill also does not affect existing Colorado law requiring equitably pro-rating on a percentage basis an insured loss among various insurers on the risk when property damage occurs over several policy periods. In other words, the "years on the risk" percentage formula that insurers have relied on when dividing up a covered loss among themselves remains unaffected.
  • Builders obtain and pay for policies on a yearly basis.
  • Each policy is responsible only for damage that occurs within that policy period.
  • Unlike a car accident where all of the damage occurs at once, damage to a building can progress – for example from a roof leak, to the roof leak rotting the support beams, to a roof leak causing rot to roof beams that then collapse.
  • Under such circumstances, the builder’s policies cover the damage that occurs within the policy period, not the entire damage. So the insurer who insured during the year when the roof leak began only pays for that damage, the insurer provided coverage for the year in which the rot occurred pays only for that damage, and the insurer that provided the coverage for the year of the collapse pays only for that damage.
  • That is NOT stacking, that is giving the builder what it paid for when it bought the policies.

Myth – The bill will turn commercial general liability insurance policies into performance bonds.
Reality – Wrong. The Bill is limited simply to reaffirming the insurance industry's admitted intent, as expressed in their own interpretive and marketing materials going back to 1986, that their liability policies cover property damage resulting from the insured's negligence. In no way does the Bill require a liability insurer: (a) to pay to remedy defective work that does not cause property damage; (b) to pay for the completion of unfinished or non-conforming work; (c) to pay delay damages or (d) to pay for punchlist or warranty repairs. This is what the insurance industry has said in the past about the coverage afforded by the liability policies that are the subject of the measure:

  • Insurance Services Organization (ISO) is the insurance industry trade group that creates the industry’s standardized policies and underwriting guidelines pursuant to a federal anti-trust exemption. ISO Circular, Commercial General Liability Program Instructions Pamphlet (1986): ". . . covers damages caused by faulty workmanship to other parts of work in progress; and damage to, or caused by, a subcontractor’s work after the insured’s operations are completed."
  • Fire, Casualty and Surety Bulletins (FC&S) are published by the National Underwriter, an insurance industry trade and publication group. FC&S Bulletin: Public Liability, Aa 16-17 (1993): “Example: An insured general contractor builds an apartment house with many subcontractors’ services. After construction is complete a defect in the building’s wiring, which wiring was installed by a subcontractor, causes the building, including the work of the general contractor and other subcontractors, to sustain substantial fire damage. The insured is sued by the building owner. Result: Although the insured’s policy excludes damage to "your work" arising out of it or any part of it, the second part of the exclusion makes it clear that the exclusion does not apply to the claim.”
  • FC&S Bulletin: Public Liability, M.10-3 (February, 2002): “Example: Stucco work peels and chips, but which work was performed by the insured’s subcontractor. Result: "The insured may have hired the subcontractor and may be ultimately held legally responsible for the subcontractor’s work, but when it comes to the your work exclusion, the CGL form considers the insured and the subcontractor as two separate entities. The insured will not be penalized for the faulty work."

 
Myth – The bill voids existing contracts.

 
Reality – As with any other law, the bill's procedural aspects regarding what type of evidence that may be considered by a court in resolving a dispute as to what a complicated insurance contract means are effective immediately; however, any other aspect of the bill that some are arguing would unconstitutionally rewrite an existing contract would be ineffective to do so.

 
Myth – The bill voids "Montrose exclusions."

