Colorado Construction Litigation

Higgins, Hopkins, McLain & Roswell Promotes Derek J. Lindenschmidt to Partner

2012-01-25T15:17:00.000-07:00

Higgins,Hopkins, McLain & Roswell is pleased to announce the promotion to partner(with effect from January 1, 2012) of Derek J. Lindenschmidt.

Sincejoining the firm in 2006, Derek’s practice has focused on representation ofconstruction professionals in a wide variety of both litigated andnon-litigated matters, including the defense of developers and generalcontractors in complex construction defect lawsuits. He has defended againstclaims in all phases of development, from initial design throughpost-construction, and has been very successful in recovering fromsubcontractors in subrogation.

“Derek’ssingular dedication to our clients has resulted in favorable outcomes inmediated, arbitrated, and litigated cases. His work ethic and drive has helpedus further the firm’s continuing mission to reimagine the way construction claimsare defended. I am delighted to have Derek as a partner,” said founding memberDavid M. McLain. Co-founder SheriRoswell added,“Whether a client or a colleague, Derek is the one you want in yourcorner. Personally and professionally,we are truly fortunate to have Derek on our team.”

“Iam very excited and honored. HHMR prides itself on providing its clients withsmart, yet aggressive representation. I am proud to be a part of a team whosenumber one goal is to look out for Colorado’s builders and developers in somevery trying times,” commented Derek on his promotion.

ISO Rolls Out Colorado-Specific Insurance Forms in Response to the Colorado Anti-Indemnity Statute.

2012-01-19T14:16:00.000-07:00

If you take a look at the bottom of any page of your (or your client’s) insurance contract, it is most likely a copyrighted form issued by Insurance Services Office, Inc. (ISO). ISO develops standardized insurance policy language and forms that most insurer companies use in order to create insurance policies for consumers.

ISO has recently released several Colorado-specific forms with policy language that takes into account Colorado’s 2007 anti-indemnity legislation, C.R.S. § 13-21-111.5. The Colorado anti-indemnity law limits a defendant’s liability to “the degree or percentage of the negligence or fault attributable” to the defendant. Pursuant to this law, the forms limit liability coverage to injury or damage caused by the insured, or by those acting on the insured’s behalf.

What does this mean for you or your clients?

We previously discussed on this blog that it is more important than ever to procure the proper insurance for your construction business. You can find that entry here. Many general contractors and developers have relied on a few of their subcontractors to procure the correct insurance that pays for the defense of, and indemnifies, the general contractor and/or developer from any suits. However, C.R.S. § 13-21-111.5 limits each subcontractor’s indemnity share to the degree of fault they are held liable.

For example, it is not uncommon for one subcontractor to be found 70% at fault in a construction defect action. If this subcontractor did not procure the correct additional insurance in favor of the general contractor or developer, those parties would lose the ability for the AI carrier to pick up 70% of the costs of defending the suit.

What should you or your clients do?

If you are a general contractor or developer, you need to ensure every subcontractor[1] working on your projects is procuring both ongoing and completed operations coverage that includes you as an additional insured for both coverages. To do so, you should speak with your insurance coverage attorney and ensure your subcontractors are getting the following forms (or the equivalents) as a part of their policies:

A form CG 32 29 06 10, naming you as an additional insured, or a CG 32 27 06 10 (automatic additional insured status if agreed by contract), to cover ongoing operations, such as workers compensation litigation.

AND

A form CG 32 28 06 10, naming you as an additional insured, to cover completed operations, such as construction defect litigation.

The name of the general contractor or developer should appear either on the actual ISO form listed above or in the policy declarations, along with the subject project(s). Although it is common in the industry, you should not merely accept a checklist form from the subcontractor’s insurance agent that states the proper coverage is in the policy. You should request certified copies of the subcontractors’ policies and ensure that the policies are reviewed by your own insurance company, or an attorney that specializes in construction coverage matters. Alternatively, you can ask the subcontractors' insurance producers to sign a subcontractor insurance compliance form, certifying that the proper coverages are in place.

If you are a subcontractor, you need to speak with an insurance coverage attorney and demand your insurance company write you the above-referenced forms or the equivalents. If your current insurance company will not, shop around. The failure to procure the correct insurance could leave you with millions of dollars in uncovered liabilities such as the attorney fees and expert costs of the project owner, general contractor, and/or developer in any construction defect litigation. Please understand that this is not inserted here as a pitch for work. We are not coverage attorneys, we just happen to think this is a good idea.

If you would like to obtain copies of these Colorado-specific ISO forms, or have any other questions regarding risk management for your construction business, please contact Chad W. Johnson by phone at (303) 987-9815 or by e-mail at cjohnson@hhmrlaw.com.

[1] Engineers, Architects, and Surveyors have different coverage forms.

Colorado's legislature is back in action. What does this mean for Colorado's construction professionals?

2012-01-12T11:49:00.000-07:00

Yesterday was the first day of the 2012 legislative session of the Colorado General Assembly, which promises to be an exciting year. From what we have heard around town (and from the mouth of a plaintiffs' construction defect attorney at an out-of-state seminar) there is likely to be a construction defects bill at the Capitol this year. This attempt will likely take the form of a bill providing for the payment of attorneys' fees to homeowners and homeowners associations in residential construction defect cases. Whether it happens or not, there are enough people talking about the prospect that it was picked up by The Denver Business Journal.

For the roofers out there, you may want to pay attention to Senate Bill 12-038, "concerning measures to protect consumers who engage a roofing contractor to perform roofing services on residential property," which requires "residential roofing contractors to sign a written contract with customers that details the following:"

- The scope of roofing services and materials to be provided;

- The approximate dates of service;

- The costs of the services;

- The roofing contractor's contact information;

- Identification of the roofing contractor's surety and liability coverage insurer and their contact information, if applicable;

- The roofing contractor's policy regarding cancellation of the contract and refund of any deposit, including a rescission clause allowing the client to rescind the contract and obtain a full refund of any deposit within 72 hours after entering the contract; and

- A written statement that if the client plans to use the proceeds of a property or casualty insurance policy to pay for the roofing work, the roofing contractor cannot pay, waive, rebate, or promise to pay, waive, or rebate all or part of any deductible applicable to the claim for payment for roofing work on the covered residential property.

Finally, despite meetings through the summer and fall, it looks as though the Colorado Association of Home Builders will not again support a bill to require pre-lien notices as a prerequisite to the validity of mechanics' liens.

Stay tuned and hang on, it could be a wild ride. If you would like to discuss the prospects of the upcoming session, please call me at (303) 987-9813 or e-mail me at mclain@hhmrlaw.com.

It is time to clarify that plaintiffs in construction defect cases cannot recover more than 100% of their actual damages.

2012-01-05T17:08:00.001-07:00

Developersin Colorado could be facing more of an uphill battle than the economy. Attorneys for homeowners’ associations have conceived a new argument wherebythey seek to hold the developer liable for one hundred percent of the damagesin a construction defect action as a fiduciary under Colorado law. Asmost of us know, developers rarely participate in the actual construction workof any given project. However, pursuant to Colorado’s Common InterestOwnership Act (“CCIOA”), board members appointed by the declarant developer arefiduciaries of the unit owners. See38-33.3-301, et seq. Attorneys for homeowners’ associations argue that thisdesignation of a declarant as a fiduciary creates a non-delegable duty toassure that there is no negligence in the construction of a home. See Cosmopolitan Homes Inc. v. Weller,663 P.2d 1041 (Colo. 1983). [1]

Takingthis argument one step further, attorneys for homeowners’ associations are nowarguing that, in accordance with its non-delegable duty, a developer should notbe allowed to allocate any liability to settling parties, including generalcontractors and/or subcontractors, which actually performed the work on aproject. If successful, the ultimate result of this argument precludesthe developer from seeking a set-off for any of the settlements between theassociation and the settling parties, thereby allowing the homeowners’ associationsto potentially recover more than one hundred percent of their claimeddamages.

In arecent construction defect suit, the plaintiff homeowners’association successfully argued that the developer, as a fiduciary, has anon-delegable duty under CCIOA. As a result, the association argued thatthe jury should not allocate any liability to the general contractor, which hadalready settled. The jury then allocated one hundred percent of theliability for the claimed construction defects to the developer on the verdictform. As a result, the developer was precluded from seeking a set-off forthe amount of settlement between the general contractor and the association,which essentially allowed the homeowners’ association to recover from thedeveloper what it had already recovered from the general contractor.

WhileColorado law would seemingly prohibit this outcome, those involved and/orinterested in the home building industry are urged to speak up and getinvolved. Perhaps there should be an amendment to Colorado’s statute concerningpro rata liability that would explicitly preclude the ability to recover morethan one hundred percent of a party’s claimed damages. See C.R.S. § 13-21-115.5. Currently, Colorado’s statute concerning contribution among tortfeasorsprovides that a release given in good faith to a person liable in tort for thesame injury does not discharge any of the other tortfeasors from liability fortheir respective pro rata share of liability for the injury. C.R.S. §13-50.05-105. Pursuant to Colorado’s pro rata statute, no defendant isliable for an amount greater than represented by the degree or percentage offault or negligence attributable to such defendant. C.R.S. §13-21-115.5. However, both statutes are silent on the issue of recovery,which is why many believe an amendment is necessary to preclude what isessentially double recovery by homeowners’ associations in construction defectactions.

Anotherway to skin the cat may be to make clear, statutorily, that C.R.S. §13-21-115.5(6)(a)(I) means what it says, that “every construction business in the state isfinancially responsible under the tort liability system for losses that abusiness has caused.” This can be accomplished by making clear that developersand general contractors are not liable for the negligence of the subcontractorsand design professionals they hire, but are only liable for their ownnegligence.

-Heather M. Anderson

[1] The Colorado Supreme Court has alsorecognized that subcontractors are also under an independent to act withoutnegligence in the construction of homes. See A. C. Excavating v. YachtClub II Homeowners Ass’n, Inc., 114 P.3d 862 (Colo. 2005); see also Driscoll v. ColumbiaRealty-Woodland Park Co., 590 P.2d 73 (Colo. App.1973).

Licensure for Common Interest Community Association Managers in Colorado: Should Construction Professionals and Their Insurers Support the Effort?

2011-12-14T11:30:00.002-07:00

On November 4, 2011, the Colorado Legislative Action Committee (“CLAC”) Licensing Task Force of the Community Association Institute (“CAI”) submitted a Sunrise Review Application for Licensure of Common Interest Community Association Managers. You can view a copy of the application here.

This blog entry will briefly describe the application, and then discuss why Colorado construction professionals and their insurers may want to support this application, with some revisions.

The Application

To me, the most interesting parts of the application are the following:

5. Describe the functions performed by members of this occupational group. Note which functions are unsupervised or supervised and by whom. In addition, indicate functions which are similar to those performed by other groups and identify those groups. How do the functions performed by this group vary from the other groups’ functions?

Background

Common Interest Community Associations are created under Colorado law to govern and operate common interest communities (commonly referred to as “Community Association” and “Homeowners’ Association”). The vast majority of Common Interest Communities are created as nonprofit corporations under Colorado law and are comprised of the owners of units located in these communities who are the members of these nonprofit corporations.

Volunteer Board Members are members of their Community Associations by virtue of owning a home in that Association. Election to these volunteer Boards of Directors generally requires no experience or knowledge; just an interest in serving on the volunteer Board of Directors. The natural legal and business structures of Community Associations place these institutions, and the people who serve them, in control of hundreds of thousands to millions of dollars of assets; often without consistent education or expertise. Directors serving on these volunteer Boards have a fiduciary duty to protect and preserve the common property in these communities and the property values of their fellow individual homeowners within the association. Directors often rely upon the expertise of their Community Managers for advice and assistance in carrying out their fiduciary duty, making decisions of significance, managing the finances of the Association and implementing policies and decisions of the Board.

* * *

Detailed tasks are outlined below, but in general the Manager is frequently responsible for . . . providing guidance and expertise to the Board to assist the Directors in fulfilling their fiduciary duty to the Association.

The Community Manager typically provides advice to the volunteer Board on when to seek legal counsel or the guidance from other experts.

* * *

What is unique about this occupation is that the volunteer Board Members who hire, supervise and are responsible for the actions of Community Association Managers are often inexperienced and lacking knowledge regarding the governance and operations of Community Associations and the applicable laws in Colorado.

Application, pgs. 5-6.

8. Does the applicant propose licensure, certification, registration, or another type of regulation? Why? (Under licensure, it is illegal for anyone to engage in an occupation without a license, and only persons who possess certain qualifications are licensed. Certification protects specific occupational titles of persons who have met certain educational and experiential standards. Only persons certified in that occupation may use the protected title, although anyone may practice the occupation. Under registration, any person may engage in an occupation, but he or she is required to submit information concerning the location, nature, and operation of the practice.)

