HHMR Attorneys to Speak at an Upcoming CRG Lunch & Learn

Dave McLain, Sheri Roswell, and Lisa Bondy Dunn will be speaking at the final installment of a four-part series hosted by the Construction Resource Group's entitled "Everything You Need to Know About Risk Management Through the Life of Your Project and Beyond."  The November 11th Lunch & Learn, "You Did Everything Right - And You Still Got Sued. What Now?," will cover responding to a notice of claim, the litigation process, and the political environment and potential changes to the law.  

Registration is still open, through the link in the brochure below.  We hope to see you on November 11th!  

David M. McLain named Law Week Colorado’s 2015 Barrister’s Best Construction Defects Lawyer for Defendants

It is my sincere pleasure to announce Law Week Colorado named my friend and partner, Dave McLain, as the 2015 Barrister’s Best Construction Defects Lawyer for Defendants.  Law Week Colorado’s summary of David’s accomplishments includes the following recognition: 

David McLain has set himself apart in the heated area of construction defects litigation as a founding member of his firm and as a member of several associations that serve developers.  As one of the most connected and most vocal members of this area of law, we certainly know whom to go to when the construction defects issue inevitably bubbles up again.

I can say with pride and certainty, that there is no one more deserving of such recognition in the legal and construction community than David.  I have had the honor of working side by side with David since he began practicing law.  Together, fourteen years ago, we founded Higgins, Hopkins, McLain & Roswell, LLC with a vision of serving the construction industry at the highest level.  Our firm’s Mission Statement states that “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.”  David lives our values each and every day. 

Throughout his general civil litigation career, David’s practice has focused on the representation of construction professionals and their insurers.  David has become one of the most sought after legal professionals in the region, both for his keen skills in construction litigation and for his unsurpassed leadership in professional organizations and legislative efforts.  When it comes to issues of risk management, David has an uncanny ability to evaluate exposures, identify the issues, and forge a path toward a positive outcome for his clients.  David brings intelligence, integrity and a sharp wit to all that he does.  Congratulations David; well done.

-          Sheri Roswell

Mr. David McLain to speak at the 2015 Claims College – School of Construction.

David M. McLain, Attorney, Higgins, Hopkins, McLain & Roswell, LLC will be speaking at the CLM 2015 School of Construction.  The 2015 Claims College will be held in Philadelphia, Pennsylvania, September 9-12.

 

Each school is comprised of three levels and successful completion of all levels in a particular school will earn participants a respected and sought after designation, which will become the industry standard for identifying top-notch claims professionals. For individual schools, levels consist of pre-course reading materials, in-class instruction, group projects and an exam. The Claims College is not an industry seminar or conference, this is a true educational experience designed to help educate and grow the claims profession.

David M. McLain is a founding member of Higgins, Hopkins, McLain & Roswell, LLC, a firm which specializes in construction law and construction litigation throughout Colorado.  Mr. McLain received his undergraduate degree from Colorado State University, graduating cum laude, and his law degree from the University of Denver, College of Law.  Mr. McLain completed the Claims and Litigation Management Alliance Litigation Management Institute, earning the designation from that organization as a Certified Litigation Management Professional. He has a general civil litigation practice with an emphasis on the defense of complex construction lawsuits on behalf of developers and general contractors.  As a result of the experience gained by defending some of Colorado’s largest residential construction defect lawsuits, developers, general contractors, and subcontractors seek out Mr. McLain to consult on risk avoidance and risk management strategies.  Currently among his clients are several of the state’s largest home builders, regional and custom builders, and numerous insurance carriers.  Mr. McLain is an AV® Preeminent™ Peer Review Rated attorney by Martindale-Hubbell and is a regular speaker at local, regional, and national seminars regarding construction defect litigation in Colorado.

About the CLM

The Claims and Litigation Management Alliance (CLM) promotes and furthers the highest standards of claims and litigation management and brings together the thought leaders in both industries. CLM’s Members and Fellows include risk and litigation managers, insurance and claims professionals, corporate counsel, outside counsel and third party vendors. The CLM sponsors educational programs, provides resources and fosters communication among all in the industry. To learn more about the CLM, please visit www.theclm.org.

 

Contact:  

Ms. Susan Wisbey-Smith, Communications Manager

Claims and Litigation Management Alliance

(847) 317-9103

susan.wisbey-smith@theclm.org

Commerce City Enacts Reform to Increase For-Sale Multifamily Housing.

Many cities in Denver’s metropolitan areas are experiencing tremendous growth. For more than a year, Colorado has been reported to be in a building boom. However even with the noticeable expansion, some areas still suffer from a lack of housing options specific to multifamily developments. Sean Ford, Mayor of Commerce City, stated that “[the city] has not approved a new condominium or multi-family project since 2008.”[1] Those of us in the construction industry attribute this shortage, at least in part, to construction defect litigation, which is often drawn-out, complicated, and very costly to builders.


Predicting that light rail service will intensify the need for owner-occupied units among Commerce City residents, the city council enacted legislation to address this scarcity.  Ordinance No. 2060 which took effect August 1, 2015 provides “reasonable steps to encourage prompt and voluntary correction of construction defects … in order to enhance the health and safety of residents of Commerce City.”


The ordinance requires a homeowner who discovers a defect to provide written notice via certified mail or personal delivery to the responsible builder, contractor, engineer, or design professional. The notice may include requests for relevant construction documentation, maintenance recommendations, and warranty information. The builder must acknowledge receipt of notice and provide requested documents within 14 days.


After acknowledgement, the builder has a right to inspect the claimed defect then make repairs. If the builder fails to comply with these time-specified requirements for response and inspection, the protections of the ordinance will not apply and the homeowner may file a claim. Following the completion of repairs, a homeowner has 10 days to inspect the repairs and ensure the defect is resolved. A homeowner who believes in good faith that the repairs do not resolve the construction defects may proceed with filing a claim.


