Potential Extension of the Statutes of Limitation and Repose for Colorado Construction Defect Claims

On January 27^th, Senator Robert Rodriguez introduced SB 20-138 into the Colorado Legislature.  The bill has been assigned to the Senate Judiciary Committee and has not yet been scheduled for its first hearing in that committee.  In short, Senate Bill 20-138, if enacted, would:

1)      Extend Colorado’s statute of repose for construction defects from 6+2 years to 10+2 years;

2)      Require tolling of the statute of repose until the claimant discovers not only the physical manifestation of a construction defect, but also its cause; and

3)      Permit statutory and equitable tolling of the statute of repose.

Colorado’s statute of repose for construction defect claims are codified at C.R.S. § 13-80-104.  In 1986, the Colorado Legislature set the statute of repose period at 6+2 years.  For the last 34 years, Colorado’s statute of repose for owners’ claims against construction professionals has been substantially the same, to wit:

(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.

C.R.S. § 13-80-104.

The language of SB 20-138 would amend these sections 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 MUST be brought within the time provided in section 13-80-102 after the claim for relief arises, and not thereafter LATER, but in no case shall such MAY an action be brought more than six TEN years after the substantial completion of the improvement IMPROVEMENTS to the real property, except as provided in subsection (2) of this section.

(2) In case IF any such cause of action DESCRIBED IN SUBSECTION (1) OF THIS SECTION arises during the fifth NINTH or sixth TENTH year after substantial completion of the improvement IMPROVEMENTS to real property, said THE action shall MUST be brought within two years after the date upon which said THE cause of action arises.

It cannot be overstated what a devastating effect this would have on the ability of builders to provide affordable or attainable housing in Colorado.  Such a shock to the system would make insurers shy away from insuring projects more than they already do.  With the hardening of the insurance market as it is, this would certainly not help the housing crisis in Colorado.

With respect to the accrual of construction defect claims, Senate Bill 138 would change Colorado law as follows:

(b) (I) Except as otherwise provided in subparagraph (II) of this paragraph (b) SUBSECTION (1)(b)(II) OF THIS SECTION, a claim for relief arises under this section at the time the claimant or the claimant's predecessor in interest discovers or in the exercise of reasonable diligence should have discovered BOTH the physical manifestations AND THE CAUSE of a defect in the improvement which THAT ultimately causes the injury.

Enactment of this section would legislatively overturn a long line of Colorado Appellate Court decisions, including Highline Village Assocs. v. Hersh Cos., 996 P.2d 250, 253 (Colo. App. 1999) (holding, “under the contractors’ statute, a claim accrues when a physical manifestation of a defect appears, even though its cause is not known at that time.”); United Fire Group v. Powers Elec., Inc., 240 P.3d 569, 572 (Colo. App. 2010) (stating, “we also conclude that it was not necessary to know that the defect caused the fire for the fire to be the defect’s physical manifestation.”), and; Broomfield Senior Living Owner, LLC v. R.G. Brinkmann Co., 413 P.3d 219, 226 (Colo. App. 2017) (“Accrual under CDARA, therefore, depends on the discovery of the manifestation of the defect and not its cause.”) (emphasis in the original).

Finally, with respect to equitable tolling of the statute of repose, Senate Bill 138 inserts a section, which reads:

(3) The limitations provided by this section:

(a) ARE SUBJECT TO BOTH STATUTORY AND EQUITABLE TOLLING;

There are several statutes that may toll the statute of repose, including C.R.S. 13-80-104(3), which this bill would amend to read:

(3) The limitations provided by this section:

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(b) Shall MAY not be asserted as a defense by any person in actual possession or control, as owner or tenant or in any other capacity, of such an improvement at the time any deficiency in such an THE improvement constitutes the proximate cause of the injury or damage for which it is proposed to bring an action.