 
Reality – Wrong. HB-1394 expressly allows “Montrose exclusions” as the insurance industry originally adopted them following the Montrose decision in California, which exclusion bars coverage for lawsuits and claims that the insured is aware of before his insurance policy issues. However, the bill limits recent and unfair changes to this exclusion which disregard whether the insured has any knowledge of such lawsuits or claims before purchasing his policy and, instead, exclude coverage for losses of which the insured was completely unaware. These more recent, unfair provisions, when combined with Colorado's pro rata rule which limits each insurer's liability only to that percentage of the property damage which occurs during its particular policy, was allowing insurers to keep the insured's multiple premiums while simultaneously "squeezing" all of the insurance liability under a single policy, leaving the construction professional completely uninsured for its liability for property damage occurring afterwards.
  • Example: By coupling its Montrose provisions with Colorado's insurance apportionment rule, insurers, whose policies defined a covered “occurrence” as including property damage resulting from “continuous or repeated exposure to substantially the same general harmful conditions,” were arguing that, in the event of the insured’s liability for $100,000 in damages for long-term, progressive property damage spanning three policy years, the Montrose provision barred coverage during the last two years while Colorado's apportionment rule only allowed allocation of one third of the damages ($33,333) to the first policy year. Thus, the insured is left on the hook for $66,667 of the $100,000 loss even though the insured had no idea of the loss and potential liability until long after it paid its premiums for all three insurance policies.
It is my understanding that a compromise has been reached on section two of the bill, regarding the prohibition on Montrose and super-Montrose exclusions.  I believe that there have been compromises on other parts of the bill also and that the main point of resistance left pertains to the fear that section one of the bill will turn a typical CGL policy into a surety bond or warranty.  The parties are still working through this issue with the hope that a compromise can be reached.

If you have any questions regarding HB 10-1394 or the current negotiations, please feel free to contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com

Sunday, April 4, 2010

Attorneys with HHMR, LLC Honored as 2010 Colorado Super Lawyer® and “Rising Stars”

Denver, CO, April 04, 2010 --(PR.com -- The Denver-based law firm of Higgins, Hopkins, McLain & Roswell, LLC (HHMR) has announced that one of its litigators has been selected to receive an honor as 2010 Colorado Super Lawyer® by Super Lawyers magazine, and that three other HHMR lawyers also have been recognized as “Rising Stars” in their industry.

David B. Higgins was chosen to receive the honor as the 2010 Colorado Super Lawyer® a distinction that categorizes him as one of the top-performing construction law lawyers in the country.

In addition, three other construction defect litigation lawyers from HHMR have been identified as “Rising Stars” by the magazine, a distinction that also recognizes up-and-comers in the industry for their outstanding service and accomplishments. These three HHMR lawyers are founding partner David M. McLain, and associates, Bret Cogdill, and Derek Lindenschmidt.

According to McLain, this recognition of the HHMR’s attorneys is testament to the firm’s tireless dedication to its clients and the construction industry.

“I’ve never met more dedicated lawyers than those at HHMR. The recognition of David Higgins could not be more appropriate given the years that he dedicated to the industry,” said McLain. “No one is more deserving of the honor of a 2010 Colorado Super Lawyer® than David is, and now that he has slowed down, it is assuring to see that the firm also contains the next generation of outstanding construction litigation attorneys. To have three of our attorneys, myself included, be singled out as Rising Stars in our industry is also a valued distinction that we cherish whole-heartedly. It is, simply put, the icing on the cake.”

HHMR’s expertise is in the field of construction law and the litigation of construction defect claims. The firm’s team of high profile construction defect attorneys is consistently sought out by developers, general contractors, and subcontractors not only to litigate construction claims, but also to consult on risk avoidance and risk management strategies. Among current clients of HHMR are several of the state’s largest homebuilders, regional and custom builders, and numerous insurance companies.

Super Lawyers® is a listing of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The list is published annually as a special supplement in leading newspapers and city and regional magazines across the country. Super Lawyers® magazine, featuring articles about attorneys named to the Super Lawyers® list, is distributed to all attorneys in the state or region, the lead corporate counsel of Russell 3000 companies, and ABA-approved law libraries. In 1998, Super Lawyers® launched Rising Stars in Minnesota to recognize the top up-and-coming attorneys in the state who are 40 years old or younger, or who have been practicing for 10 years or less.

About HMMR (http://www.hhmrlaw.com/): HHMR specializes in all aspects of construction lawsuits, with a long history of litigation success as tort defense lawyers, product liability lawyers, construction lien lawyers, and more.

For more information visit the web site at http://www.hhmrlaw.com/, or call (303) 987-9870.