Homeowners also have a right to be informed by homeowners associations of any legal action regarding construction defects. A homeowners association must provide notice to each homeowner at least 60 days before filing a claim. Additionally, after issuing the notices, the association has 60 days to obtain written consent from homeowners holding at least a majority of the total voting rights.


The ordinance also provides guidance on homeowners associations’ governing documents that contain alternative dispute resolution provisions. It states that any subsequent amendment to the declaration that removes or amends the arbitration or mediation requirement is not effective for any construction defect claim based on an act or omission discovered before such amendment.


The City of Commerce City should be commended for enacting reforms to spur more industry activity. Like many growing Denver-metro cities, Commerce City recognizes how more balanced business regulation better serves residents and improves the quality of the community. If you have any questions about the Commerce City ordinance, or state laws concerning construction defect actions, you can reach Adria Robinson at (303) 987-9814 or by e-mail at robinson@hhmrlaw.com.

---

[1] Molly Armbrister, Another Colorado City Passes Construction Defects Ordinance, Denver Business Journal (Aug. 4, 2015), http://www.bizjournals.com/denver/blog/real_deals/2015/08/commerce-city-passes-constructions-defects.html.

The Vallagio HOA Appeals the Decision from the Colorado Court of Appeals.

As highlighted in our most recent post, the Colorado Court of Appeals’ Vallagio decision upheld a declaration provision that prohibited the amendment of a mandatory arbitration clause without the consent of the developer/declarant.  Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., et al., 2015COA65 (Colo. App. May 7, 2015).  This case protects a developer/declarant’s ability to arbitrate construction defect claims with a well-crafted declaration that requires declarant consent in order to amend the mandatory arbitration provisions for construction defect actions.

However, the Vallagio ruling still hangs in the balance while the Colorado Supreme Court considers the condominium association’s petition for certiorari review, filed June 18, 2015.  In its petition, the association argues that the declarant consent requirement violates public policy and four separate sections of the Colorado Common Interest Act (“CCIOA”). 

For instance, the association argued in the courts below that a declarant consent requirement violates section 217 of CCIOA, which governs unit owners’ voting percentage requirements and provides that declarations may not require more than 67% affirmative vote for amendments.  The Court of Appeals rejected this argument, reasoning that other provisions of section 217 contemplate consent requirements by parties other than unit owners, such as first mortgagees. 

In its petition, the association now asserts that the Court of Appeals applied the mortgagee consent provision much too broadly because, while the interests of unit owners and their mortgage holders are aligned with regard to holding developers responsible for construction defects, the interests of declarant developers and unit owners are more likely to be adverse.  More logically, CCIOA likely allows first mortgagees to approve or consent to certain amendments affecting their security interests because their interests with unit owners are likely to become adverse in certain circumstances as well.  According to the Court of Appeals’ reasoning, because the mortgagee consent protection does not violate the voting percentage requirements of section 217, the declarant consent protection does not violate that section.

The association also argues in its petition that the Court of Appeal incorrectly read sections 38-33.3-302(2) (prohibiting restrictions imposed on the association’s enumerated powers which are unique to the declarant) and 38-33.3-303(5) (dealing with the period of declarant control and allowing declarant to require its approval before certain actions of the association become effective).  To support its argument with respect to section 302(2), the association cites a Hawaii case where the court interpreted its own state statute.  The Court of Appeal did not find this authority persuasive in part because the case did not involve a declarant consent requirement to amend a declaration provision.  See Vallagio, 2015 WL 2342128 *6 (citing Association of Apartment Owners of Waikoloa Beach Villas v. Sunstone Waikoloa, LLC, 307 P.3d 132 (Haw. 2013)).  The case was simply not relevant to the provision at issue. 

To support its argument with respect to section 303(5), the association’s petition relies on a Nevada case where, again, the court interpreted its own state statute.  See Vallagio at Inverness Residential Condominium Association, Inc.’s Petition for Writ of Certiorari, pp. 14-15 (citing Boulder Oaks Community Ass’n v. B&J Andrews Enters., LLC, 215 P.3d 27, 33-34 (Nev. 2010)).  Once again, a declarant consent requirement to amend a declaration provision is not at issue in Boulder Oaks.  Still, the association argues that the Court of Appeals should have broadly interpreted these two CCIOA sections, effectively prohibiting any declarant protections in the declaration that do not apply to other persons and that remain effective after declarant turnover to the association.  If the Colorado Supreme Court grants the association’s petition, it will analyze whether these factually and legally distinguishable cases provide enough persuasive support to adopt the association’s sweeping interpretation of those sections.

In addition to these and other arguments, the association also warns of a slippery slope that will result if the declarant consent provision is upheld.  The association predicts that developers will work declarant consent requirements into every community declaration on any issue, each lasting in perpetuity.  Asserting similar statutory interpretation and slippery slope arguments, the Community Association Institute and Build Our Homes Right (“BOHR”) have submitted Amicus Curiae Briefs in support of the association’s petition for review.  The briefs of both community association advocate groups include ominous warnings that if the declarant consent requirement remains valid, developers will run amok and begin inserting consent requirements in every declaration and essentially immunize all declarant developers from liability for defects.  See BOHR Brief of Amicus Curiae, p. 14 (“The decision from the court below, . . . gives developers unfettered power to immunize themselves from liability by taking away every associations ability to remove self-serving provisions from its governing documents.”); CAI Brief of Amicus Curiae (arguing declarant consent provisions “could make it impossible for an association to remove declaration provisions limiting an association’s damages, adding additional delays to an association’s ability to pursue claims, or taking away an association’s ability to bring claims at all.”).  