It is in the best interest of the citizens of this state, of Common Interest Communities located in this state and the individuals who reside and/or own property in them, to provide for the licensure of Managers of Common Interest Communities to insure that persons who hold themselves out as possessing professional qualifications as Managers of Common Interest Communities, also commonly known as Community Associations, are, in fact, qualified to render management services of a professional nature. Licensure will ensure such individuals provide for the maintenance of high standards of professional conduct by those licensed as Managers of Common Interest Communities.

We seek licensure of Community Managers because:

· . . . Without licensure; there are no assurances that the Community Managers have the specialized knowledge necessary to provide this assistance and advice to the Boards and communities they serve. In addition, without licensure, there is no mandatory system of checks and balances and no standards with which a Community Association Manager is required to comply. . .

· This occupational group is hired by volunteer Boards of Directors who are not required to have any prior knowledge of the industry, any experience, any education or any business knowledge.

Application, pgs. 9-10.

16. Describe the minimum competencies necessary to enter this occupation.

Proposed minimum competencies would be:

· Must be at least 18 years old;

· Hold at least a High School diploma;

· Shall not have been convicted of a felony within the past 10 years; Shall have demonstrated knowledge of the fundamentals of Common Interest Community (CIC) management as evidenced by passage of the CMCA exam;

· Shall have demonstrated knowledge of the laws of Colorado that govern CIC’s specifically: CCIOA and the Nonprofit Act as evidenced by passage of an exam;

· Shall agree in writing to abide by a standard of professional conduct; and,

· Shall not have failed to cooperate with any law enforcement or regulatory agency in any investigation of any law enforcement or regulatory investigation.

Application, pg. 18 (emphasis added).

The National Board of Certification for Community Association Managers (NBC-CAM) develops and enforces the CMCA Standards of Professional Conduct.

CMCA Standards of Professional Conduct: A Certified Manager of Community Associations (CMCA^®) shall:

Be knowledgeable, act, and encourage clients to act in accordance with any and all federal, state, and local laws applicable to community association management and operations.

Be knowledgeable, comply and encourage clients to comply with the applicable governing documents, policies and procedures of the Client Association(s) to the extent permitted by that Client.

Not knowingly misrepresent materials facts, make inaccurate statements or act in any fraudulent manner while representing Client Association(s) or acting as a CMCA.

Not provide legal advice to Client Association(s) or any of its members, or otherwise engage in the unlicensed practice of law.

Promptly disclose to Client Association(s) any actual or potential conflicts of interest that may involve the manager.

Refuse to accept any form of gratuity or other remuneration from individuals or companies that could be viewed as an improper inducement to influence the manager.

Participate in continuing professional education and satisfy all requirements to maintain the CMCA.

Act in a manner consistent with his/her fiduciary duty.

Conduct themselves in a professional manner at all times when acting in the scope of their employment in accordance with the terms and conditions of their contractual agreement and in accordance with local, state and federal laws.

Recognize the original records, files and books held by the manager are the property of the Client Associations to be returned to the Client at the end of the manager’s engagement and maintain the duty of confidentiality to all current and former clients.

Application, pg. 30.

Why Colorado Construction Professionals and Their Insurers May Want to Support This Application

It is undeniable that Colorado’s plaintiffs’ construction defect attorneys are extremely entrenched in the Community Associations Institute - Rocky Mountain Chapter - Colorado. By looking at its website, one can see that all of the major plaintiffs’ construction defect attorneys sponsor the CAI and at least one member of such a firm sits on the CAI’s 2011 Board of Directors. It is my belief that the plaintiffs’ construction defect attorneys are so closely associated with the CAI because they naturally derive some benefit from the association. In other words, involvement in the association results in referrals and recommendations from property managers, which results in new retentions and new construction defect lawsuits.

To read about extreme examples of how the alliance between property managers and plaintiffs’ attorneys can be abused, one needs look no further than Nevada. In Las Vegas, the FBI has recently investigated a scheme employed by property management companies and plaintiffs’ construction defect attorneys to take control of homeowners association boards with members who pushed for construction defect lawsuits against builders. If you have not yet heard or read about this story, you can follow it here.

Even though there is no reason to believe that similar schemes are in the works in Colorado, it would not hurt to shed some light onto the role of property managers in evaluating the need for a homeowners association to retain a lawyer to investigate alleged construction defects, in recommending certain plaintiffs’ construction defect attorneys, or in recommending certain courses of action with respect to pursuing construction defect actions.

This is certainly true in light of the fact that the CAI has acknowledged in its application that members of homeowners associations boards of directors may have no experience, knowledge, education, or expertise in managing the affairs of a homeowners association and that they “often rely upon the expertise of their Community Managers for advice and assistance in carrying out their fiduciary duty, making decisions of significance, managing the finances of the Association and implementing policies and decisions of the Board.”

I wrote an article for Mountain Builder Magazine, Aspen and Vail Edition on the topic of construction defect lawsuits and why they are not always in the homeowners’ best interest. You can read that article here. In that construction defects lawsuits are often avoidable and should be a decision of last resort, perhaps the Colorado Department of Regulatory Agencies should include requirements or guidelines for property managers who recommend this course of action.

I do not yet know what those requirements or guidelines would look like, but if this sunrise review process gets legs, it might be something to look into. If nothing else, making it crystal clear that property managers cannot accept any form of gratuity or other remuneration from individuals or companies that could be viewed as an improper inducement to influence the manager, or to recommend a certain course of action to a homeowners association board of directors, would be a good start. Stay tuned and we will see where this goes.

-- David M. McLain

Telephone scammers purportedly calling from the "Hopkins Law Firm" in Denver.

2011-12-10T13:59:00.000-07:00

For months, our firm has been receiving telephone calls and e-mail inquiries about an extortion scam related to the collection efforts of outstanding payday loans. The callers are receiving threatening calls from individuals claiming to be with the “Hopkins Law Firm” in Denver. They are demanding repayment of a past due payday loan, yet are unable to provide the necessary information to support the claim of outstanding debt. Frighteningly enough, these scammers are armed with personal information about the individuals they are contacting. This fact alone has scared some into heeding their demands and actually sending them money to prevent them future threats to their employers, family members, and friends.

In an effort to clear any confusion about our law firm, we want to create awareness that we are not the source of these harassing phone calls. Our firm has done research into this scam and learned of many people who have been affected and what needs to be done to deter ongoing harassment. The Federal Bureau of Investigation has posted information related to this matter on its website, which can be found here. This press release identifies the problem and how to file a complaint with the appropriate authorities. The direct link to file a complaint is here. Locally, the Colorado Department of Law issued at press release with similar information related to these scams and how to file a complaint both with the state Attorney General’s Office and with the Federal Trade Commission here. That press release can be found here.

We have taken action by filing reports with these agencies to protect our firm and our reputation. We ask that you protect yourself by following the steps necessary to file complaints about these scamming activities and do what you can to secure your own personal information.

-- Kelli Sanders, Firm Administrator

In Colorado, Primary Insurers are Necessary Parties in Declaratory Judgment Actions.

2011-12-07T10:35:00.000-07:00

The United States District Court for the District of Colorado recently ruled that primary insurers are necessary parties, under Fed. R. Civ. P. 19, in a declaratory judgment action being pursued by an excess carrier. See Insurance Co. of State of Pennsylvania v. LNC Communities II, LLC, 2011 WL 5548955 (D. Colo. 2011). Federal Rule of Civil Procedure 19 is almost identical to Colorado Rule of Civil Procedure 19 and pertains to the joinder of persons needed for “just adjudication.” The Insurance Co. of the State of Pennsylvania (“ICSOP”) sought a declaratory judgment that it did not have a duty to defend or indemnify the defendants (collectively referred to as “Lennar Companies”) with regard to the underlying lawsuit brought by The Falls at Legend Trail Owners Association, Inc. (the “HOA”). Id. at *2. In its lawsuit, the HOA alleged Lennar Companies were liable for construction defects at The Falls at Legend Trail residential development.

Lennar Companies held two primary insurance policies, one issued by OneBeacon Insurance Company f/k/a General Accident Insurance Company (“General Accident”) and the other issued by American Safety Risk Retention Group, Inc. (“American Safety”). Lennar Companies also carried excess policies issued by ICSOP and Ohio Casualty Insurance Company (“Ohio Casualty”). In its analysis, the U.S. District Court for the District of Colorado pointed out that excess policies, such as the policy issued by ICSOP, typically provide coverage only for that portion of the damages that are in excess of the total applicable limits of the underlying or primary policies. Id. at *1.

Although Lennar Companies notified their insurers of the HOA’s lawsuit, none of the insurers meaningfully participated in their defense or agreed to provide reasonable settlement authority. Faced with the threat of multi-million dollar liability at trial, Lennar Companies settled the HOA’s lawsuit without ICSOP’s approval. Apparently, American Safety and Ohio Casualty promised to fund a small part of the settlement, but ICSOP did not. In its complaint, ICSOP alleged it had no duty to defend or indemnify for a number of reasons, and included policy exclusions, not being the named insured, and the failure to exhaust the limits of all underlying insurance. Id. at *2.

About a month after ICSOP filed its declaratory judgment action, Lennar Companies filed suit against all of their insurers in Denver County District Court for breach of contract, bad faith breach of contract, and a declaratory judgment that the insurers were and are obligated to defend and indemnify for liability and defenses costs arising out of the HOA’s lawsuit. The same day, Lennar Companies filed a motion to dismiss ICSOP’s declaratory judgment action for, primarily, a failure to join required and indispensable parties under Fed. R. Civ. P. 19. Under Rule 19(a)(1), a person is required to be joined if:

(A) In that person’s absence, the court cannot accord complete relief among existing parties; or

(B) That person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person’s absence may:

(i) As a practical matter impair or impede the person’s ability to protect the interest; or

(ii) Leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

If feasible, a required person must be joined.

See Insurance Co. of State of Pennsylvania, 2011 WL 5548955 at *3. If the required person cannot be joined as such action would destroy the court’s jurisdiction, the U.S. District Court for the District of Colorado indicated that the court must turn to Rule 19(b). “Under Rule 19(b), if a required person ‘cannot be joined, the court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.’” Id.

Rule 19(b) provides the factors a court should consider when deciding whether to proceed without the required person, including the extent of prejudice to that person or existing parties from judgment, extent to which any prejudice could be lessened or avoided by protective measures in the judgment or shaping of the relief. Additionally, Rule 19(b) proscribes consideration of whether judgment rendered in the person’s absence would be adequate, and whether the plaintiff would have an adequate remedy if the case was dismissed for non-joinder.

In their motion to dismiss, Lennar Companies argued that, under Rule 19(a), the court could not provide complete relief among the existing two parties as determination of Lennar Companies’ primary insurers’ obligations was a necessary prerequisite to determining ICSOP’s obligations under its policy. Id. at *4; see also City of Littleton v. Commercial Union Assurance Companies, 133 F.R.D. 159 (D. Colo. 1990). The court agreed, acknowledging that the ICSOP policy explicitly indicated that it was in excess of the primary policies, and therefore dependent upon a determination of whether the primary policies provide coverage. The court further acknowledged that, although it could construe General Accident’s policy, it would not be binding on the parties. As such, the court recognized the shortfall with regard to finality of judgment, which would be contingent upon a necessary lawsuit involving the parties and Lennar Companies’ primary insurers. Pursuant to the City of Littleton case, supra, the court found General Accident to be a required party under Fed. R. Civ. P. 19(a)(1)(A). See Insurance Co. of State of Pennsylvania, 2011 WL 5548955 at *5.

Lennar Companies argued that General Accident was a required party as it has an interest relating to the subject matter of ICSOP’s lawsuit “in that the primary layer of insurance it issued to [The Lennar Companies] is beneath the umbrella policy issued by ICSOP” and its ability to protect its interest will be impaired or impeded under Rule 19(a)(1)(B)(i). Id. at *6. Even though absent insurers would not be bound by the court’s judgment, the U.S. District Court of the District of Colorado noted that their absence could deny them the opportunity to present their individual defenses at a meaningful time. In order to adjudicate ICSOP’s claim that it has no duty to defend or indemnify, the court will necessarily have to determine Lennar Companies’ primary insurers’ liability. Accordingly, the court found General Accident a required party under Fed. R. Civ. P. 19(a)(1)(B)(i).

Lennar Companies also argued that proceeding in the absence of their primary insurers could subject ICSOP to multiple or inconsistent obligations. Id. at *8. The court agreed, acknowledging that its conclusions concerning the happening of an occurrence, property damage, and exhaustion of the primary policies could conceivably conflict with another court’s conclusions on these matters. As such, the court concluded that General Accident is a required party under Rule 19(a)(1)(B)(ii).