Friday, April 2, 2010

Will there be a construction defects bill in 2010? When will we know?

On the front page of today's Denver Business Journal, Ed Sealover wrote an article entitled, "Builders fear another version of the construction-defects bill."  In the article, Mr. Sealover notes that Senator Morse introduced SB 10-045 of the first day of the session, which is entitled "The Homeowner Protection Act of 2010."  In the article, Mr. Sealover stated:
Because of the bill's broad title and lack of movement, homebuilders fear Morse and sponsoring Rep. Andy Kerr, D-Lakewood, could gut its language - and replace it with language from last year's SB 246 - in a late-session move.  Morse, in an interview, insisted he won'd do that and said he hopes to send the measure to Gov. Bill Ritter as a mortgage-protection bill. 
But Kerr, who often has clashed with homebuilders, hasn't ruled out doing just what they fear.  While he and Morse are more likely to bring a construction-defects bill next year, Kerr acknowledged that substituting such language into a mortgage-protection bill isn't out of the question.

"I think just like any other issue [homebuilders] are concerned about, they should know that all options are on the table," said Kerr, the assistant House majority leader.  "I have not talked to Sen. Morse about doing that.  I have not talked to the advocates of 246 last year about that ... I guess anything is possible at this point."
Referring to the Democratic leadership's previous e-mail to Democratic precinct caucus attendees, along with the accompanying resolution and professionally-produced video, discussed here, Mr. Sealover reported:
The two legislators, along with House Speaker Terrance Carroll, D-Denver, and Senate President Brandon Shaffer, D-Longmont, asked attendees at Democratic caucuses this year to support a resolution calling on Democrats to back legislators to restore "homeowner rights."  That resolution, calling for homeowners to have "the same basic legal protections builders have," was needed in preparation for a 2011 reintroduction of the 2009 bill in order to fight the homebuilders' lobby, Morse said.
Interestingly, none of the links from the Democratic leadership communication remain live and the video, starring Senator Morse, along with Representatives Carroll and Kerr, which was previously available on YouTube, has been made private.  Clearly, the Democratic leadership did not want anyone to know what they were up to or what their strategies may be.
Homebuilders will oppose any bill that reinstates the longer-calculating interest in lawsuits.  But substituting such overhauling language into a bill that's supposed to be about something else this year, rather than just running a bill on construction defects, seems dishonest, [Mr. Rob] Nanfelt [executive vice president of the Colorado Association of Home Builders] said. 
*     *     *

Morse said he introduced SB 45 to help out-of-work Coloradans who have gone into foreclosure by giving them some more leeway without extending indefinitely the mortages of people who will never be able to pay them.  The bill stalled because the Senate has concentrated on other big issues and because he's still in negotiations with both sides of the mortgage issue, he said.  But it should move forward in a couple of weeks.

"What it's trying to do is make sure people don't go into foreclosure unless they absolutely have to," he said.  "I intend to pass this bill out of the Senate dealing with foreclosures."
The questions now remain: 1) Will the bill deal with anything else when it passes out of the Senate?; and 2) When will the Democratic leadership get down to the business of governing the state and stop playing these games with the homebuilding industry?

To follow SB 10-045, you can visit the Colorado General Assembly's website. To stay abreast of legislative changes in Colorado which will impact the litigation of construction claims, please contact David M. McLain by e-mail at mclain@hhmrlaw.com or by telephone at (303) 987-9813. Otherwise, you can visit our website and sign up for our legislative monitoring e-mails.

HB 10-1394 - A Bill for an Act Concerning Professional Liability Insurance Policies Issued to Construction Professionals

Yesterday, Representative Joe Rice introduced into the Colorado House of Representatives House Bill 10-1394, "A Bill for an Act Concerning Professional Liability Insurance Policies Issued to Construction Professionals." The bill, also sponsored by Senator Mark Scheffel, was assigned to the House Business Affairs and Labor Committee, which happens to be chaired by Representative Rice. 