Contrary to the association advocates’ arguments, the Court of Appeals decision in Vallagio fell far short of giving developers the ability to prospectively immunize themselves from construction defect liability via a well-drafted declaration.   Rather, it simply protects developers’ ability to arbitrate those claims.  As the Court of Appeals noted, “[a]rbitration is favored in Colorado as a convenient and efficient alternative to resolving disputes by litigation.”  In appropriate circumstances, plaintiff associations will still be able to rely on Colorado law that allows parties to circumvent arbitration provisions were enforcing the provision would prohibit a party from pursuing its claims.  See, e.g., Rains v. Foundation Health Systems Life & Health, 23 P.3d 1249 (Colo. App. 2001).  In other words, slippery-slope warnings are exaggerated and construction defect claims will still be asserted and adjudicated.  We must wait to see whether the Colorado Supreme Court grants the association’s petition for certiorari to know if declarant consent requirements will encourage more adjudication through arbitration.

For more information about the Court of Appeals’ Vallagio decision or the association’s petition for writ of certiorari to the Colorado Supreme Court, you can reach out to Shelby Woods by telephone at (303) 987-9815 or by e-mail at woods@hhmrlaw.com.

Vallagio v. Metropolitan Homes: The Colorado Court of Appeals' Decision Protecting a Declarant’s Right to Arbitration in Construction Defect Cases

On May 7^th, the Colorado Court of Appeals issued its much anticipated ruling in Vallagio at Inverness Residential Condominium Association, Inc. v. Metropolitan Homes, Inc., et al., 2015COA65 (Colo. App. May 7, 2015).  By way of background, the Vallagio at Inverness Residential Condominiums were developed by Metro Inverness, LLC, which also served as the declarant for its homeowners association. Metropolitan Homes was Metro Inverness’ manager and the general contractor on the project. Greg Krause and Peter Kudla served as declarant-appointed members of the Association’s board during the period of declarant control.

    

When it set up the Association, Metro Inverness included within the Association’s declaration a mandatory arbitration provision specifically for construction defect claims. This provision stated that it “shall not ever be amended without the written consent of Declarant and without regard to whether Declarant owns any portion of the Real Estate at the time of the amendment.”

In 2010, Metro Inverness turned control of the Association’s board of directors over to the project’s unit owners and it sold the last unit to a non-declarant owner in 2012. The next year, the project’s unit owners voted to amend the declaration to remove, among other provisions, the mandatory binding arbitration provision for construction defect claims. In doing so, the unit owners did not obtain Metro Inverness’ consent to amend that section. Soon after the unit owners amended the declaration, the Association filed a construction defect lawsuit in district court, naming as defendants, Metro Inverness, Metropolitan Homes, Greg Krause, and Peter Kudla.

The defendants moved to compel arbitration, relying on the arbitration provision for construction defect claims and arguing that the purported amendment to remove it was invalid because the unit owners did not obtain Metro Inverness’ consent for the amendment. The Association, in response, argued that the unit owners validly amended the declaration to remove the arbitration provision and that the declarant consent requirement violated the Colorado Common Interest Act (“CCIOA”).

The district court denied the defendants’ motion to compel arbitration, concluding that Metro Inverness’ consent was not required to remove the arbitration provision because, inter alia, the declarant consent requirement violated CCIOA and was, therefore, void and unenforceable. Specifically, the district court held that the declarant consent provision violated C.R.S. § 38-33.3-302(2), which provides: “The declaration may not impose limitations on the power of the association to deal with the declarant that are more restrictive than the limitations imposed on the power of the association to deal with other persons.” The court also found that the declarant consent provision violated C.R.S. § 38-33.3-217(1)(a)(I), which states:

[T]he declaration . . . may be amended only by affirmative vote or agreement of unit owners to which more than fifty percent of the votes in the association are allocated or any larger percentage, not to exceed sixty-seven percent, that the declaration specifies. Any provision in the declaration that purports to specify a percentage larger than sixty-seven percent is hereby declared void as contrary to public policy, and until amended, such provision shall be deemed to specify a percentage of sixty-seven percent.

The defendants then filed the interlocutory appeal of the district court’s order, which resulted in this decision.  In finding that the district court erred in this analysis, the Colorado Court of Appeals concluded that the provision requiring the declarant’s consent to amend the arbitration provision for construction defect claims did not violate CCIOA and was, therefore, enforceable.

With respect to C.R.S. § 38-33.3-302(2), the Court of Appeals held that the declarant consent provision does not violate that section because the Association has no power to amend the declaration itself. Under the terms of the declaration, the power to amend the declaration resides with the unit owners, not the Association, and, therefore, the declarant consent requirement does not impose any limitation on “the power of the association” under section 38-33.3-302(2).     

With respect to C.R.S. § 38-33.3-217, the Court of Appeals held that the statute does not prohibit a declaration from requiring declarant consent for an amendment. In so holding, the Court of Appeals pointed out that CCIOA does not explicitly preclude a declaration from imposing additional requirements for amendments and that, to the contrary, other provisions of section 217 contemplate requirements of consent or approval by parties other than unit owners. See C.R.S. § 38-33.3-217(1)(b)(I) (setting forth notification procedures applicable “[i]f the declaration requires first mortgagees to approve or consent to amendments”). On this topic, the Court concluded “that section 38-33.3-217(1)(a)(I) merely governs requirements for unit owners’ voting percentages and does not prohibit a declaration from imposing an additional requirement of declarant consent for amendments.”

Dispensing with the argument that the declarant consent requirement contravenes CCIOA’s purpose, the Court of Appeals pointed out that:

CCIOA endorses the use of alternative dispute resolution and specifically allows declarations to mandate binding arbitration. See § 38-33.3-124(3), C.R.S. 2014 (“The declaration . . . may specify situations in which disputes shall be resolved by binding arbitration.”); § 38-33.3-124(1)(a)(II) (“The general assembly hereby specifically endorses and encourages associations, unit owners, managers, declarants, and all other parties to disputes arising under this article to agree to make use of all available public or private resources for alternative dispute resolution.”). Given this statutory language and the public policy in Colorado favoring arbitration, see City & Cnty. of Denver, 939 P.2d at 1353, 1362, we cannot say that the declarant consent requirement in this case “evade[s] the limitations or prohibitions” of CCIOA, § 38-33.3-104.