The court then turned to Rule 19(b) to determine whether it should dismiss ICSOP’s lawsuit rather than proceed. Id. at *10. In its analysis under Rule 19(b)(1), the court reiterated its findings of potential prejudice to General Accident, and ICSOP. Additionally, the court found that Lennar Companies could be prejudiced if the case went forward in the absence of General Accident. The court explained that the possibility of inconsistent outcomes in ICSOP’s declaratory action and Lennar Companies’ lawsuit could be “highly prejudicial” to Lennar Companies given the possibility of a gap in coverage.

The court then unsuccessfully explored the possibility of lessening or avoiding the potential prejudice by the inclusion of protective measures in the judgment, shaping the relief, or any other measures pursuant to Rule 19(b)(2). Withholding judgment until the primary insurers’ coverage and defense liability are determined in the other action filed would not promote judicial efficiency, economy, or the courts’ or parties’ convenience “and would invite complexity, delay, and a needless increase of litigation costs.” Id. at *11 (quoting City of Littleton, 133 F.R.D. at 165). The court also acknowledged that the possibility of shaping the relief by expressly holding that its determination of the primary insurers’ obligations not binding would effectively render judgment in this case meaningless. As such, the court found no reasonable alternative to lessen or avoid the inherent prejudice the case presented.

In consideration of whether judgment rendered in General Accident’s absence would be adequate under Rule 19(b)(3), the court reiterated its conclusion that complete relief was not available unless General Accident was joined. The court found that this conclusion “weighs in favor of dismissing the case.” Id. at *11. Finally, the court addressed whether ICSOP would have an adequate remedy if its action were dismissed for nonjoinder. The court acknowledged that not only was an alternative forum available, the other lawsuit was pending in the same forum ICSOP chose to file its declaratory action. Accordingly, the court found that equity and good conscience, as well as all of the Rule 19(b) factors dictated dismissal rather than proceeding in General Accident’s absence and found the case properly dismissed under Fed. R. Civ. P. 12(b)(7).

-- Heather M. Anderson

Renovation Contractors: Be Careful How You Disclose Your Projects

2011-11-30T12:58:00.000-07:00

In Palu and Beyer v. Toney, 2011 WL 2560249 (Bankr. D. Colo.), the United States Bankruptcy Court for the District of Colorado determined that a Colorado District Court order granting summary judgment in favor of plaintiff homebuyers was binding on the Bankruptcy Court in the defendant contractor’s bankruptcy proceeding based on issue preclusion.[1]

Pertinent to this column is the subject matter of the summary judgment motion: Colorado’s Seller’s Property Disclosure (Form LC-18-5-04). In the underlying state court action, the plaintiff homebuyers filed a motion for summary judgment contending that the defendant contractor represented to them, through the Seller’s Property Disclosure, that there were no present or past conditions involving moisture or water problems, roof problems or leaks, skylight problems, or gutter downspout problems.

In granting plaintiffs’ motion, the state court determined that the defendant contractor made these representations on her Seller’s Property Disclosure despite witnessing water leaking from the skylight onto the floor and being aware of repairs to the roof, skylight, and interior drywall prior to the sale of the property. The state court also determined that the past water damages and repairs were material facts, because “any past water damages and resulting repairs are information a reasonable person under these circumstances would regard as important in deciding what to do.” Additionally, the state court determined that the defendant contractor intended for the plaintiff buyers to rely on her representations, and that the plaintiff buyers did so.

Notably, there is a “Seller’s Advisory” contained on Colorado’s Seller’s Property Disclosure which indicates that “failure to disclose a known material defect may result in legal liability.” Although the Palu case is an example of a renovation contractor’s blatantly false disclosure, the lesson is still clear: Colorado courts will treat the representations made on your next Seller’s Disclosure very seriously.

-- Derek J. Lindenschmidt

[1] “Issue Preclusion” operates to bar re-litigation of an issue that has been finally decided by a court in a prior action.

United States District Court for the District of Colorado Denies Summary Judgment in the High Street Lofts Case.

2011-11-21T12:32:00.000-07:00

On September 26, 2011, the United States District Court for the District of Colorado issued an order that denied American Family Mutual Insurance Company’s motion for summary judgment regarding claims arising out of an alleged breach of insurance contract brought by High Street Lofts Condominium Association, Inc. (“High Street”). High St. Lofts Condo. Ass'n, Inc. v. Am. Family Mut. Ins. Co., 10-CV-02484-MSK-BNB, 2011 WL 4479120 (D. Colo. Sept. 26, 2011).

Concrete Express, Inc. began performing road repair work in May 2009 near the High Street Lofts in Boulder. That work included using tamping equipment to compact soil that allegedly created ground vibrations in the area. Shortly after the work began, representatives of High Street Lofts noticed damage to their buildings. In September 2009, High Street brought suit against Concrete Express (“CD Action”) alleging that “equipment used by Concrete Express caused extensive vibrations to travel through the ground and into the building,” which damaged High Street’s building. Id. at *2. Thereafter High Street filed suit against American Family (“Coverage Action”) based on American Family’s denial of coverage under a business insurance policy.

Since the CD Action had concluded, and ironically as the court pointed out, High Street’s position on causation had changed. In the CD Action, High Street had argued that vibrations from Concrete Express’ work caused the damages. In the Coverage Action, High Street argued “that the building was not damaged by vibrations at all,” but instead by “poorly performing historical foundations, disregard for geotechnical considerations,” and other causes not involving Concrete Express’ roadwork activities. Id. at *4.

American Family argued that High Street should be precluded from changing its causation argument from the CD Action to the Coverage Action because of judicial estoppel. The court dismissed this argument because it had not been proven that High Street had benefited from its previous causation theory, a necessary element of judicial estoppel.

American Family sought to exclude coverage based on: 1) an exclusion for damages caused by the negligence of a third party, and 2) an earth movement exclusion. The court quickly dismissed the first argument, as “Concrete Express’ negligence remains disputed.” Id. at *3.

The court then tackled the language of the insurance policy. The most relevant language from the policy regarding earth movement excluded coverage for the following:

Earth sinking (other than sinkhole collapse), rising, or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water underlying the ground surface.

The court, applying the “reasonable expectations doctrine” and construing ambiguity against the drafter, held that an ordinary insured might reasonably understand this “un-grammatical maze” “‘to exclude coverage for settling, cracking or other disarrangement of foundations’ of buildings when that damage results from the ‘sinking, rising, shifting, expansion, or contraction’ of earth, when that movement is caused by ‘freezing, thawing, erosion, improperly compacted soil, [or] the action of [sub-surface] water” Id. at *6 (brackets in original).

Because freezing, thawing, erosion, and sub-surface water had been eliminated as potential causes, the court analyzed the “improperly compacted soil” exclusion. The court opined that American Family could still prove that the alleged earth movement was caused by improperly compacted soil or by vibrations causing harm to improperly compacted soil; therefore, any damages to High Street’s building would be within the policy exclusion. Id. at *7. However, High Street could still prove that the soil was properly compacted at original construction and any damages, (whether from vibrations or otherwise) would avoid the earth movement exclusion. Id. This would, ironically, now require both parties to alter their causation positions to support their interests.

The court concluded that because there still was a genuine issue of material fact on the actual cause of the earth movement, the case must proceed to trial and American Family’s motion for summary judgment was denied.

- Chad W. Johnson

The U.S. Tenth Circuit Court of Appeals Rules on Greystone.

2011-11-03T16:02:00.000-06:00

On November 1, 2011, the Tenth Circuit Court of Appeals ruled on the certified question of whether property damage caused by a subcontractor’s faulty workmanship is an “occurrence” for purposes of a commercial general liability (CGL) insurance policy. In Greystone Const., Inc. v. National Fire & Marine Ins. Co., No. 09-1412 (10^th Cir. Nov. 1, 2011), the Tenth Circuit determined that because damage to property caused by poor workmanship is generally neither expected nor intended, it may qualify under Colorado law as an occurrence and liability coverage should apply. Id. at 2.

The short history of the Greystone case is as follows. In Greystone Const., Inc. v. National Fire & Marine Ins. Co., 649 F. Supp. 2d 1213 (D. Colo. 2009), two contractors and one of their insurers brought an action against a second insurer after the second insurer refused to fund the contractors’ defense in construction defect actions brought by separate homeowners. Id. at 1215. The U.S. District Court for the District of Colorado, relying on General Sec. Indem. Co. of Arizona v. Mountain States Mut. Cas. Co., 205 P.3d 529 (Colo. App. 2009), granted summary judgment in favor of the second insurer on the basis that the homeowners’ complaints did not allege accidents that would trigger covered occurrences under the second insurer’s policies. Id. at 1220. Notably, the Greystone, General Security, and other similar decisions prompted the Colorado General Assembly to enact C.R.S. § 13-20-808, which was designed to provide guidance for courts interpreting perceived coverage conflicts between insurance policy provisions and exclusions. The statute requires courts to construe insurance policies to favor coverage if reasonably and objectively possible. C.R.S. § 13-20-808(5).

The Tenth Circuit began its analysis by determining whether C.R.S. § 13-20-808, which defines the term “accident” for purposes of Colorado insurance law, would have a retroactive effect, and thereby settle the question before the court. The Tenth Circuit gave consideration to several Colorado district court orders issued since the enactment of C.R.S. § 13-20-808 which have suggested that the statute does not apply retroactively, including Martinez v. Mike Wells Constr., No. 09cv227 (Colo. Dist. Ct., Mar. 1, 2011), and Colo. Pool. Sys., Inv. V. Scottsdale Ins. Co., No. 09cv836 (Colo. Dist. Ct., Oct. 4, 2010). The Tenth Circuit also attempted to ascertain the General Assembly’s intent behind the term “all insurance policies currently in existence...” Greystone, No. 09-1412, at 12. The Tenth Circuit determined that the General Assembly would have more clearly stated its intentions for the term if it was supposed to apply retroactively to expired policies, rather than those still running. Id. at 12-13. Ultimately, the Tenth Circuit decided that C.R.S. § 13-20-808 did not apply retroactively, but noted that “the retrospective application of the statute is not necessarily unconstitutional.” Id. at 9, 11-14. As such, the Tenth Circuit advised that it was required to decide the question presented in the appeal under the principles of Colorado insurance law. Id. at 15.

In so doing, the Tenth Circuit looked at the Colorado Court of Appeal’s decision in the General Security matter, which held that because the term “accident,” as used in CGL policies, necessarily implies fortuity, “a claim for damages arising from poor workmanship, standing alone, does not allege an accident that constitutes a covered occurrence…” General Security, 205 P.3d at 534. The Tenth Circuit noted that the Court of Appeal’s rationale was persuasive, but took an overly narrow view of CGL policy language and was inconsistent with the inherent structure of CGL policies. Greystone, No. 09-1412, at 22.

The Tenth Circuit predicted that the Colorado Supreme Court, if asked to construe the term “occurrence” as contained in standard form CGL policies, would do so in a manner that encompassed unforeseeable damage to non-defective property arising from faulty workmanship. Id. at 16. It compared its prediction with approaches in other jurisdictions and decided that most federal and state cases favor a finding of an occurrence in the circumstances considered by the Greystone appeal, and noted that “a strong recent trend in the case law interprets the term ‘occurrence’ to encompass unanticipated damage to nondefective property resulting from poor workmanship.” Id. at 18.

The Tenth Circuit’s decision also reaffirms the viability of the “your work” exclusion present in most standard form GCL policies: “[T]he exclusion’s exception for property damage arising out of the work of a subcontractor necessitates the conclusion that damage to the builder’s work caused by the poor workmanship of a subcontractor can constitute an occurrence in the first instance.” Id. at 34. However, the court also acknowledged that coverage can nonetheless be eroded by such an exclusion: “Therefore, we conclude that damage to the contractor’s nondefective work—even if arising out of poor workmanship—may fall under the CGL’s policy initial grant of coverage, even though coverage may ultimately be withdrawn through one of the policy’s exclusions.” Id.

Ultimately, the Tenth Circuit’s decision makes clear that “injuries flowing from improper or faulty workmanship constitute an occurrence so long as the resulting damage is to nondefective property, and is caused without expectation or foresight.” Id. at 22. The court further distanced itself from the Court of Appeal’s rationale in General Security, stating that “fortuity is not the sole prerequisite to finding an accident under a CGL policy. To the contrary, an unanticipated or unforeseeable injury to person or property—even in the absence of true fortuity—may be an accident and, therefore, a covered occurrence.” Id. at 23. Further driving home its position, the Tenth Circuit reiterates that “CGL policies are meant to cover unforeseeable damages—a category that encompasses faulty workmanship that leads physical damage of nondefective property.” Id. at 25.

