Monday, October 31, 2011

Is now really the time to bare it all? An analysis of the decision to discontinue insurance coverage in times when no new homes are being built.

With the downturn in the economy over the last few years, and the fact that the homebuilding industry has been particularly hard hit, I have heard from clients and colleagues that more and more builders are discontinuing their annual renewable commercial general liability insurance programs, deciding instead to go bare.  This absolutely scares the crap out of me, and it should scare you too. 

The two factors which militate against going bare can be traced to two Colorado appellate court decisions.  The first of these is Public Service Company of Colorado w. Wallis and Companies.[1]  While not a construction defect suit, this case adopted the time-on-the-risk analysis for the allocation of risk in cases involving continuous and progressive losses, such as construction defect suits.  The way that the time-on-the risk analysis works is this, a court will divide the total amount of liability by the number of years at issue.  The court will then allocate liability accordingly to each policy year.  To determine the total number of years at issue, you typically add up the number of years between substantial completion of a home and the date of the statutory notice of claim under the Construction Defect Action Reform Act.  For instance, if you received today a notice of claim on a home substantially completed on this date in 2006, there would be five years of time on the risk.  Allocating the risk across the five years of time-on-the-risk would result in 20% of the claim being attributed to each year. Now here’s the rub.  For each year during which you do not renew your CGL policy, you create an uncovered exposure.  For instance, if you carried insurance for only year one from the example above, then had four years of uncovered exposure, your carrier would cover 20% of the ultimate indemnity award (assuming it is covered by the policy) and the remaining 80% of the loss would be uninsured and, as a result, the risk of that loss would fall on you.

The second factor which militates towards continuing coverage is the Hoang v. Arbess decision.[2] In that case, the Colorado Court of Appeals held that in cases involving construction defects, homeowners can hold corporate officers of the contracting company personally liable for the construction defects if they are directly involved in the tortious conduct either by approving of, directing, actively participating in, or cooperating in the negligent conduct of the corporation.  In other words, while an officer of a corporation cannot be held personally liable for a corporation’s tort solely by reason of his or her official capacity, an officer may be held personally liable for his or her individual acts of negligence even though committed on behalf of the corporation, which is also held liable.  In the Hoang case, Mr. Arbess was held personally liable because he “approved of, directed, actively participated in, or cooperated in the negligent conduct. For example, plaintiffs presented evidence that defendant was personally involved in each step of the construction, chose the individual home sites, oversaw the subcontractors, set policies and procedures for the subcontractors to follow, and visited the construction sites at least once a week.”  How does this differ from your role in the homes you have built?  Mr. Arbess was also found liable because of his decision to use slab-on-grade basement floors instead of the structural floors recommended by the geotechnical engineer.

When you combine these two concepts, the results can be devastating.  It is not a situation where you will be leaving homeowners with judgments against only insolvent entities or single-purpose LLCs.  They may well end up with a judgment against you personally.  If you have personal liability for uncovered exposures, you will wish that you kept your annual renewable commercial general liability policies in place.  It is a small price to pay in comparison to having to defend yourself from, and pay any judgment in, a construction defect lawsuit.  If you have discontinued your insurance coverage, or are considering doing so, I urge you to talk with your insurance agent about the decision.  Instead of leaving the annual renewable program in place, there may be other options, such as purchasing tail coverage.  It is not the time to bare all.
-- David M. McLain 

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

[1] 986 P.2d 924 (Colo. 1999).
[2] 80 P.3d 863 (Colo. App. 2003).

Wednesday, October 19, 2011

An Arapahoe County District Court Retroactively Applies C.R.S. § 13-20-808 (HB 10-1394).

In D.R. Horton, Inc., et al. v. Assurance Company of America, et al., Judge Valeria N. Spencer applied HB 10-1394 retroactively in a coverage case.  The case arose out of the construction of a multi-family condominium complex, on which DRH hired Campbell Beard as the roofer on the project.  Pursuant to the requirements of the subcontract, Campbell Beard named DRH as an additional insured on its CGL policy issued by Mountain States Mutual Casualty Company.   After settling the underlying construction defect suit, DRH brought suit against the subcontractors’ insurance carriers to seek reimbursement for costs expended in defending the underlying case.