For these reasons and others, the Court of Appeals concluded that the declarant consent provision was enforceable and consistent with CCIOA. “Because the unit owners did not obtain Metro Inverness’ written consent, their attempt to remove the declaration’s arbitration provision was ineffective. Accordingly, we conclude that the declaration still contains a valid and enforceable arbitration agreement as set forth in [the declaration].”

As a builder, the moral of the story here is that you need not rely on the Colorado Legislature to protect your ability to arbitrate construction defect claims asserted against you by homeowners associations. All you need to do is to include within your declaration a valid and enforceable declarant consent provision requiring your consent to amend out of the declaration the arbitration requirement for construction defect claims.

Congratulations to Marisa Ala, Mary Ritchie, and the rest of our friends at Palumbo Bergstrom and to Amy Hansen, Richard Murray, and Ryan Warren at Polsinelli on this outstanding result. The Colorado construction community owes you a big debt of gratitude for helping to preserve a builder’s ability to enforce arbitration provisions in construction defect cases.

For additional information regarding the Vallagio decision, its impact, or how to comply with its guidance, you can contact David M. McLain by e-mail at mclain@hhmrlaw.com or by telephone at (303) 987-9813.

House Committee Kills Colorado's 2015 Attainable Housing Bill

Senate Bill 177, the Colorado housing community’s effort to reinvigorate the construction of attainable multi-family housing and quell construction defect lawsuits, was killed by the House State, Veterans and Military Affairs Committee on Monday evening on a party-line vote. Although the bill received significant bipartisan support in the Senate, a broad coalition of municipalities, builders, contractors, and non-profit organizations was unable to convince a pre-determined “kill” committee of the merits and benefits of the bill. 

We nevertheless expect an even stronger push for affordable housing and construction defect legislation in the next session.  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 SB 15-177 UPDATE: Senate Business, Labor, & Technology Committee Refers Construction Defect Reform Bill to Full Senate

On March 18^th, following a lengthy hearing with testimony and questioning for and against Senate Bill 15-177, the Senate Business, Labor & Technology Committee voted 6 to 2 to refer the bill, with new amendments, to the full Senate.

While the main points of the bill remain strongly intact (check here for Senate Bill 177’s particulars), bill sponsors Senators Scheffel and Ulibarri offered four amendments, designed to bring additional compromise and clarity to the bill. The committee ultimately adopted these amendments, described below.

Amendment 16 removed a prior prohibition in the bill that would have prevented attorneys from assisting in the preparation of the notice required to be provided to all homeowners before the commencement of a construction defect claim.  Amendment 19 complemented 16 by providing further clarification regarding the contents and specificities required in said notice, including a disclosure of projected attorneys’ fees, costs, duration, and financial impact of pursuing construction defect claims. Amendment 17 permitted homeowners to approve the pursuit of construction defect claims through written consent.  Lastly, Amendment 18 provided clarification regarding the bill’s requirement that mediators and arbitrators be selected and approved through mutual agreement of the parties.

Senators opposing the bill sought to include several less clear amendments, including one which supported a homeowner’s purported “right” to a jury trial (a belief that actually runs contrary to Colorado’s and the United States’ Constitutions).  Although none of the opponents’ amendments were adopted, significant hurdles still remain for SB 177 on the Senate floor and beyond.  We will continue to monitor the progress and update you accordingly. 

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

Press Release From the Colorado State Senate Regarding Senate Bill 91's Passage Out of Committee

FOR IMMEDIATE RELEASE
March 19, 2015

Contact: Sean Paige
Phone: (719) 337-0355

Construction Defect Fixes Advance in the Senate

Lawmakers last night took the first bipartisan step toward addressing Colorado’s affordable housing and starter home crunch, when the Senate Business, Labor, and Technology Committee passed Senate Bill 177, the so-called construction defect reform law, by a 6 to 2 vote.

The bill aims to clear-away barriers and disincentives to affordable and multi-family home construction in Colorado, by providing pathways to dispute resolution that don’t necessarily end in court. It does not prevent or discourage legal action by individual homeowners who choose that course of action. An ever-present threat of lawsuits has been cited by homebuilders and local officials as a major contributor to Colorado’s affordable housing crunch.

“This bipartisan bill is the end result of extensive study and deliberation by stakeholders, and between members of both parties, who share a common interest in removing barriers to affordable and multi-family housing construction in Colorado,” said Senate Majority Leader Mark Scheffel (R-Douglas County) after the bill’s passage. “The hands-on involvement of Sen. Jessie Ulibarri and other Democrats shows that this represents a reasonable modification of Colorado’s counterproductive construction defect laws.”

“Colorado’s economy is dependent on a strong housing market that includes diverse and attainable options. Despite strong demand, communities across Colorado face a growing shortage of one of the most critical options – condos and town homes. This shortage is due in part to concerns about the inconsistencies of how disputes are resolved that involve homeowners and developers,” said Sen. Jessie Ulibarri (D-Westminster). “Senate Bill 177 ensures that construction issues within a condo or town home community are addressed quickly and fairly for individual homeowners, while at the same time respecting each member of the condo community.”

Currently, if a handful of unit owners in a condo, apartment, or other multi-family housing community notice construction defects, the entire Homeowners Association can take legal action against the builder, dragging other unit owners, who may not have a problem, into a costly or risky legal battle that leaves their property in a lengthy state of limbo. This bill, if it becomes law, will require associations to get majority approval before taking such actions. It also creates easier and speedier methods for dispute resolution, short of taking the matter to court.

“If we want to keep Colorado an attractive place to live and work, we can’t be pricing people of modest means out of the housing with laws that make building those starter homes harder to find,” added Senate President Bill Cadman. “This bipartisan bill, if we can get it passed, will help make the dream a home ownership a little easier for Coloradans to achieve.”