The Greystone decision provides the most comprehensive interpretation of coverage under Colorado insurance law to date, including an unequivocal construal of the intent behind C.R.S. §13-20-808. Thus, as construction defect litigation continues to persist in Colorado, and with the issuance of each new CGL policy, the Tenth Circuit’s Greystone decision looks to be the newest, clearest authority on a historically obscure area of law.

-- Derek J. Lindenschmidt

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.

2011-10-31T11:30:00.001-06:00

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

[1] 986 P.2d 924 (Colo. 1999).

[2] 80 P.3d 863 (Colo. App. 2003).

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

2011-10-19T13:43:00.000-06:00

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 mclain@hhmrlaw.com. 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

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

2011-10-01T08:30:00.003-06:00

Denver, CO, October 01, 2011 --(PR.com)-- 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.

Contact:

David M. McLain
(303) 987-9813
McLain@hhmrlaw.com

Sheri Roswell
(303) 987-9812
Roswell@hhmrlaw.com

www.hhmrlaw.com
www.hhmrlaw.blogspot.com

Another Colorado District Court Refuses to Apply HB 10-1394 Retroactively.

2011-09-26T11:30:00.001-06:00

In Martinez v. Mike Wells Construction Company, 09CV227, Teller County District Court Judge Edward S. Colt refused to apply C.R.S. § 13-20-808 retroactively to provide coverage for the underlying construction defect allegations. According to the recitation of facts in Judge Colt’s March 2011 order, Martinez contracted with Mike Wells Construction to serve as the general contractor for the construction of a home. At that time, Mike Wells Construction was insured through ProBuilders Specialty Insurance Company, RRG. Disputes arose between Martinez and Mike Wells Construction, resulting in Martinez ordering it off of the project in mid-November 2007 and terminating its right to work there by letter dated November 28, 2007.

Mike Wells, the owner of the corporation, subsequently died. Martinez sued Mike Wells Construction in July 2009 for breach of contract and various claims relating to alleged defecting workmanship. Martinez provided notice of the suit to the special administrator of the probate estate. No answer having been filed, the court entered a default judgment against Mike Wells Construction and Martinez sought to garnish Mike Wells Construction’s ProBuilders insurance policy.

In framing the issues related to the cross motions for summary judgment filed by Martinez and ProBuilders, Judge Colt stated:

At its core, the issue here is whether Plaintiff may recover against ProBuilders for damages she incurred due to Mike Wells’ faulty workmanship. Under General Security, supra, she may not recover, and summary judgment for ProBuilders is appropriate. Should the Court apply the subsequently-adopted statute, which presumes that shoddy work is a covered event unless the property damage is intended and expected by the insured, then a different result is warranted.

In looking at the statute, Judge Colt noted that the editor’s note to the statute provides that “Section 3 of Chapter 253, Session Laws of Colorado 2010, provides that the act adding this section applies to all insurance policies in existence as of, or issued on or after, May 21, 2010.” While Martinez obviously argued that the statute applies, ProBuilders argued that such retroactive application of the statute to an insurance policy which expired prior to its enactment would be unconstitutional. The obvious issue, as framed in the order, was “what significance should be given to the legislative term ‘currently in existence?’”

After discussing various previous cases on the subject, Judge Colt found persuasive ProBuilders’ argument that the statute does not apply retroactively, and that:

the policy at issue, which would have expired not later than March 28, 2008, and which was purportedly terminated by written notice of the insurer on November 18, 2007, must be interpreted by the standards set out in General Security, supra. There is no evidence that the Colorado legislature intended retroactive application, at least to policies which had already expired prior to the date of the legislation.

In applying the General Security standards, Judge Colt held:

The policy at issue before the Court does not, by its terms, cover faulty workmanship, and, following existing Colorado precedent, . . . , the substandard workmanship alleged by Plaintiff is not a fortuitous event resulting in an occurrence which would trigger coverage. The insurer had no duty to defend under these facts, nor any duty to indemnify. ProBuilders’ motion for cross summary judgment is granted, Plaintiff’s motion for summary judgment is denied.

As I stated in a previous blog entry, until there is appellate case law on the subject, I expect that there will be continued interest 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 mclain@hhmrlaw.com. Also, if you have any additional orders on point, I would very much like to see them. Please send me any orders you may have.

-- David M. McLain

Senate Bill 11-264: The Clarification of Lien Bonding Statutes

2011-09-13T11:30:00.002-06:00

On July 1, 2011, Senate Bill 11-264 became effective, which legislatively overruled the Colorado Court of Appeals controversial decision in Weize Company, LLC v. Martz Supply Co. 251 P.3d 489 (Colo. App. 2010). A notice of lis pendens gives notice of pending litigation to persons potentially acquiring interests in the subject property. Hewitt v. Rice, 154 P.3d 408 (Colo. 2007). The recording of a lis pendens binds any subsequent purchaser subject to the litigation’s effect on the property, thereby discouraging purchases because of the potential for unknown consequences. Kerns v. Kerns, 53 P.3d 1157, 1165 fn. 6 (Colo. 2002). In Weize, the court held that a notice of lis pendens must be filed when a suit involves property until the completion of litigation, even when a proper bond is substituted for the lien.

In making its decision, the Weize court found the plain language of C.R.S. §§ 38-22-131(3) and 127(3) persuasive. According to the court, the two statutes collectively exclude lien release bonds from the types of bonds that are exempt from filing lis pendens. However, the court did not discuss the other sections of C.R.S. §§ 38-22-131 and 132 (collectively allow for the substitution of a bond in place of a mechanic’s lien and discharge of the lien) or C.R.S. § 38-22.5-11 (allows for the substitution of a bond in place of a real estate broker’s lien and discharge of the lien). Further, according to C.R.S. § 38-22-132, once a bond is properly substituted for a lien, there is no longer an action that affects the title to real property. Therefore, any filing of lis pendens would be in conflict with C.R.S. § 38-22-110 that requires relief be claimed affecting the title to real property before filing a notice of lis pendens.

In response to the Weize decision, SB11-264 was enacted to amend C.R.S. §§ 38-22-132, 38-22.5-111, and 38-35-110. The legislature now made it crystal clear that a proper bond is a suitable substitute for filing lis pendens. Therefore, owners of property subject to litigation are now again free to market their properly-bonded property without the burden of lis pendens on title.

Chad W. Johnson is an associate attorney at Higgins, Hopkins, McLain & Roswell, LLC. Mr. Johnson received his undergraduate degree from University of Minnesota-Duluth, graduating with distinction, and his law degree from the University of Denver, College of Law. You can reach Chad at (303) 987-9815 or by e-mail at johnson@hhmrlaw.com

Court retains jurisdiction over mechanic's lien case despite the merits being decided in arbitration.

2011-09-07T18:01:00.000-06:00

This summer the Colorado Court of Appeals affirmed an interesting district court order concerning the court’s jurisdiction over a mechanic’s lien in a case ordered to arbitration. See Sure-Shock Electric, Inc. v. Diamond Lofts Venture, LLC, 2011 WL 2474513 (Colo. App. 2011). In that case, the defendant owned real property on which it constructed the Diamond Lofts. Sure-Shock was the electrical subcontractor for the construction project. Diamond Lofts Venture, LLC (“DLV”) allegedly did not pay Sure-Shock as required thereby prompting Sure-Shock to record a mechanic’s lien on the property and file a complaint for breach of contract, unjust enrichment, and foreclosure of the lien. Id. at *1.

DLV moved to stay the proceedings and compel arbitration pursuant to the contract between the parties. According to the contract between the parties, they agreed to arbitrate “[a]ny claim arising out of or related to the subcontract.” Id. at *1. The district court granted DLV’s motion and both parties participated in the arbitration. The arbiter found for Sure-Shock on its breach of contract and unjust enrichment claims, but did not mention foreclosure of the lien. The arbiter did, however, make detailed findings of fact concerning the filing of the lien, which included the amount of the lien and the date it was recorded. Id. The arbiter awarded Sure-Shock the principal amount claimed in the lien plus interest at the statutory rate of twelve percent from the date the lien was recorded, or October 17, 2007.

Sure-Shock then moved to confirm the arbiter’s award in the district court. The district court granted the motion thereby confirming the award as to the amount of Sure-Shock’s mechanic’s lien, and ordered Sure-Shock able to participate in the foreclosure of the lien. Id. DLV appealed this ruling. In its appeal, DLV argued that the parties’ agreement to arbitration divested the district court of jurisdiction to determine the “validity, amount and enforceability” of the lien. Additionally, DLV argued that, because Sure-Shock did not affirmatively raise an argument that the lien was procedurally valid in the arbitration, it was now barred from seeking a decree of foreclosure in the district court by the doctrines of claim preclusion and waiver. Id.

The Colorado Court of Appeals disagreed. The Court of Appeals explained that the arbiter, by determining the amount of debt owed by DLV to Sure-Shock on the underlying breach of contract and unjust enrichment claims, “necessarily decided the amount of any mechanic’s lien.” Id. The Court of Appeals also pointed out that the arbitration award noted the filing of the lien, the amount listed on the lien statement, the date the lien was filed, and awarded interest from that date. As such, the Court of Appeals “read the arbitrator’s award to conclude that Sure-Shock had established the right to a lien or claim under the mechanic’s lien statute.” Id. at *2.

The remaining issue concerned the procedural validity of Sure-Shock’s mechanic’s lien entitling it to a decree of foreclosure. The Court of Appeals believed Sure-Shock’s assertion in this regard was correct. That is, “submission of a facially proper notice of intent to file a lien and lien statement, time stamped by the county recorder’s office, satisfies a mechanic’s lien claimant’s initial burden of proving the lien’s procedural validity.” Id. Sure-Shock had attached its notice of intent to file a lien statement to its complaint, along with affidavits of service, and its statement of lien. While DLV moved to compel arbitration, DLV did not challenge the procedural validity of Sure-Shock’s lien.

The issue, as framed by the Court of Appeals, was whether the procedural validity of the mechanic’s lien may be decided by the court as part of the foreclosure proceedings, or whether Sure-Shock or DLV was required to raise it in the arbitration pursuant to their contract requiring all clams and disputes be submitted to arbitration. Id. The court noted that this question was one of first impression in Colorado while acknowledging Colorado law that allows only a court to issue a decree of foreclosure. Id.; see C.R.S. § 38-22-114.

The Court of Appeals concluded that the issue of procedural validity of a mechanic’s lien may be properly determined by the court. “Given that only a court is vested with the authority to foreclose a mechanic’s lien, it may concurrently determine any procedural validity issues connected with that foreclosure even when the underlying contract includes a broad arbitration clause, at least where, as here, neither party raised the issue in arbitration.” Id. at *3. According to the Court of Appeals, the procedural validity of a lien securing a debt arising from a breach of contract may be decided by the court even if the contract requires all disputes to be submitted to binding arbitration.

Heather M. Anderson is an associate of the firm, specializing in construction litigation.

Is There a Conflict of Interest When a CD Defense Attorney Becomes Coverage Counsel Post-Litigation?

2011-08-19T17:40:00.002-06:00

In Weitz Co., LLC v. Ohio Cas. Ins. Co., the U.S. District Court for the District of Colorado was asked to rule on a motion to disqualify counsel in an insurance coverage action. 11-CV-00694-REB-BNB, 2011 WL 2535040 (D. Colo. June 27, 2011). Motions to disqualify counsel are viewed with suspicion, as courts “must guard against the possibility that disqualification is sought to ‘secure a tactical advantage in the proceedings.’” Id. at *2 (citing Religious Technology Center v. F.A.C.T. Net, Inc., 945 F. Supp. 1470, 1473 (D. Colo. 1996).

Weitz Company, LLC (“Weitz”) is a general contractor and defendant in an underlying construction defect suit which had concluded before the action bringing rise to this order. In the underlying action, Weitz made third-party claims against subcontractors, including NPW Contracting (“NPW”). Weitz was listed as an additional insured under NPW’s policies with both Ohio Casualty Insurance Company and Mountain States Mutual Casualty Company (collectively “the Carriers”). The Carriers accepted Weitz’s tender of defense under a reservation of rights. However, neither insurance carrier actually contributed to Weitz’s defense costs in the underlying action. At the conclusion of the construction defect action, the parties unsuccessfully attempted to apportion the attorney’s fees and costs. Eventually, Weitz brought suit against the recalcitrant carriers. The Lottner firm, which had previously represented Weitz in the underlying construction defect action, continued to represent Weitz in this coverage action. The Carriers moved to disqualify the Lottner firm, alleging the firm had a conflict of interest and that the attorneys were necessary witnesses.