The summary of HB 10-1394 reads as follows:
In General Security Indemnity Company of Arizona v. Mountain States Mutual Casualty Company, 205 P.3d 529 (Colo. App. 2009), the court excluded claims for certain construction defects claims and imposed no obligation to defend in a contractor's professional liability insurance policy. Section 1 of the bill imposes the following rules of contract construction to guide a court in such cases:
    • A court should presume that: Compliance with a construction professional's objective, reasonable expectations is intended; the entire policy is to be effective and read as a whole; a just and reasonable result is intended; ambiguity in a policy is to be construed in favor of coverage; a result that renders a part of coverage illusory is not intended; and the work of a construction professional that results in property damage is an accident unless the property damage is intended and expected by the insured. 
    • When weighing conflicting provisions, the court should construe the contract to favor coverage.
    • The insurer bears the burden of proving that a policy provision limits or bars coverage.
Section 2 prohibits a professional liability insurer from excluding or limiting coverage of acts arising before the policy was issued unless the insured knows of defects that have a likelihood to subject the insurer to damages and fails to disclose this to the insurer. A policy that conflicts with section 2 is unenforceable.
By reviewing the text of the bill, it appears that Section 1 is clearly intented to amerliorate the effects of the General Securty decision and its progeny, including Greystone and Boulder Plaza, on insurance coverage for construction defect claims in Colorado.  Section 2 makes void as against public policy any "super Montrose" type exclusions on construction professionals' CGL policies.

To follow HB 10-1394, you can visit the Colorado General Assembly's website.  To stay abreast of legislative changes in Colorado which will impact the litigation of construction claims, please contact David M. McLain by e-mail at mclain@hhmrlaw.com or by telephone at (303) 987-9813.  Otherwise, you can visit our website and sign up for our legislative monitoring e-mails.

Thursday, April 1, 2010

Treadwell v. Village Homes and the Lessons Learned Regarding Deference to an Arbiter's Decision

For at least a couple of decades, business parties have often preferred to seek resolution of disputes through arbitration proceedings rather than court proceedings. While this kind of alternative dispute resolution has some significant benefits, some downside factors do exist, and are occasionally highlighted in later court published appellate cases where an arbitration award is either challenged or enforced.

In the recent appellate case of Treadwell v. Village Homes of Colorado, Inc., 222 P.3d 398 (Colo. App. 2009), a homeowner arbitrated issues asserted against the builder/vendor of a residence. The use of arbitration was based on a the terms of the sales contract at the time of purchase of the home.

The contract provided that in any dispute, the parties would pay their own attorney’s fees, unless there was “a showing of egregious conduct,” which would then allow the arbiter to award attorneys’ fees to the prevailing party. The arbiter, The Honorable Robbie Barr of the Judicial Arbiter Group (JAG), awarded $525,000 in damages against the builder for negligent misrepresentations and violations of the Colorado Consumer Protection Act (CCPA). She also awarded almost $300,000 in attorneys’ fees, costs, and interest. Village Homes challenged the award in a later enforcement action in court, arguing that the arbiter had exceeded her powers, and that the arbiter had not provided any stated basis for the award of attorneys’ fees.

The trial court, and later the appellate court, enforced the awards in all respects, saying that arbiters' decisions are given extreme deference, and will generally not be second-guessed, even when they are not fully explained. In particular, an arbiter’s interpretation of the contract between the parties will not be re-examined by the courts in a later action to challenge or enforce the award. The result was driven by the fact that Village Homes' challenge to the arbitration award was based on what the arbiter did, and not her power to do it. If there is a lesson to be learned from this case it is that an arbiter’s powers are in many ways greater than a judge’s powers, because the appellate process exists as a potential check on the decisions of the trial judge in a court. As a practical and legal matter, most decisions by arbiters are not subject to that same judicial or appellate scrutiny.

If you would like more information regarding the Treadwell decision or construction litigatin in Colorado, please contact Buck Mann by e-mail at mann@hhmrlaw.com or by telephone at (303) 987-7143.  If you would like to suggest a topic to be covered in this blog, please contact David M. McLain by e-mail at mclain@hhmrlaw.com or by telephone at (303) 987-9813.

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.