The bill next will be heard by the entire Senate. Passage means it will move to the House of Representatives for action.

SB-177 isn’t the only construction defect-related bill being weighed by lawmakers at the moment. Senate Bill 91, authored by Sen. Ray Scott of Grand Junction, passed the Senate State Affairs Committee on Monday, further bolstering prospects that construction defect reform could happen this session.

The bill would help reduce homebuilder uncertainty by shortening by two years the period of time in which owners of their homes can request a fix. That still gives homeowners a six-year window in which to detect and report a potential problem, but doesn’t leave builders in the prolonged period of uncertainly they face now.

“This bill still offers homeowners plenty of protection against construction defects, but helps reduce some of the prolonged uncertainty and risk that now discourages the construction of multi-unit projects,” said Scott. “It’s hard for companies to offer affordable housing when the state’s flawed construction defect laws just add to the delays, uncertainties and costly risks these builders already face.”

SB-91 now moves to the Senate as a whole for debate.

Senate Bill 15-091 Passes Out of the Senate State, Veterans & Military Affairs Committee

As previously reported, Senator Scott's SB 91, as originally introduced, would have reduced Colorado's statute of repose for construction defect actions from eight years to four years.  Yesterday, the Senate State, Veterans & Military Affairs Committee heard Senate Bill 91 and, before passing the bill on a party line vote sending it back to the full Senate for consideration, made two substantive amendments. By one amendment, the Committee excluded any multi-family developments. The second amendment was to reduce the statute of repose from six years, currently on the books, to five years plus one more if the defect becomes manifest in the fifth year. 

If passed in its current form, the bill would only apply to single family homes and, with respect thereto, would reduce the statute of repose for construction defect claims from six years, plus two more for defects which become manifest in years five or six, to five years, plus one more for defects which become manifest in the fifth year.  

The First Hearing on SB 177 Has Been Scheduled - Call to Action!

SB177 is scheduled to be heard in the Senate Business, Labor, & Technology Committee (Room 271) on Wednesday, March 18^th, at 1:30 p.m.  

Please take a moment to urge your State Legislators to SUPPORT SENATE BILL 177 and help fix the defect in Colorado’s construction law.

A big hurdle to building more entry-level housing is a defect in state law that exposes homebuilders and homeowners to a high risk of expensive, time-consuming litigation. It is referred to as the construction defects law. It has created a climate that puts the chill on new construction of affordable, multi-family housing, scaring off investment in the affordable-housing market. 

Senate Bill 177, sponsored by Senators Scheffel & Ulibarri and Representatives DelGrosso & Singer, would begin to fix this problem and foster conditions that encourage builders to construct more affordable housing, provide increased homeownership opportunities for all Coloradans and stimulate our state's economy.

Click Here to Take Action

Another Municipality Takes Action to Address the Lack of Condominiums Being Built in its Jurisdiction

     

Whether you are in the market to downsize or are looking to be a first time home buyer, you have likely noticed that your housing options in Colorado have become extremely limited over the course of the last several years.  If you are a contractor and have worked on multi-family projects in the recent past, you know why the housing options are limited in the State of Colorado.  In the past two years, there have been studies commissioned and articles published in local periodicals investigating the extreme slowdown seen in the construction of owner-occupied multi-family housing, namely condominiums and townhomes.  Those of us involved in and with the construction industry are intimately familiar with the lengthy, complicated, and incredibly expensive construction defect litigation that has plagued multi-family construction in the State of Colorado and brought it to a virtual halt.

     

And now, local municipalities and elected officials are starting to take notice.  Most recently, the City of Lone Tree passed Ordinance No. 15-01, to become effective on April 1, 2015.  According to the City of Lone Tree, Ordinance No. 15-01 is “aimed at encouraging the development of owner-occupied, multi-family residential projects through the adoption of regulations designed to balance the risk and exposure to builders and developers of such projects, while still protecting homeowners from legitimate construction defect claims.” 

The Lone Tree ordinance functions very similarly to the current state laws concerning construction defects.  Under the Lone Tree ordinance, a homeowner who discovers a construction defect must send written notice of the defect via certified mail or personal delivery to the responsible builder, contractor, or design professional.  The homeowner is required to provide dates and times within 28 days for the builder to access the property for inspection and/or testing purposes.  The builder is required to acknowledge receipt of the notice within 14 days, or the protections of the ordinance do not apply, and the homeowner may file suit.  Similar to the state law, the builder may offer to repair the defect within 30 days after the initial inspection, or 28 days after notice of the claim.  Under the Lone Tree ordinance, however, the homeowner may deliver a written objection to the builder’s offer to repair “if the claimant believes in good faith that the proposed repairs will not remedy the alleged defect.”  The builder is then allowed ten days within which to modify the repair proposal in accordance with the homeowner’s objections or propose alternatives.  The Lone Tree ordinance precludes a builder from making any repairs while an objection is pending.  A homeowner may still file a lawsuit if not satisfied by the repairs or the offer of repairs. 

Under the Lone Tree ordinance, a condominium owners association must obtain the written consent of 51% of the homeowners to commence legal action, and such consent must be obtained within 60 days after notice of the alleged defect is sent to the builder.  The ordinance also touches on amendment or deletion of the alternative dispute resolution provisions typically found in the homeowners association’s governing documents.  The ordinance provides that any subsequent amendment to the declaration that removes or amends the arbitration or mediation requirement is not effective for any construction defect claim based on an act or omission already discovered.            

The City of Lone Tree should be applauded for having the courage to take action to address the lack of owner-occupied condominium units, particularly in its transit-oriented zones around light rail stations.  For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

Higgins, Hopkins, McLain & Roswell is on the Lookout for a New Associate

Higgins, Hopkins, McLain & Roswell, LLC, a boutique firm located in Cherry Creek, has an immediate opening for a litigation associate with 1 – 3 years of experience in construction litigation or the defense of general casualty claims.  To be a successful candidate, you must be an optimist, be well spoken, have exceptional research and writing skills, and be able to think on your feet.  Given that our files are document-intensive, you must be very organized and detail-oriented.  Experience with deposing witnesses and some trial experience a plus.