Conflict of Interest Claim

As the basis for its conflict of interest claims, the Carriers claimed that the Lottner firm had violated Rule 1.7 of the Colorado Rules of Professional Conduct (“RPC”). Rule 1.7 addresses concurrent conflicts of interest. The Carriers first argued that the Lottner firm had an attorney-client relationship not only with the Weitz, but also with the Carriers. The court was not persuaded. Citing Colorado Ethics Opinions 91 and 43, and other Colorado courts’ interpretations of them, the Weitz Court held that there is no attorney-client relationship with the insurance carrier, only the insured.

The Carriers also argued that the Lottner firm could not represent Weitz in both the underlying construction defect action and this coverage action because of Colorado Ethics Opinion 91 states:

One area where significant problems may arise is when a lawyer is asked to both render a coverage opinion and to defend an insured in the tort case. The lawyer cannot ethically perform both services at the same time, since the insured’s representation may be materially limited by the lawyer’s responsibility to the carrier.

Again, the court was not persuaded. Whether a coverage question creates a conflict of interest creates a conflict of interest depends on an assessment of the facts of each particular case.” Id. at *5 (citing Colorado Ethics Opinion 91). The court explained that although it is not permissible for a lawyer to analyze coverage and simultaneously or later defend an insured in a tort case; that is not the same situation here. Because the Lottner firm had defended the construction defect action before analyzing coverage, and had not acted to “exploit the attorney-client privilege in order to build a case for non-coverage,” the firm had no conflict of interest. Id.

Necessary Witness Claim

The Carriers’ last argument for disqualification of the Lottner firm was that the lawyers of the firm were necessary witnesses at trial. Colorado Rule of Professional Conduct 3.7 (“Rule 3.7”) prohibits a lawyer from serving as both advocate and witness. To be called at trial, the calling party has the burden to prove that the proposed attorney testimony is “necessary” at trial. “A lawyer is likely to be necessary where the proposed testimony is relevant, material, not merely cumulative, and unobtainable elsewhere.” Id. at *6 (quoting World Youth Day, Inc. v. Famous Artists Merchandising Exchange, Inc., 866 F. Supp. 1297, 1302 (D. Colo. 1994). The Carriers argued that all lawyers at the Lottner firm were necessary because they “are the only fact witnesses who can testify regarding [Weitz’s] demands for coverage, their pursuit of coverage, and Mountain States’ and Ohio Casualty’s response to such demands and pursuit.”

The court was not persuaded that other fact witnesses could not testify regarding the proposed testimony. The court found that the Lottner firm’s associate counsel, the Carriers, and the Carriers’ coverage counsel could testify to Weitz’s demands. Therefore, at the time of the order, the attorneys at the Lottner firm were not necessary witnesses. The court then added:

Of course, the continued participation of the Lottner firm in this action as trial counsel precludes its later participation as witnesses. Thus, although I find the Lottner firm lawyers are not necessary witnesses, if there is any possibility that Weitz will call them to testify, they must step aside now as trial counsel.

Although not an issue here, unfortunately, several Colorado attorneys have sought to improperly call themselves as factual or expert witnesses for which they are also acting trial counsel in recent years. The underlying reasons that gave rise to Rule 3.7’s bar on this type of testimony are numerous and beyond the scope of this blog post.[1] Hopefully this recent case further clarifies this issue.

Chad Johnson is an associate with Higgins, Hopkins, McLain & Roswell, LLC where he specializes in construction litigation. He can be reached at (303) 987-9815 or by e-mail at johnson@hhmrlaw.com.

[1] See Williams v. Dist. Court, El Paso County., 700 P.2d 549, 553 (Colo. 1985); Merrill Lynch Bus. Fin. Services, Inc. v. Nudell, 239 F. Supp. 2d 1170, 1173 (D. Colo. 2003); Fed. Deposit Ins. Corp. v. Sierra Res., Inc., 682 F. Supp. 1167, 1170 (D. Colo. 1987).

Colorado Civil Access Pilot Project: Second Update

2011-07-28T21:07:00.000-06:00

Back in February, we ran an update regarding the Colorado Supreme Court’s proposed new set of civil procedure rules under the name Civil Access Pilot Project (CAPP). The previous update related how the first round of public hearings went and what was going to be the next step. The present entry comes on the heals of the decision by the Colorado Supreme Court to implement CAPP.

After all of the rounds of public hearings and feedback, the Colorado Supreme Court approved CAPP, which will go into effect on January 1, 2012. As a pilot project CAPP will last two years and apply to the Denver metro area, including the 1st (Jefferson and Gilpin Counties), 2nd (Denver County), 17th (Adams County), 18th (Arapahoe and Douglas Counties), and 20th (Boulder County) Judicial Districts.

Originally, CAPP’s rule changes were meant to apply to medical malpractice cases alleging breaches of standard of care and business actions, which included many different types of actions. The final version of CAPP, according to the Colorado Supreme Court, will not apply to medical or professional malpractice cases, employment cases, construction defect actions, cases where the Colorado Governmental Immunity Act may provide a defense, and cases involving wages and forcible entry. It is important to note that while CAPP will not be applicable to construction defect actions, it may well affect other construction related cases.

A final version of the pilot project rules will be published in the Colorado Lawyer and also sent to interested bar associations and/or specialty bar websites.

-Brady Iandiorio

General Contractor/Developer May Not Rely on the Homeowner Protection Act to Avoid a Waiver of Consequential Damages in an AIA Contract

2011-07-20T14:35:00.000-06:00

Recently, in Caribou Ridge Homes, LLC v. Zero Energy, LLC, et al., Case No. 10CV1094, Boulder County District Court Judge Ingrid S. Bakke entered a ruling and order on the Plaintiff’s Motion for Determination of Question of Law Pursuant to C.R.C.P. 56(h) on Issue of Damages. The Order found that the Plaintiff was not a homeowner intended to be protected by the Homeowner Protection Act (the “HPA”) and thus could not pursue its claims for consequential damages against Defendant.

By way of background, on June 18, 2008, Plaintiff Caribou Ridge Homes, LLC (“Caribou”) entered into a Standard Form Agreement Between Owner and Contractor AIA Document A114-2001 (the “Contract”) with Defendant Zero Energy, LLC (“Zero Energy”). Plaintiff hired Zero Energy to serve as a general contractor for the construction of a single-family home in the Caribou Ridge subdivision in Nederland, Colorado. A provision in the contract contained a mutual waiver of consequential damages (“Waiver”).

Plaintiff filed suit in October, 2010 asserting four claims for relief based on breach of contract, including breach of express warranty, breach of implied warranty, negligence, and negligent misrepresentation. On February 7, 2011, Plaintiff filed its Motion for Determination of Question of Law Pursuant to C.R.C.P. 56(h) on Issue of Damages. Judge Bakke entered an Order on June 13, 2011.

Plaintiff asserted that it was the owner and developer of the property, and Zero Energy, as the general contractor, fell within the HPA’s definition of “construction professional.” Thus, Plaintiff argued, the Waiver found in the Contract could not prohibit it from pursuing its claims for consequential damages because the HPA specifically renders such a waiver unenforceable and void as against public policy.

However, the court found persuasive Defendant’s argument that Caribou was a commercial developer, not an individual, unsophisticated homeowner contemplated by the drafters of the HPA to benefit from its protections. Also persuasive to the court was Defendant’s argument that the bill sponsors intended the HPA to address the practice of forcing limitations of liability as a condition of selling a new home to a homebuyer who had no role in designing, construction, budgeting, or selecting materials. Additionally, the HPA was intended to protect new homebuyers from onerous waivers contained in either the developer-created declarations or homebuilders’ purchase agreements. Caribou, Defendant claimed, was not the same type of owner but rather a developer/owner capable of negotiating a contract at arms-length.

Thus, the court concluded that an absurd result would occur if commercial developers such as Caribou received the protections of the HPA, because commercial developers have a greater level of sophistication and ability to negotiate than other types of homeowners. The HPA was not drafted with the intent to void standard form AIA contracts, such as the Contract between Caribou and Zero Energy. The court ultimately ordered that Caribou was not a homeowner who was intended to be protected by the HPA.

This is at least one indication, from the trial court level, that general contractors and developers may not rely on the Homeowner Protection Act to get out of a waiver of consequential damages in an AIA contract. We will see if this holds true once the Colorado appellate courts weigh in, either on this or some other case.

-Brady Iandiorio

Colorado Court of Appeals weighs in on the public impact element of a CCPA claim

2011-06-11T16:03:00.000-06:00

In 2005, One Creative Place (“Creative”) lost a bidding war with Jet Center Partners (“Jet Center”) for the exclusive rights to provide maintenance service and fuel sales at the Montrose Regional Airport. One Creative Place, LLC v. Jet Center Partners, LLC, (Colo. App. No. 10CA1887, May 26, 2011). Despite losing the bid, Creative continued to provide maintenance services and fuel vehicles on a property adjacent to the airport. Jet Center eventually brought suit against Creative for, among other claims, violation of the Colorado Consumer Protection Act (“CCPA”). In order to prove a CCPA claim, a plaintiff must prove five elements: 1) the defendant engaged in an unfair or deceptive trade practice; 2) the deceptive trade practice occurred in the course of the defendant’s business; 3) the deceptive trade practice significantly impacted the public as actual or potential customers of the defendant’s business; 4) the plaintiff suffered an injury to a legally protected interest; and, 5) the deceptive trade practice caused the plaintiff’s injury. Id. at 1; Rhino Linings USA, Inc. v. Rocky Mountain Rhino Lining, Inc. 62 P.3d 142, 146-47 (Colo. 2003).

As a matter of first impression in Colorado, the Court was asked to decide whether the third factor, public impact, was a question of law or fact. In order to make its decision, the Court discussed Colorado case law interpreting the CCPA (mainly Judge Connelly’s special concurring opinion in Colorado Coffee Bean), the State of Washington’s interpretation of a similar statute, and the Colorado Supreme Court Committee on Civil Jury Instructions, which recognized that this question may be submitted to a jury. See One Creative Place at 4-5; See also Colorado Coffee Bean, LLC v. Peaberry Coffee, Inc., ___P.3d___, (Colo. App. No. 09CA0130, Feb. 18, 2010).

The Court also recited the three factors enumerated in Martinez v. Lewis to determine whether a deceptive trade practice significantly impacts the public:

Some of the considerations relevant to whether a challenged practice significantly impacts the public as consumers are the number of consumers directly affected by the challenged practice, the relative sophistication and bargaining power of the consumers affected by the challenged practice, and evidence that the challenged practice previously has impacted other consumers or has significant potential to do so in the future.

One Creative Place at 7, quoting Martinez v. Lewis, 969 P.2d 213, 222 (Colo. 1998).

The Court held that the three Martinez factors are not exhaustive, and even if a plaintiff’s evidence of public impact is extremely lacking, the question of public impact should only be determined as a matter of law when facts are undisputed.

In resolving this particular case, the Court of Appeals reviewed the trial court’s determination that no public impact existed as one of fact. The Court did not find a breach of the clear error standard and the trial court’s ruling against Jet Center’s CCPA claim was not disturbed.

For more information regarding the Colorado Consumer Protection Act, contact Chad Johnson at johnson@hhmrlaw.com or by telephone at (303) 987-9870.

Bret Cogdill to Speak at the Lorman Construction Claims Seminar, June 24 in Aurora, CO

2011-05-09T22:07:00.000-06:00

I am pleased to inform you that I will be speaking at the “Construction Claims” seminar, to be held on June 24, 2011, from 8:30 a.m. to 4:30 p.m., at the Summit Conference & Event Center, 411 Sable Boulevard, Aurora, Colorado.

My presentation, “Colorado Construction Law and Basics of Risk Management Given the Law,” will examine updates to Colorado law over the past year, including:

Recent Construction and Coverage Decisions;
Recent Legislation Affecting Construction Defect Litigation;
Future Legislation Which May Affect Construction Defect Litigation; and
Basics of Risk Management for Construction Professionals and Those Who Represent Them.

Other presenters will discuss the following topics:

The Notice of Claim Process – Issues and Analysis;
Alternative Damage Calculation Methods; and
Insurance and Risk Management Issues Involving Residential Development and Construction Insurance Issues.

The agenda and other information on this seminar is available at: http://www.lorman.com/seminars/seminar_details.php?sku=387095

As my guest, you are eligible for 20% off the registration fee.

Register online: http://www.lorman.com
Call: 866-352-9539
Discount code: F2716129
Priority code: 15000

I look forward to seeing you there.