Under the terms of the policy issued to Campbell Beard, Mountain States was obligated to defend its insureds, including DRH, and to pay for damages if they were caused by an occurrence that resulted in property damage during the policy period.  While there was no dispute regarding the fact that DRH was named as an additional insured on the policy, there was a dispute about whether the facts set forth in the underlying complaint were sufficient to trigger Mountain States’ obligations to defend and indemnify DRH under the policy.  Citing General Security, Mountain States filed a motion to dismiss arguing that it was entitled to dismissal on the grounds that the underlying complaint merely alleged poor workmanship by Campbell Beard and did not implicate Campbell Beard’s work as the cause for the consequential damages suffered.

In a December 30, 2010 order denying Mountain States’ motion, Judge Valeria N. Spencer stated:

In order for plaintiff to defeat Defendant’s motion to dismiss in this case, the allegations contained in the operative liability complaint in the Underlying Action must implicate Defendant as a possible source of defective workmanship on the Sterling Commons II Project. Upon careful review of the underlying complaint, in the light most favorable to Plaintiff, the Court finds that Defendant is not entitled to a dismissal. In support of this conclusion, the Court looks to paragraph 77.2 of the underlying complaint where it states that “work performed on, but not limited to, the roofs was defective and improper resulting in damaged and defective structures and real property of the Common Interest Community.” Because Campbell was contracted to perform roofing services for the Sterling Commons Project, this paragraph implicates Campbell as the source of defective workmanship that resulted in property damage. In accordance with C.R.S. §13-20-808(1)(b)(IV)(3), Plaintiff’s claim that Campbell provided defective workmanship in constructing the roofs constitutes an occurrence that would trigger Defendant’s obligations under the terms of the general commercial liability policy issued to Campbell. . .

Despite the clear language of the C.R.S. §13-20-808 that establishes defective workmanship alone is an occurrence, Defendant submits that this statute cannot be used retroactively to evaluate the merits of this case. Again, Defendant’s assertion is without merit. The plain language states that this statute is to be used “for the purposes of guiding pending and future actions interpreting liability insurance policies issued to construction professionals.” C.R.S. §13-20-808(1)(b)(IV) (emphasis added). Because the current matter before this Court is a pending action based upon the interpretation of a liability insurance policy under the plain and ordinary understanding of those words, the statue is controlling. . .

Now that I have seen at least one trial court buck the trend and apply C.R.S. § 13-20-808 retroactively, I feel even stronger that this issue will ultimately be taken up by the Colorado appellate courts.  Until the issue is resolved there, I will remain very interested in any and all trial court orders interpreting or applying C.R.S. § 13-20-808. If you would like a copy of the order discussed in this entry, please send me an e-mail at Also, if you have any additional orders on point, I would very much like to see them. Please send them my way.

-- David M. McLain

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

Saturday, October 1, 2011

Higgins, Hopkins, McLain & Roswell Celebrates its 10 Year Anniversary

Denver, CO, October 01, 2011 --( Higgins, Hopkins, McLain & Roswell, LLC, a boutique law firm dedicated to the construction industry, celebrates its ten year anniversary today. Founded in 2001, HHMR quickly emerged as one of Colorado’s preeminent construction litigation firms. Since its inception, HHMR has focused on providing quality legal services to construction professionals and their insurers throughout a wide range of residential and commercial construction disputes. Proactively, HHMR also provides consulting services to many construction professionals who endeavor to minimize litigation exposure by employing informed and meaningful risk management strategies.

“Over the last ten years, we have seen no slow down in the amount of construction litigation in Colorado, and HHMR has remained at the forefront of defending Colorado’s builders and contractors,” said David M. McLain, one of the founding members of the firm. Through evolving and often challenging economic and legislative times, HHMR remains committed to providing exceptional legal services. “We have celebrated growth and the acquisition of talented colleagues over the years.”

Founding member, Sheri Roswell, added “I attribute our success to two things: First, we have exceptional and loyal clients who recognize the value in what we do. Second, the HHMR team has unparalleled energy and enthusiasm for serving our clients with tenacity, talent, and ethical advocacy, at the highest level.

About HHMR:
“HHMR exists to embody and exemplify the principles of service and stewardship. In everything we do, we focus on serving our clients selflessly and to the best of our ability. In doing so, we always have in the forefront of our minds our obligation to act as the stewards of our clients’ trust, confidences, and resources.” HHMR is highly regarded for its expertise in construction law and the litigation of construction claims. HHMR represents a wide variety of clients, from individuals, to small businesses, to Fortune 500 companies.

David M. McLain                  
(303) 987-9813

Sheri Roswell
(303) 987-9812


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.