We offer a competitive salary, which is commensurate with experience, and excellent benefits.  

Interested candidates should submit their resume, references, and writing samples to:

Jennifer Tate

Email:  tate@hhmrlaw.com

PLEASE, NO CALLS OR AGENCIES

Colorado Senate Bill 15-177: This Year’s Attempt at Reasonable Construction Defect Reform

On February 10, 2015, Senators Scheffel and Ulibarri introduced Senate Bill 15-177, which is sponsored in the House by Representatives DelGrosso and Singer. SB 15-177 amends the prerequisites, found in the Colorado Common Interest Ownership Act (“CCIOA”), for an association to file a construction defect action.  The bill has been assigned to the Senate Committee on Business, Labor, and Technology but not yet scheduled for hearing.

The major points of the bill include: 1) enforcement of a mediation or arbitration provision contained in the original governing documents of a common interest community, even if subsequently amended or removed; 2) the addition of a requirement that mediation take place before a construction defect action can be filed; 3) heightened requirements that an association board provide advanced notice to all unit owners, together with a disclosure of projected costs, duration, and financial impact of the construction defect claim; 4) the addition of a requirement that the board obtain the written consent of a majority of the owners of units, and; 5) a requirement that prior to the purchase and sale of a property in a common interest community, the purchaser receive notice that binding arbitration may be required for certain disputes.

One of the most significant aspects of Senate Bill 15-177 is the addition of section (1)(a)(III) to Colorado Revised Statute § 38-33.3-124. The proposed language for section (1)(a)(III), states:

The General Assembly further finds and declares that when the governing documents of a common interest community contain a requirement that construction defect claims be submitted to mediation or arbitration, that requirement represents a commitment on the part of the unit owners and the association on which development parties are entitled to rely. Therefore, a later amendment to the governing documents that removes or amends the mediation or arbitration requirement should not apply to claims that are described in the mediation or arbitration requirements of the governing documents.

The addition of this language would have a effect on the forum in which construction defect actions are litigated. Currently, associations are free to amend any provision contained in their governing documents, including any mediation or arbitration provision inserted by the developer. Associations routinely amend their governing documents just prior to filing a construction defect action in district court in order to avoid submitting their case to binding arbitration. If Senate Bill 15-177 is passed in its current form, the majority of construction defect actions would likely be subject to binding arbitration. I anticipate this provision of the bill will receive strong opposition from association representatives and construction defect plaintiffs’ attorneys who wish to litigate their cases in district court.

The second major addition contained in SB 15-177 is the addition of section (1.5) to Colorado Revised Statute § 38-33.3-303.5. The proposed language requires that a construction defect claim be submitted to mediation prior to the filing of an action. The proposed language in its entirety states:

(1.5) As a condition precedent to any construction defect claim, the parties must submit the matter to mediation before a neutral third party mutually selected by the parties to the construction defect claim. If the parties are not able to agree upon a mediator, they may use an alternative selection method specified in the governing documents or, if no alternative selection method is specified, may petition the district court in the jurisdiction in which the common interest community is located to appoint a mediator for the construction defect claim.

Senate Bill 15-177 also expands upon the required disclosures contained in the C.R.S. § 38.33.3-303.5. Colorado Revised Statute § 38.33.3-303.5 in its current form only requires the disclosure of: (I) The nature of the action and relief sought; and (II) The expenses and fees that the executive board anticipates will be incurred in prosecuting the action. Senate Bill 15-177 seeks to add more specific disclosure requirements to C.R.S. § 38.33.3-303(II) including the disclosure of:  (A) Attorneys’ fees, consultant fees, expert witness fees, and court costs; (B) The impact on the value of units subject to the construction defect claim; (C) The impact on the marketability of units subject to the construction defect action; (D) The impact on the marketability of units not containing any design or construction defects; (E) The manner in which the association is planning on funding the construction defect action; and (F) The anticipated duration and likelihood of success of the construction defect action.

Additionally, the bill requires the association board to obtain the informed consent of a majority of unit owners prior to pursuing a construction defect action and seeks to add the following language to Colorado Revised Statute § 38-33.3-303.5:

 (II) The construction defect claim is not authorized unless the executive board obtains the written consent of the owners, other than the declarant, of units to which at least a majority of the total votes, excluding votes allocated to units owned by declarant, in the association are allocated, after giving notice in accordance with this subsection (2). The consent must be obtained directly and not as a result of proxy voting.

Finally, Senate Bill 15-177 seeks to add to the disclosures required prior to the purchase and sale of property in a common interest community to provide notice that construction defect actions may be subject to binding arbitration. The proposed language to be added to C.R.S. § 38-35.7-102 is as follows:

THE BYLAWS OR RULES AND REGULATIONS OF THE ASSOCIATION MAY REQUIRE THAT CERTAIN DISPUTES BE RESOLVED BY MANDATORY, BINDING ARBITRATION.

Senate Bill 15-177, once passed, will represent a significant change to the current state of construction defect litigation in Colorado. While the proposals in Senate Bill 15-177 would have a beneficial impact on Colorado construction professionals, the bill will likely be met with strong opposition. We will continue to watch the legislature for bills impacting construction law in Colorado and will monitor the progress of such bills, including Senate Bill 15-177.

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

Insurer’s Duty to Defend: When is it Triggered? When is it Not?