For additional information regarding construction litigation in Colorado, visit http://www.hhmrlaw.com/, or contact Bret Cogdill at (303) 653-0046 or by e-mail at cogdill@hhmrlaw.com.

Colorado Court of Appeals holds that insurance companies owe duty of prompt and effective communication to claimants and repair subcontractors.

2011-03-14T11:00:00.004-06:00

In Dunn v. American Family Insurance, 09CA2173, 2010 WL 4791948 (Colo. App. Nov. 24, 2010), the Dunns reported a claim to American Family on their homeowners insurance policy after sewer and water backup caused sewage to flood their basement. American Family gave the Dunns contact information for a contractor (ICA) to remediate the flooding. However, ICA was unsuccessful and sewage began to infiltrate the Dunns’ HVAC system. Subsequently, black mold was detected in the HVAC system, the Dunns suffered health and respiratory problems, and they soon after vacated the home. The Dunns hired and fired two more contractors for unsatisfactory work throughout the winter before hiring a fourth to finish the job. Because the home remained vacant and unheated throughout the winter, the water pipes ruptured. The mold spread throughout the entire home and all of the contents needed to be replaced, which amounted to a claim of $340,000 on the policy.

American Family agreed to pay the full $340,000. However, the Dunns brought suit claiming that American Family breached the implied duty of good faith and fair dealing by: 1) failing to screen ICA for expertise; 2) failing to screen ICA for liability insurance coverage; 3) failing to monitor ICA’s work; 4) failing to advise them that flooding can cause further damage, including freezing pipes and mold; and, 5) failing to adequately and promptly communicate with them and remediation subcontractors in the course of investigating and handling their claim.

The trial court found no duty owed by American Family beyond adjustment and timely payment of claims. Because American Family paid timely and in full, they dismissed all of the Dunns’ claims. However, the Court of Appeals reversed in part.

In doing so, the Court expressly held that an insurance company has no duty to screen subcontractors it suggests for quality or insurance, monitor the work performed by subcontractors, or advise an insured of the possibility of likely further damage after an initial claim. Id. at *3. However, as a matter of first impression, the court held that American Family “had a duty to promptly and effectively communicate with anyone it was reasonably aware had or legitimately needed information pertaining to the handling of plaintiffs’ claim” (e.g., subcontractors performing the work). Id. at *5-6. The court then remanded the case to the trial court with instructions to prove that American Family breached the duty to communicate; and, that the breach of that duty caused further damages to the Dunns. Id. at *6.

- Chad Johnson

End of Colorado Senate Bill 11-068

2011-03-10T16:16:00.000-07:00

We have been following Senate Bill 11-068, which sought to eliminate the significant public impact component of claims under the Colorado Consumer Protection Act (the “CCPA”). That bill has now died in a House committee. The original version of the bill would have created a rebuttable presumption that a significant public impact occurred where a plaintiff offers evidence of a deceptive trade practice, and the bill was revised to completely do away with the element of a significant public impact in a CCPA cause of action. On February 22, SB 11-068 passed out of the Senate, and on February 25, the bill was introduced into the House, where it was assigned to the State, Veterans, and Military Affairs Committee. Today, on a 5-4 vote, the Committee moved to postpone indefinitely SB 11-068.

- Bret Cogdill

Analysis of the "owned property exclusion" under Panico v. State Farm

2011-03-08T11:00:00.003-07:00

The U.S. Court of Appeals for the Tenth Circuit recently concluded that the “owned property exclusion” applied to bar coverage for claims of property damage. See Panico v. State Farm Fire and Cas. Co., 2011 WL 322830 (10th Cir. 2011). In Panico, the plaintiffs sold property in Aspen, Colorado to the Taylors, who sued the Panicos upon discovering the property was not as represented. After refusing to defend, the Panicos sued State Farm for breach of contract. The district court concluded that the Taylors’ claims were not covered under the Panicos’ insurance policies and granted summary judgment in State Farm’s favor. The U.S. Court of Appeals for the Tenth Circuit affirmed.

Mr. Panico built the house on the property as well as several additions to the house. As the Taylors lived in Florida, they primarily relied on their real estate agent and an inspector to ensure the property was acceptable. According to their complaint, the Taylors discovered that the house was “virtually uninhabitable due to serious design and construction defects, mold, rodents, and drainage problems.” Id. at *1. In their complaint, the Taylors asserted three claims for relief against the Panicos based upon misrepresentation and fraudulent concealment about the condition of the property.

The Panicos’ State Farm policy provided personal liability coverage for claims brought against an insured for bodily injury or property damage. The personal liability coverage provided:

If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, we will:

1. pay up to our limit of liability for the damages for which the insured is legally liable; and

2. provide a defense at our expense by counsel of our choice.

Importantly, the Panicos’ State Farm personal liability coverage was subject to an exclusion for “property damage to property rented to, occupied or used by or in the care of any insured.” Id. at *2. Despite the inclusion of allegations concerning Ms. Taylor’s respiratory problems and illness requiring medical attention after exposure to the property, the court concluded that State Farm had no duty to defend because the Taylors did not bring bodily injury claims, and the property damage claims were subject to the owned property exclusion.

While the court acknowledged Colorado law required an insurer to provide a defense if the underlying complaint alleged any facts or claims that might fall “within the ambit of the policy,” the court distinguished the allegations in the Taylors’ complaint. In its analysis, the court stated:

However, this rule does not mean that the mere mention of one or two facts that could constitute part of a covered claim triggers coverage if it is clear that those facts are not part of any claim for relief. If there is no claim, there is no duty to defend.

Id. at *3.

The court explained that Colorado courts look beyond the labels attached to a claim to determine whether it is truly a covered claim. As the Taylors’ complaint did not seek relief for bodily injury, State Farm’s duty to defend was not triggered.

With regard to the Taylors’ claims for property damage, the court indicated that said claims do not trigger a duty to defend because they are subject to the owned property exclusion. The court indicated that the Panicos cannot avoid the owned property exclusion whether it looks at the Panicos’ alleged misrepresentations concerning the property, their alleged negligent construction of the property, or their alleged negligent maintenance of the property. “All three would have taken place while the Panicos owned the property.” Id. at *4.

For additional information regarding construction litigation or insurance coverage in Colorado, please contact Heather Anderson at anderson@hhmrlaw.com or by telephone at (303) 987-9870.

HHMR is honored to have one of its attorneys named as a 2011 Colorado Super Lawyer and two others named as Rising Stars.

2011-03-03T21:50:00.000-07:00

Higgins, Hopkins, McLain & Roswell ("HHMR") is happy to announce that one of its attorneys has been selected as on of Colorado's Super Lawyers by Super Lawyers magazine and that two other lawyers have been recognized as "Rising Stars."

David B. Higgins was chosen to receive the honor of being named as a 2011 Colorado Super Lawyer, recognizing him as one of the top-performing construction lawyers in Colorado. In addition, two other HHMR lawyers, David M. McLain and Derek Lindenschmidt, were named as "Rising Stars" by the magazine, a distinction that recognizes up-and-comers in the industry for their outstanding service and accomplishments.

HHMR's expertise is in the field of construction law and the litigation of construction claims. The firm's team of high profile construction attorneys is consistently sought out by developers, general contractors, and insurers not only to litigate construction claims, but also to consult on risk avoidance and risk management strategies.

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

Follow Up on Colorado Senate Bill 11-068: Unwarranted Changes to the Colorado Consumer Protection Act

2011-03-02T11:00:00.000-07:00

In a prior Colorado Construction Litigation blog entry, we presented concerns with Senate Bill 11-068, which seeks to eliminate the significant public impact component of claims under the Colorado Consumer Protection Act (the “CCPA”). On February 22, 2011, the Senate passed the bill in a 19 to 15 vote. As the bill made its way through the Senate, it was amended to remove the provisions that would have granted the Attorney General the unilateral power to add to the laundry list of acts that constitute deceptive trade practices. While the original version of the bill would have created a rebuttable presumption that a significant public impact occurred where a plaintiff offers evidence of a deceptive trade practice, recent revisions completely do away with the element of a significant public impact in a CCPA cause of action. The revised SB11-68 reads in part:

6-1-113.5. Private cause of action - elements – legislative declaration.
(1) TO PREVAIL IN A CLAIM BROUGHT UNDER SECTION 6-1-113, A PLAINTIFF SHALL ESTABLISH THAT:
(a) THE DEFENDANT ENGAGED IN AN UNFAIR OR DECEPTIVE TRADE PRACTICE;
(b) THE CHALLENGED PRACTICE OCCURRED IN THE COURSE OF THE DEFENDANT'S BUSINESS, VOCATION, OR OCCUPATION;
(c) THE PLAINTIFF SUFFERED INJURY IN FACT TO A LEGALLY PROTECTED INTEREST; AND
(d) THE CHALLENGED PRACTICE CAUSED THE PLAINTIFF'S INJURY.

(2) THE GENERAL ASSEMBLY DECLARES THAT ITS PURPOSE IN CREATING THIS SECTION IS TO ELIMINATE THE REQUIREMENT, ARTICULATED BY THE COLORADO SUPREME COURT IN HALL V. WALTER, 969 P.2D 224 (1998), THAT, TO PROVE A PRIVATE CAUSE OF ACTION UNDER THIS ARTICLE, A PLAINTIFF MUST ESTABLISH THAT A DEFENDANT'S CHALLENGED PRACTICE SIGNIFICANTLY IMPACTS THE PUBLIC AS ACTUAL OR POTENTIAL CONSUMERS OF THE DEFENDANT'S GOODS, SERVICES, OR PROPERTY.

It is doubtful how this bill would increase consumer protection or further deter unscrupulous vendors from conducting deceptive trade practices. Awards of treble damages and attorney fees have long been a feature of the CCPA. As discussed in our prior blog entry on this topic, the requirement for a plaintiff to show a significant public impact was a long established part of the CCPA and case law, which differentiates a CCPA cause of action from other available causes of action such as misrepresentation or simply breach of contract. If it becomes law, SB 11-068 may turn far more ordinary disputes with a business regarding goods, services, or property into CCPA actions.

On February 22, SB 11-068 passed out of the Senate. On February 25th, the bill was introduced into the House, where it was assigned to the State, Veterans, and Military Affairs Committee.

For additional information regarding construction litigation in Colorado, visit http://www.hhmrlaw.com/, or contact Bret Cogdill at (303) 653-0046 or by e-mail at cogdill@hhmrlaw.com.

Colorado Civil Access Pilot Project: Update

2011-02-28T10:47:00.001-07:00

This blog recently ran an entry analyzing the Colorado Supreme Court’s proposed new set of civil procedure rules under the name Civil Access Pilot Project (CAPP). In that entry, besides dissecting certain concerns the new rules raise, this blog gave its readers information regarding the dates for both written and verbal comments to be raised at the public hearing. This short entry is meant as an update following those comments heard by the Colorado Supreme Court.

Following the first round of public comments, the Colorado Supreme Court will form a committee to review the proposed rules and possibly revise the pilot rules. The committee will review the comments and concerns raised by the public hearing and formulate recommendations regarding CAPP for the Court. Following such a review the final version will be submitted once again for public comment, after which the Court will make its final decision regarding implementation of CAPP.

The group being asked to review the comments and proposed rules will be coordinated by Justice Rice. The group is projected to include members of the original pilot proposal group, members of the civil rules committee, representatives from Bar practice groups, members from legislative branch, and other non-lawyer representatives, including doctors and court reporters.

The Court projects the review to conclude sometime in the spring with the public hearing to follow shortly after. Once more concrete dates are given and or there are any more updates to be reported, this blog will provide you with all the information it has available, keeping you apprised of the situation.

-Brady Iandiorio

Revisiting Boulder Plaza: Appeal Affirmed and Cert. Denied

2011-02-08T21:44:00.000-07:00

Roughly one year ago, we blogged about a case named United Fire & Casualty Company v. Boulder Plaza Residential, LLC, 06-CV-00037-PAB-CBS. You may find it here (February 3, 2010 Entry).

In that case, the court granted summary judgment to United Fire & Casualty following a motion to reconsider based on the case, General Security Indemnity Co. of Arizona v. Mountain States Mutual Casualty Co., 205 P.3d 529 (Colo. App. 2009). The Colorado Legislature responded to the General Security case by enacting Colorado Revised Statute § 13-20-808, which critiques the restrictive nature of General Security’s interpretation of what constitutes an “accident.” C.R.S. § 13-20-808 expands the interpretation stating, “in interpreting a liability insurance policy issued to a construction professional, a court shall presume that the work of a construction professional that results in property damage, including damage to the work itself or other work, is an accident.”