Colorado’s Common Interest Ownership Act also provides for statutory tolling for claims brought under C.R.S. § 38-33.3-311(1), which states, in pertinent part: “Any statute of limitation affecting the association’s right of action under this section is tolled until the period of declarant control terminates.”  While it is hard to conceive of a claim that would arise under this section arising out of a construction defect claim, it may be theoretically possible.

In any event, the fact that Senate Bill 138 seeks to provide for equitable tolling is a frontal assault on the Colorado Supreme Court, which previously did away with the repair doctrine, a form of equitable tolling, by stating: “"equitable tolling is not permissible where it is inconsistent with the text of the relevant statute.”  Smith v. Exec. Custom Homes, Inc., 230 P.3d 1186, 1191-1192 (Colo. 2010).  The Court concluded on this issue, stating: “equitable tolling pursuant to the repair doctrine is inconsistent with the CDARA [the Construction Defect Action Reform Act, C.R.S. § 13-20-801, et seq.] because the CDARA already provides an adequate legal remedy in the form of statutory tolling of the limitations periods under specific and defined circumstances, including during the time in which repairs are being conducted.”  Id.

It remains to be seen whether this bill gets legs at the state legislature, stay tuned in that regard.  Between this and SB 20-093, previously discussed, it appears that after quiet session in 2019, the plaintiffs’ lawyers are back at the Colorado State Capitol, with a vengeance, seeking their laundry list of legislative changes to open the tap for construction defect litigation.  Will one-way attorneys’ fees provisions and uncapping the treble damage component of the Colorado Consumer Protection Act be next?  I hope not, but this legislative session is certainly starting off with a bang.

For additional information about construction defect litigation in Colorado, generally, you can reach David McLain by telephone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com. 

Beginning of the 2020 Colorado Legislative Session: Here We Go Again

By David M. McLain

The 2020 Colorado legislative session started on Wednesday, January 8^th.  It seems like there will be plenty of issues this year to which home builders will want to pay close attention.  On January 13^th, Senators Fenberg, Foote, and Jackson sponsored SB 20-093, known as the “Consumer and Employee Dispute Resolution Fairness Act.”  

For certain consumer and employment arbitrations, the act:

• Prohibits the waiver of standards for and challenges for evident partiality prior to a claim being filed and requires any waiver of such provisions after the claim is filed to be in writing;
• Provides that the right of a party to challenge an arbitrator based on evident partiality is waived if not raised within a reasonable time of learning of the information leading to the challenge but that such right is not waived if caused by the opposing party;
• Establishes ethical standards for arbitrators; and
• Requires specified public disclosures by arbitration services providers but includes protections for certain confidential information.

The bill also requires an individual arbitrator for certain consumer and employment arbitrations to make additional disclosures of information that might affect the arbitrator's impartiality.

The bill specifies how attorney fees and other reasonable expenses are to be awarded if a court vacates an award because of an arbitrator's evident partiality or failure to make required disclosures and clarifies when appeals of orders may be made in consumer and employee arbitrations.

The bill also provides that for a standard form contract involving a consumer or employee:

• Specified terms are unenforceable as against public policy;
• Including an unenforceable term constitutes a deceptive trade practice under the "Colorado Consumer Protection Act"; and
• How certain cost-shifting provisions are to be interpreted.

http://leg.colorado.gov/bills/sb20-093

It remains to be seen what amendments are made to the bill, which has been set for its first hearing in the Senate Judiciary Committee at 1:30 pm on January 29^th.  Obviously, the home building industry should be very wary of any attempt to prohibit the resolution of construction defect claims by binding arbitration.  Stay tuned as there will be plenty of discussions regarding SB 20-093.

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On January 8^th, Representatives Valdez and Gonzales sponsored HB 20-1046, which, among other things, restricts retainage to no more than 5% on certain private projects.  The bill was assigned to the House Business Affairs & Labor Committee, and is calendared for its first hearing on January 28^th.  The legislative website provides the following description of the bill.