In Colorado it is well recognized that an insurer has a broad duty to defend its policyholder against pending claims.  An insurer’s duty to defend is triggered when the underlying complaint against the insured alleges any set of facts that might fall within the coverage policy. Greystone Construction, Inc. v. National Fire & Marine Insurance, Co., 661 F.3d 1272, 1284 (10^th Cir. 2011). Even if the insurer’s duty to defend is not clear from the pleadings filed against the insured, the insurer’s duty to defend is triggered if the claim is potentially or arguably within the policy coverage. Id. If there is any doubt as to whether a theory of recovery falls within the policy coverage, such doubt is decided in favor of the insured and the insurer’s duty to defend is triggered. Id.  In order to avoid this duty to defend, an insurer must show that an exemption to the policy applies and that no other basis exists for coverage under the policy.

 

In Cornella Brothers, Inc. v. Liberty Mutual Fire Insurance Company, 2014 WL 321335 (D. Colo. Jan. 29, 2015), the Court was to determine whether Liberty Mutual Fire Insurance Company (“Liberty Mutual”) had a duty to defend a lawsuit filed against its insured, Cornella Brothers, Inc. (“Cornella”). The underlying lawsuit alleged construction defects at a recharging facility. Upon being named a party to the underlying litigation, Cornella provided notice to Liberty Mutual and demanded that Liberty Mutual defend Cornella.

The Court first considered how the “your work” exclusion in the CGL policy might affect Liberty Mutual’s duty to defend. The exclusion applied to property damage to “your work” arising out of it or any part of it. The Court reasoned, even if the principal claims fall within the “your work” policy exclusion, it does not necessary follow that Liberty Mutual has no duty to defend. As stated in Greystone, if the allegations of the underlying complaint state any claim that “is potentially or arguably within the policy coverage” or that otherwise raise some doubt as to whether a theory of recovery within the policy coverage has been pleaded, the insurer has a duty to defend. Greystone, 661 F.3d at 1284.

Cornella’s argument for coverage by Liberty Mutual was based on two damage allegations in the underlying complaint. Cornella first argued that Liberty Mutual’s duty to defend was triggered by the language in the complaint that the alleged defects will result in the loss of access to additional water rights. The Court determined that the complaint alleged a loss of a chance at greater access to water rights and not the loss of water rights itself. The Court was not persuaded that the loss of a chance at greater water rights triggered insurance coverage. The Court recognized that while the loss of actual water rights might trigger coverage, the loss of a chance does not trigger the same obligation.

Cornella also relied on the language in the complaint, “damage to property of other,” to trigger a duty to defend. However, it is clear under Colorado law that vague and conclusory allegations alone do not trigger coverage. See Land v. Auto-Owners Ins. Co., 551 Fed.Appex. 795, 800, (10^th Cir. 2013); TCD, Inc. v. Am. Family Mut. Ins. Co., 296 P.3d 255, 259 (Colo.Ct.App. 2012). To trigger coverage, more is needed from the insured, including a plausible theory explaining what the phrase is referencing and how the alleged damage triggers the duty to defend. Cornella’s mere reliance on the “damage to property of other” language alone was insufficient to trigger coverage.

While an insurer’s duty to defend is broadly construed, it is not triggered in every case. As in Cornella Brothers, Inc. v. Liberty Mutual Fire Insurance Company, an insurer’s duty to defend will not be triggered when the alleged damage is the loss of a chance at a future benefit or by vague and conclusory language.

To learn more about the Cornella Brothers, Inc. v. Liberty Mutual Fire Insurance Company decision or 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 Great Fallacy: If Builders Would Just Build It Right There Would Be No Construction Defect Litigation

As the 2015 Colorado legislative session gets into full swing, there is a lot of anticipation and discussion regarding this year’s construction defect reform bill.  It seems like every time a reporter broaches this issue in an article, there is a quote from a plaintiffs’ attorney stating that if builders would just build homes right, there would be no need for construction defect litigation. This is the sentiment expressed in the site www.BuildOurHomesRight.com. 

The problem with this argument is that it assumes that the “construction defects” for which associations sue are those only that affect the performance of the homes, or are likely to affect the performance of the homes during the useful life of the component at issue. Unfortunately, this is simply not the case. Over the years, the plaintiffs’ bar has stacked the deck, so to speak, making actionable every technical building code violation, regardless of whether it has any impact, or will ever likely have any impact, on the performance of the homes involved.

In Colorado, when a builder builds and sells a home, it impliedly warrants that the home is built in a good and workmanlike manner, that it is fit for its intended purpose, and that it complies with the applicable building codes. See, e.g., Carpenter v. Donohoe, 388 P.2d 399 (Colo. 1964). Other Colorado courts have likened the breach of implied warranty claim to strict liability for construction defects. See, e.g., Hildebrand v. New Vista Homes II, LLC, 252 P.3d 1159, 1169 (Colo. App. 2010). In short, it does not matter whether the builder acted in a non-negligent manner or whether the alleged defect impacts the performance of the home, or ever will, if it violates the applicable code, the association will call it defective and include it in its construction defect claims.

The problem with this standard is that it is impractically high.  New homes built in Colorado are the only things constructed using hundreds of thousands of parts, most of which are made of natural and imperfect materials, designed and built by human hands, in the elements, over a period of months, where the standard applied is that of perfection. Even the plaintiffs’ attorneys’ favorite experts have testified that this is an impossibly high standard, and one that cannot be achieved. It is for this reason that most builders in Colorado provide their homeowners with express written warranties, assuring the homeowners that when a problem is discovered after construction, it will be repaired.

Until recently, Colorado’s builders could, and often did, disclaim these implied warranties in favor of their own express written warranties. To thwart these efforts, the plaintiffs’ attorneys supported the passage of the Homeowner Protection Act of 2007 (“HPA”). Once enacted, and codified at C.R.S. § 13-20-806(7), this piece of legislation made void as against public policy any restriction on a homeowner’s construction defect claim beyond those found in the Colorado Construction Defect Action Reform Act, C.R.S. § 13-20-801, et seq., or the Colorado Consumer Protection Act, C.R.S. 6-1-101, et seq. This codified, at least as of April 20, 2007, when the HPA went into effect, the strict liability standard for new home construction in Colorado.