Thus, when United Fire came up on appeal, United Fire & Casualty Co. v. Boulder Plaza Residential, LLC, --- f.3d ----, 2011 WL 242443 (C.A.10 (Colo.) Jan 27, 2011), the prospect of resolving coverage issues in Colorado seemed bright. The appeal was set to resolve whether United Fire & Casualty owed the general contractor, McCrery & Roberts Construction Co. (M&R), a duty to defend or a duty to indemnify based on the policy interpretations put in place by C.R.S. § 13-20-808. However, the court quickly pointed out, “we may resolve the issues of whether UFC owed M&R a duty to defend or a duty to indemnify without reference to General Security or C.R.S.§ 13-20-808.”

Instead, the court relies on an “ongoing operations” exclusion present in the underlying policy. According to the court, the complaint contained no allegations of damage that occurred during the contractors work on the project. As such, the court held “these allegations refer to completed, rather than ongoing operations, and that ends the matter.” The court ignores Boulder Plaza’s pleas to look beyond the complaint’s four corners stating that the case does not fall into any exceptions and that it will not expand the well-established “complaint” rule.

As for the duty to indemnify, despite several arguments put forth by Boulder Plaza, the court remains steadfast and quotes the Colorado Supreme Court in Compass Ins. Co. v. City of Littleton, 984 P.2d 606, 621 (Colo. 1999) which held that “where there is no duty to defend, it follows that the can be no duty to indemnify.” The court lists out various other reasons why United Fire & Casualty does not owe a duty to indemnify, but the holding is the same. The court affirmed the district court’s grant of summary judgment and denied a motion to grant certification of the question to the Colorado Supreme Court.

In the end, it appears we will have to wait a bit longer for the Colorado Supreme Court to weigh in on the coverage dilemma raised by General Security and C.R.S. § 13-20-808.

- Brady Iandiorio

Colorado Senate Bill 11-68 Proposes Unwarranted Changes to the Colorado Consumer Protection Act

2011-01-31T11:43:00.000-07:00

Sen. Morgan Carroll (D-Arapahoe) and Rep. Judy Solano (D-Adams) introduced SB 11-68, titled “Concerning an Increase in Consumer Protection under the ‘Colorado Consumer Protection Act ("CCPA").’” However, enacting SB 11-068 would offer no real additional protections to consumers in legitimate deceptive practice cases, cloud existing law, and make defending against baseless CCPA claims more onerous and costly.

The CCPA is found at C.R.S. § 6-1-101, et seq. C.R.S. §6-1-105 (1)(a) through (ccc) offers over forty examples of what may constitute a deceptive trade practice. The list includes deceptive practices that are very general, for example: “(g) represent[ing] that goods, food, services, or property are of a particular standard, quality, or grade, or that goods are of a particular style or model, if he knows or should know that they are of another;” and those that are more specific, for example: “(vv) violat[ion of] section 12-55-110.3, C.R.S.” (regarding posting legal notices required of a notary). Not all of the violations include a “knowing” or intent element. Subsection (3) further provides: “The deceptive trade practices listed in this section are in addition to and do not limit the types of unfair trade practices actionable at common law or under other statutes of this state.”

The CCPA establishes civil penalties (C.R.S. § 6-1-112 provides a penalty of $2,000 for each violation), and criminal penalties (C.R.S. § 6-1-114 makes first violations a class 1 misdemeanor). Most significantly, in private actions C.R.S. § 6-1-113 provides for treble damages plus attorney fees.

To prove a cause of action under the CCPA, a plaintiff must show: (1) that the defendant engaged in an unfair or deceptive trade practice; (2) that the challenged practice occurred in the course of defendant’s business, vocation, or occupation; (3) that it significantly impacts the public as actual or potential consumers of the defendant’s goods, services, or property; (4) that the plaintiff suffered injury in fact to a legally protected interest; and (5) that the challenged practice caused the plaintiff’s injury. Crowe v. Tull, 126 P.3d 196, 201 (Colo. 2006) (citing Rhino Linings USA, Inc. v. Rocky Mountain Rhino Lining, Inc., 62 P.3d 142, 146-47 (Colo. 2003)). In Rhino Linings, the Colorado Supreme Court reviewed the following factors to determine whether the challenged practice significantly impacts the public:

(1) the number of consumers directly affected by the challenged practice;

(2) the relative sophistication and bargaining power of the consumers affected by the challenged practice; and

(3) evidence that the challenged practice has previously impacted other consumers or has the significant potential to do so in the future.

The CCPA and its treble damages provision is distinct from other contract causes of actions, as well as misrepresentation and fraud actions, because of the harm of a deceptive trade practice to not just a party to a transaction, but to the public at large. Therefore, the CCPA requires a plaintiff to show that a deceptive trade practice significantly impacts the public.

SB 11-68 has two components: 1) to permit the Attorney General to identify additional acts that constitute deceptive trade practices; and 2) to remove a requirement that plaintiffs show that a challenged practice significantly impacts the public. The first component of SB 11-68 unnecessarily provides authority to the Attorney General to amend the extensive list of what constitutes a deceptive trade practice already provided by statute and case law. The second component of SB 11-68 would add the following provision to the CCPA:

6-1-113.5. Significant public impact. EVIDENCE THAT A PERSON ENGAGED IN A DECEPTIVE OR UNFAIR TRADE PRACTICE CONSTITUTES PRIMA FACIE EVIDENCE THAT THE PRACTICE SIGNIFICANTLY IMPACTED THE PUBLIC.

The bill summary describes the purpose of the new provision as:

Although not required by statute, case law interpreting the act has resulted in a requirement that plaintiffs separately establish that a defendant's challenged practice caused a significant public impact. In order to eliminate this additional burden on consumers, section 2 creates a rebuttable presumption that a significant public impact has occurred when a plaintiff offers evidence that a defendant engaged in a deceptive trade practice.

The long established requirement for a plaintiff to show a significant public impact is not an “additional burden on consumers” as the bill proponents argue, but one of the elements that differentiates a CCPA cause of action from other available causes of action such as misrepresentation or simply breach of contract. In Rhino Linings, the Colorado Supreme Court provided the following brief history behind the CCPA:

The CCPA was enacted to regulate commercial activities and practices which, “because of their nature, may prove injurious, offensive, or dangerous to the public.” . . . The CCPA deters and punishes businesses which commit deceptive practices in their dealings with the public by providing prompt, economical, and readily available remedies against consumer fraud.

Id. at 146 (citations omitted).

Several reported cases in Colorado arose from disputes where the plaintiff attempted to improperly broaden the litigation to assert CCPA claims, but where the public was not significantly impacted by the disputed transaction. The two cases cited below provide examples of construction disputes where plaintiffs recovered some damages on other grounds, but not CCPA treble damages due to a lack of public impact.

Where a defendant did not disclose that beneath the land sold to plaintiff existed the remains of a concrete swimming pool, the court found that the deceptive act was limited to a single transaction. Anson v. Trujillo, 56 P.3d 114, 118 (Colo. App. 2002). Though the defendant’s conduct was found to have involved misrepresentations or concealment in the deal, the court dismissed the CCPA claim, stating that the misrepresentation itself “was not advertised or otherwise presented to the public in an effort to induce sales.” Id.

In Wheeler v. T.L. Roofing, Inc., 74 P.3d 499 (Colo. App. 2003), a building owner hired the defendant to install a new roof, and thereafter claimed the roof leaked and sued for deceptive trade practices among other causes of action. The Colorado Court of Appeals upheld the trial court’s dismissal of the CCPA claim, which included an award of attorney fees to the defendant, based upon the plaintiff filing a frivolous and groundless claim, holding the plaintiff “did not allege, nor is there any showing in any factual material submitted by the parties that the alleged conduct of [defendant] significantly impacted the public as an actual or potential consumer.” Id. at 506.

This firm has successfully defended general contractors and developers in cases where plaintiffs have brought dubious CCPA claims where an underlying, disputed transaction had no public impact whatsoever. The potential for treble damages was too much for plaintiffs and their counsel to pass up, adding meritless CCPA claims to broaden their contract disputes into punitive actions. SB 11-068 would only increase the frequency of such unsupported claims. Shifting the burden to defendants to prove that a disputed transaction lacks public impact would not increase any protections for consumers with legitimate CCPA claims.

If you would like more information regarding SB 11-68, or the defense of CCPA claims, please contact Bret Cogdill at (303) 653-0046 or by e-mail at cogdill@hhmrlaw.com.

Colorado Court of Appeals clarifies "premises owned" exclusion commonly found in homeowners' insurance policies

2011-01-17T11:00:00.000-07:00

A clear and unambiguous “premises owned” exclusion in homeowners insurance policies eliminates the duty to defend for all types of claims at all premises not listed in the policy. In Sachs v. American Family Mutual Insurance Company, the Sachses requested their homeowners insurance policy defend them for several claims, including a negligent misrepresentation claim for the sale of their former home. 09CA1536, 2010 WL 3259822 (Colo. App. Aug. 19, 2010). The decision rested on whether the claim fell under the “premises owned” exclusion below:

14. Premises Owned, Rented or Controlled.
We will not cover bodily injury or property damage arising out of any act or omission occurring on or in connection with any premises owned, rented or controlled by any insured other than an insured premises.

“Insured premises” was further defined in the policy as “that dwelling, related private structures and ground at that location where you reside.”

The Sachses filed a motion for summary judgment and argued that the claim did not fall under the premises owned exclusion because the exclusion applies 1) only to currently owned premises, and 2) only to premises liability claims. Essentially, the Sachses’ argument was that because they no longer owned the property, their homeowners insurance policy should cover all claims to that property.

American Family filed a cross-motion for summary judgment and argued that the negligent misrepresentation claim against the Sachses fell within the premises owned exclusion. American Family’s argument was that the provision specifically excluded coverage to all premises not listed in the policy. American Family further claimed the exclusion applies 1) to both currently owned and previously owned premises, and 2) to all types of claims at the subject properties.

Both the District Court and the Court of Appeals agreed with American Family. In making its decision, the Court of Appeals held that the plain language of the policy excluded all premises not listed under the policy. The Court also noted if it agreed with the Sachses, an insurance company would not be able to assess the risks associated with premises not listed under the policy. To hold otherwise, “an insured could obtain coverage by simply conveying the premises where the act or omission occurred to someone else.”

The Court further held that the premises owned exclusion applies to all types of claims. The Court again relied on the plain language of the policy and the unexpected result if it held otherwise. However, the Court noted several cases that properly held coverage existed because the specific policy exclusions contained ambiguous language. See Tacker v. American Family Mutual Insurance Co., 530 N.W.2d 674 (Iowa 1995); Hanson v. General Accident Fire and Life Insurance Corp., 450 So.2d 1260 (Fla. Dist. Ct. App. 1984). Yet those same cases held that express and unambiguous language, similar to the exclusion in this case, would effectively limit coverage and properly express the intent of the parties. Therefore, the Court granted summary judgment in favor of American Family.

Colorado Civil Access Pilot Project

2011-01-06T11:00:00.001-07:00

The Colorado Supreme Court is enacting a new set of civil procedure rules specific to certain types of cases meant to streamline the litigation process and make civil cases more efficient and less expensive. The proposed rule changes, which have been dubbed the “Civil Access Pilot Project” (CAPP), will be enforced for a finite period before statewide implementation, where data will be collected and analyzed for the purpose of improving the rules based on actual experiences with cases.

CAPP focuses on two primary types of cases: business actions and medical negligence actions. The medical cases covered are those specifically alleging breaches of standard of care and which are covered under the Colorado Health Care Availability Act. On the other hand, a wide range of cases are implicated under the “business actions” umbrella, including: breach of contract; business torts; Uniform Commercial Code transactions; disputes involving commercial real property; owner/investor derivative actions; commercial class actions; business transactions with commercial banks or other financial institutions; internal affairs of business organization; commercial insurance coverage (including directors and officers, errors and omissions, business interruption, and environmental); dissolution of business entities; disputes involving securities laws; disputes involving antitrust laws; and disputes involving intellectual property and state trademark laws.

While CAPP intends, and in many ways establishes, a more efficient litigation process in regards to the specific cases to which it applies, there a few large pitfalls that have appeared. The biggest such pitfall involves Pilot Project Rule (PPR) 10 which concerns expert discovery. PPR 10.1(b) states that the “substance of each expert’s direct testimony shall be fully addressed in the expert’s report.” PPR 10.1(b) takes on significant importance when read with PPR 10.1(d): “There shall be no depositions or other discovery of experts.” Essentially, one report, no discovery, no deposition and we’ll see you in trial.

On top of that, PPR 10.2 limits the number of expert witnesses for parties to one expert witness per area of expertise. Each party may have one expert witness to submit a report and testify with respect to any given issue. Restrictions on expert witnesses go even farther in a medical negligence action, which PPR 10.3 governs. PPR 10.3 requires that expert witness reports shall be produced simultaneously with the allowance of rebuttal reports to be filed within 40 days of such simultaneous production.