In a construction contract of at least $150,000, the bill requires:

• A property owner to make partial payments to the contractor of any amount due under the contract at the end of each calendar month or as soon as practicable after the end of the month;
• A property owner to pay the contractor at least 95% of the value of satisfactorily completed work;
• A property owner to pay the withheld percentage within 60 days after the contract is completed satisfactorily;
• A contractor to pay a subcontractor for work performed under a subcontract within 30 calendar days after receiving payment for the work, not including a withheld percentage not to exceed 5%;
• A subcontractor to pay any supplier, subcontractor, or laborer who provided goods, materials, labor, or equipment to the subcontractor within 30 calendar days after receiving payment under the subcontract; and
• A subcontractor to submit to the contractor a list of the suppliers, sub-subcontractors, and laborers who provided goods, materials, labor, or equipment to the subcontractor for the work.

The bill does not apply to contracts with public entities or to a contract concerning one multi-family dwelling of no more than 4 units or one single-family dwelling. A person who fails to make a required payment must pay 1.5% interest per month until the debt is fully paid. In a lawsuit to enforce the bill, the prevailing party is awarded attorney fees and costs.

http://leg.colorado.gov/bills/hb20-1046

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On January 17^th, Representatives Valdez and Weissman introduced HB 20-1155, which was assigned to the House Energy & Environment Committee, but is not yet on the calendar for hearing. 

Current law requires a home builder to offer to a buyer of a new home one of the following:

• A solar panel system or a solar thermal system;
• To prewire or preplumb the home for these systems; or
• A chase or conduit to wire or plumb the home for these systems in the future.

Section 1 of the bill changes this to require that the home builder offer each of these options.

Section 2 requires a home builder to offer one of the following options to a buyer of a newly constructed residence:

• An electric vehicle charging system;
• Upgrades of wiring to accommodate future installation of an electric vehicle charging system; or
• A 208- to 240-volt alternating current plug-in located in a place accessible to a motor vehicle parking area.

Section 2 also requires the home builder to offer electric heating options. These requirements apply to both traditional detached, single-family homes and buildings that contain owner-occupied condominium units.

http://leg.colorado.gov/sites/default/files/documents/2020A/bills/2020a_1155_01.pdf

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An even bigger threat to the ability to provide affordable or attainable housing in Colorado may not come from the Legislature, but in the form of Initiative 122.  Ed Sealover wrote a recent article in the Denver Business Journal stating:

Jefferson County slow-growth activist Daniel Hayes will begin collecting signatures later this month for a proposed ballot initiative that would limit growth in Front Range counties from Weld down to Colorado Springs to no more than 1.3% per year, with everything over 1% reserved specifically for affordable or senior housing. Initiative 122, if it were to make it onto the November ballot and then receive voter approval, would allow smaller cities and counties to enact such a rule as well, and the law could not be rescinded until 2023 and only then by local citizen initiative.

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But a Common Sense Policy Roundtable study on the impact of a similar measure that Hayes filed in 2018 but never collected signatures for found that the proposal could reduce housing units in the affected counties by some 50% — as much as 240,000 units — over the next decade and cost the state between 35,000 and 55,000 jobs per year due to the lack of construction. Cities that have growth limits in place — including Boulder and Golden, where Hayes authored the 1995 growth cap — have median housing sales prices 1.5 to 2.5 times higher than the rest of the metro Denver area, and such acceleration in the cost of limited housing is likely to happen throughout most of the Front Range if Initiative 122, the report said.

https://www.bizjournals.com/denver/news/2020/01/08/colorado-legislative-session-2020.html

Both Democrats and Republicans at the Colorado Legislature recognize the devastating affect that this initiative would have on Colorado’s economy.  It will be interesting to watch what they do to ameliorate the effect that the recent growth in Colorado have had on infrastructure, roads, schools, etc., recognizing that if they do nothing, increased resentment about growth may make it more likely that the initiative will ultimately pass.

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The 2020 legislative session in Colorado appears to be off to a roaring start, and will likely have more impact on Colorado’s construction industry than in the last few years.  More to follow…

For additional information or about construction defect litigation in Colorado, generally, you can reach David McLain by telephone at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.