During the 2001 and 2003 legislative sessions, during the passage of Construction Defect Action Reform Act I and II (“CDARA I and II”), the Colorado legislature restricted negligence claims to only those which actually effect homeowners or would be likely to do so in the future. In this regard, C.R.S. § 13-20-804 states:

(1) No negligence claim seeking damages for a construction defect may be asserted in an action if such claim arises from the failure to construct an improvement to real property in substantial compliance with an applicable building code or industry standard; except that such claim may be asserted if such failure results in one or more of the following:

(a) Actual damage to real or personal property;

(b) Actual loss of the use of real or personal property;

(c) Bodily injury or wrongful death; or

(d) A risk of bodily injury or death to, or a threat to the life, health, or safety of, the occupants of the residential real property.

While this section is good as far as it goes, the problem is that it doesn’t go far enough. When it was included within CDARA, the legislature had not yet passed the HPA and, when it did, it did not go back and broaden the section to apply to all claims brought in a construction defect action, to include claims for breach of implied warranty.

So what’s the problem with a strict liability, perfection standard in the construction of new homes? In addition to being an impossibly high standard, as discussed above, it also creates an incentive for plaintiffs’ litigation experts to go on fishing expeditions. Rarely do owners in construction defect cases claim only as defective those things that impact the performance of their homes, or those things that are likely to do so in the future. I have seen time and time again letters from plaintiffs’ attorneys to homeowners in multi-family communities indicating that they intend to spend between $3,000 and $5,000 per unit to perform destructive testing to go looking for defects that, until they are found, were unknown to the owners and would likely have remained unknown to the homeowners for the entire time they owned their homes. This is the fishing expedition.  I can all but guarantee that if you were to spend $5,000 to have a plaintiffs’ litigation “forensic engineer” go hunting through any home built in Colorado, he or she could come up with pages and pages of technical building code violations that would never impact the performance of the home, but are none the less actionable under today’s construction defect laws in Colorado. This is the investment made by the plaintiffs’ attorneys, purportedly for the good of the owners, but which in reality just drives up the costs of litigation, the alleged damages in the actions, and, at the end of the day, the plaintiffs’ attorneys’ contingent fees. I have never had a plaintiffs’ attorney tell me what type of return they get on this investment, but I assume that it must be pretty good if they are willing to invest up to $5,000 per unit in a multi-family community.

No one knows what the 2015 Colorado legislative session has in store for the construction community. Whatever happens, I hope that the argument made that if builders would just "build it right" there would be no construction defect litigation falls on deaf ears under the dome at the State Capitol. Unless and until the test for "building it right" becomes something other than absolute perfection, this remains simply a fallacy.   

To learn more about construction law in Colorado or the litigation of construction defect claims, you can reach David McLain by e-mail at McLain@hhmrlaw.com or by telephone at (303) 987-9813.

Senator Ray Scott Introduced a Bill to Reduce Colorado’s Statute of Repose for Construction Defect Actions to Four Years

For those of you reading this blog who are familiar with Colorado’s law as it pertains to construction defect actions, which I assume to be anyone reading this blog as it does not seem to get much random traffic, you are probably aware that the statute of repose applicable to construction defect actions in Colorado is generally thought of as being six plus two years. Specifically, C.R.S. § 13-80-104 states, in pertinent part:

(1)(a)  Notwithstanding any statutory provision to the contrary, all actions against any architect, contractor, builder or builder vendor, engineer, or inspector performing or furnishing the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property shall be brought within the time provided in section 13-80-102 after the claim for relief arises, and not thereafter, but in no case shall such an action be brought more than six years after the substantial completion of the improvement to the real property, except as provided in subsection (2) of this section.

*          *          *

(2) In case any such cause of action arises during the fifth or sixth year after substantial completion of the improvement to real property, said action shall be brought within two years after the date upon which said cause of action arises.

Senate Bill 15-091, introduced on January 14^th and assigned to the State, Veterans, and Military Affairs Committee, would change these provisions to read:

(1)(a) Notwithstanding any statutory provision to the contrary, all actions against any architect, contractor, builder or builder vendor, engineer, or inspector performing or furnishing the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property shall be brought within the time provided in section 13-80-102 after the claim for relief arises, and not thereafter, but in no case shall such an action be brought more than six THREE years after the substantial completion of the improvement to the real property, except as provided in subsection (2) of this section.

*          *          *

(2) In case any such IF A cause of action SUBJECT TO THIS SECTION arises during the fifth SECOND or sixth THIRD year after substantial completion of the improvement to real property, said THE action shall MUST be brought within two years ONE YEAR after the date upon which said THE cause of action arises.

While I have not seen yet the reaction to this bill from the construction defect plaintiffs’ attorneys, other than Heidi Storz’s quotes in the recent Denver Business Journal article by Ed Sealover, I imagine that it will receive a strong and determined opposition. I assume that one of the arguments we will hear will refer to a paper published years ago by the Colorado Association of Geotechnical Engineers, according to which, damage to homes suffering from the effects of expansive soils typically manifests somewhere between the fourth and seventh years after substantial completion. The argument I assume to be coming will be that builders are trying to insulate themselves from these types of cases by cutting off owners’ rights to seek redress before they even know they have problems.

We will continue to watch the legislature for bills impacting construction law in Colorado and will monitor the progress of such bills, including Senate Bill 91. I am not sure how far this bill will make it, but I hope that it does not cause too much distraction or confusion of issues if and when Senator Ulibarri introduces his attainable housing bill, thought to be coming soon and to be similar to last year’s effort, Senate Bill 14-220.

If you have any questions regarding construction law or the litigation of construction defect claims in Colorado, you can reach David M. McLain by e-mail at McLain@hhmrlaw.com or by telephone at (303) 987-9813.