Other minor drawbacks exist as well. The new rules have a definite harshness to them that previously did not exist. CAPP seems intent on informing attorneys “mistakes,” intentional or not, will be met with some form of punishment or sanctions. PPR 3.7 (a) – (e) lists out good examples of such punishments, but the essence of the new severity CAPP enforces is shown in the committee comments to PPR 1. The comments say that “motions for extensions are strongly disfavored. The court is encouraged to address these motions immediately . . . and deny them absent extraordinary circumstances. Parties may not stipulate to extensions.” [Emphasis added]. Such denial of party stipulations is an exact 180 degree change in attitude from C.R.C.P. 121, § 1-15(8) which exhorts a duty to confer. Such contradictions and inherent punishments will surely increase as the rules begin to be implemented.

It is important to note at this time that this is a pilot project and knowledge of where these rules will be implemented should they be deemed “successful” is currently unknown. Will they be restricted to the enumerated actions? Or will they be expanded until they govern all actions?

Accordingly, if one has questions or concerns about CAPP they can be voiced when The Proposed Civil Access Pilot Project will be considered at a public hearing on Wednesday, January 19, 2011 at 1:30 p.m. in the Colorado Supreme Court Courtroom, 101 West Colfax Avenue, Denver, Colorado 80202. The deadline for submitting written comments is January 14, 2011 at 5 p.m. An original and eight copies of the written comments concerning the CAPP should be submitted to Susan J. Festag, Clerk of the Supreme Court, 101 West Colfax Avenue, Suite 800, Denver, Colorado, 80202. Persons wishing to participate in the hearing should so notify Ms. Festag no later than Friday, January 14, 2011.

U.S. District Court holds that CDARA’s “actual damages” provision is a cap on damages, but not the only available measure of damages

2011-01-03T14:08:00.000-07:00

In Hubbell v. Carney Bros. Const., the Hubbells sought to build a home on land they had previously purchased. 05-CV-00026-CMA-KLM, 2010 WL 5147567 (D. Colo. Dec. 13, 2010). In order to finance the construction of the home, the Hubbells borrowed from Alpine Bank. Unsatisfied with the builders and design professionals midway through construction, the Hubbells fired the builders and design professionals and sued them for negligent construction and design. However, after filing suit and before the case was decided, Alpine Bank foreclosed on the property. Therefore, the Hubbells did not own or possess the property at the time defendants moved for summary judgment. Subsequently, the Hubbells settled with Alpine Bank and Carney Brothers settled with the Hubbells. The remaining defendants (“Defendants”) were Teamcorp, Inc., T.J. Concrete Construction, Inc., and Kerry Karnan.

The Defendants moved to limit the Hubbells’ damages to the amount the builders’ alleged negligence diminished the property value. At the same time, Defendants moved to cap damages to CDARA actual damages and vacate any claims to loss of use of the property. After the issue was fully briefed, the court identified four issues that it determined needed to be answered:

(1) whether the CDARA permits damages measured by the diminution in value of the property, (2) if so, whether such damages are the proper measurement of damages in this case, (3) whether loss of use damages are appropriate in this case, and (4) whether the Hubbells have already been fully compensated by their settlements with the other parties.

1. CDARA’s “actual damages” are merely a cap on relief

The court relied on the language of C.R.S. § 13-20-806(1) and several pre-CDARA and non-construction cases to hold that CDARA is merely a cap of “actual damages.”[1] The court relied on Bd. of County Com'rs of Weld County v. Slovek 723 P.2d 1309, 1316 (Colo. 1986), to hold that the proper measure of damages in real property torts are at the discretion of the trial court and should be undertaken on a case-by-case basis. Hubbell at *4. The goal of the trial court should be reimbursement for the actual loss suffered, not to inflict punishment on defendants or encourage wasteful expenditures by plaintiffs. Slovek at 1316. (relying on Zwick v. Simspon 572 P.2d at 134 (Colo. 1977)).

2. Diminution in market value damages is the appropriate relief when Plaintiffs no longer own or possess the property

First, relying again on Zwick and Slovek, the court showed why diminution in market value damages (“DMV”) is appropriate. Those cases held that DMV is the default measure of damages with several factors to determine if an exception exists to use another damage method. Without getting too bogged down in these pre-CDARA cases in this blog,[2] the Hubbell court determined that the desire or ability to repair the subject property (i.e., ownership of the property) is necessary to deviate from DMV. Hence, if a plaintiff no longer owns the property, DMV is the appropriate measure of damages.

The court also recognized it would be giving plaintiffs a windfall if it awards repair costs and plaintiffs do not repair the property. As a result, an award of repair costs would impermissibly go further than “reimbursement of the plaintiff for the actual loss suffered” and “inflict punishment on defendant.” Slovek at 1316.

3. Defendants did not dispute loss of use damages

The court held that Defendants did not meet their burden of proof on this issue and that a jury will decide the loss of use damages.

4. Prior settlements are not relevant to show that the Hubbells were fully compensated

Finally, under C.R.S. § 13-21-111.5, the Hubbells’ prior settlements are not relevant to damages in this action. That section only requires that the jury make a special finding of pro-rata liability for each defendant. Settlement amounts are not admissible to prove liability in Colorado. Greenemeier by Redington v. Spencer, 719 P.2d 710, 714-15 (Colo. 1986).

Furthermore, the court also noted that Defendants merely assumed the foreclosure amount was the DMV. However, because the Hubbells purchased the 14-acre land without the loan, and Alpine Bank foreclosed on both the land and the home, the evidence indicated that the foreclosure amount was less than the DMV. Because the defendants did not present evidence to dispute this fact, and the aforementioned settlement evidence discussion, the court denied summary judgment on this issue.

For more information regarding construction litigation in Colorado, please obtain a copy of our Overview of Construction Defect Litigation in Colorado, or contact Chad Johnson by telephone at (303) 987-9815 or by e-mail at johnson@hhmrlaw.com.

[1] Actual damages is defined in C.R.S. § 13-20-802.5(2) as the lesser of: 1) the fair market value of the property without the construction defect, 2) the replacement cost of the property, or 3) the reasonable cost of repair of the construction defect. Also included in actual damages are several incidental costs, including loss of use.

[2] For a more in-depth analysis, the Hubbell Court listed and applied the factors used to determine both Slovek and Zwick at *5-6.

New Laws to Take Effect January 1, 2011

2010-12-27T11:00:00.008-07:00

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

Capitol Close-Up

Monday, December 20, 2010

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

HB10-1278

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

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

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

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

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

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

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

HB10-1358

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

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

The Case Behind Colorado HB 10-1394?

2010-12-20T11:39:00.001-07:00

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

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

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

If you have any questions regarding construction litigation in Colorado, you can reach Derek Lindenschmidt at (303) 987-9814 or by e-mail at lindenschmidt@hhmrlaw.com.

Colorado Court of Appeals Defines Actual Damage Claims Under CDARA

2010-12-09T08:59:00.000-07:00

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

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

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

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

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

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

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

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

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

If you have any questions regarding construction litigation in Colorado, Chad Johnson can be reached at (303) 987-9815 or by e-mail at johnson@hhmrlaw.com.

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

Reflections on my recent trip to South Africa: There are no construction defect suits for tin shacks.

2010-11-25T21:07:00.000-07:00

I recently returned to Colorado from a two week trip to South Africa. The main purpose of the trip was to attend the Entrepreneurs' Organization's Cape Town University, which was a phenomenal experience. I was able to listen to exceptional speakers such as Lee Berger, Denis Goldberg, Gayton McKenzie, and Ian Thomas. After spending a few days at at the conference and touring around Cape Town, I questioned whether there is any industry in South Africa similar to the construction defect industry in the United States. I did a limited amount of research and discovered that, in fact, there is not a construction defect epidemic in South Africa. I left Cape Town after the conference to go on safari and to visit Johannesburg.

Upon visiting Soweto, outside of Johannesburg, and Guguletu, later when I returned to Cape Town, I witnessed first hand the abject poverty suffered by millions of individuals and families in South Africa. What I came away with was that if you live in a tin shack and have to worry daily regarding the health and safety of your family, you have bigger problems than whether the exterior synthetic stone on your house lacks adequate clearance from your heated driveway. Seeing how people live in these townships certainly puts things into perspective. I do not think that the experience made me any less empathetic to people who suffer from true construction defects, but I do believe I will be less tolerant in the future of homeowners who claim that having only four nails per shingle on their roof instead of six has ruined their lives.

I also came back from South Africa with a deeper appreciation for the United States of America. I am happy to have had the experiences I did in South Africa, but I am glad to be home.

I spent the last week in mediation and trying to catch up. Hopefully we will have our blog up and running again next week. In the interim, if you have any questions regarding construction litigation in Colorado, please feel free to call me at (303) 987-9813 or send me an e-mail at mclain@hhmrlaw.com.

HHMR welcomes Heather Anderson, Brady Iandiorio, and Chad Johnson to our firm.

2010-10-23T12:26:00.000-06:00

Higgins, Hopkins, McLain & Roswell is happy to welcome Heather Anderson, Brady Iandiorio, and Chad Johnson to our firm as associates. They will all specialize in the litigation of complex construction claims and construction defect cases.

Heather Anderson

A graduate of the University of Denver, College of Law, Heather has been licensed to practice law in Colorado since October 2001. Previously, Heather’s practice included appellate work, insurance defense, personal injury defense, and toxic tort litigation. Heather returned to the University of Denver, Sturm College of Law to obtain a Master of Laws in Environmental and Natural Resources Law and Policy Law and Policy in May 2009. Heather is a Colorado native and avid skier.

Brady Iandiorio

A native of Massachusetts and having attended undergraduate school at Colorado College in Colorado Springs, Brady has recently graduated from University of Oregon School of Law class of 2010. Brady owned his own construction business, finishing single-family homes and lived in Hawaii previous to attending law school.

Chad Johnson

Chad is a recent graduate of the University of Denver, Sturm College of Law. During his studies, Chad was a member of the University of Denver Civil Litigation Clinic and was awarded the Student Bar Association award for the “Most Outstanding Academic.” In addition to his legal experience, Chad is an avid soccer player and youth-soccer coach.

An Arapahoe County District Court Refuses to Apply HB 10-1394 Retrospectively

2010-10-21T11:26:00.000-06:00

In that there is no appellate law at this point interpreting or applying the recently enacted HB 10-1394, I find even district court orders on the topic to be very interesting. In Colorado Pool Systems, Inc., et al. v. Scottsdale Insurance Company, et al., The Honorable Christopher C. Cross set forth the pertinent facts as follows in an October 4, 2010 order:

Plaintiff Colorado Pool Systems (“Colorado Pool”) claims for breach of contract and negligent misrepresentation arise out of a general commercial liability insurance policy, No. CLS1112693, purchased from Scottsdale (“Policy”). The Policy’s effective date was from April 25, 2005, to April 26, 2006. Colorado Pool made a claim under the insurance policy for the costs to repair a defectively constructed swimming pool. As of September, 2006, Colorado Pool had a contractual agreement with White Construction Group, LTD, to construct a swimming pool that was ultimately defective because metal bars were protruding through the concrete. Because the contractual agreement with White Construction required remedy for the defective pool, Colorado Pool requested preapproval from Scottsdale to be reimbursed for losses resulting from demolishing and reconstructing the pool. The relevant parts of the Policy provide:

This insurance applies to “bodily injury” and “property damage” only if:
(1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”;
Policy at Page 1 of 15.

The Policy defines the word “occurrence” as follows:
“Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
Policy at Page 14 of 15.

The Policy does not define the word “accident.” However, Black’s Law Dictionary defines accident as follows:
1. An unintended and unforeseen injurious occurrence; something that does not occur in the usual course of events or that could not be reasonably anticipated. 2. Equity practice. An unforeseen and injurious occurrence not attributable to mistake, neglect, or misconduct.
Black’s Law Dictionary 15 (7th ed. 1999).

Colorado recently adopted new legislation relating to insurance coverage for construction defects. C.R.S. § 13-20-808 (promulgated in H.B. 10-1394). The new law essentially states that faulty workmanship constitutes an “occurrence” and, thus, construction defect claims generally fall within a general liability policy’s insuring agreement. In light of the enactment of this new legislation, the Court requested briefs on how the new legislation affects these proceedings, and invited comment on whether liability coverage under the insurance policy is a question of law or fact. The Parties have briefed these issues in full and the Court will now address these issues.

The briefs referred to were Scottsdale’s Combined Renewed Motion for Summary Judgment and Brief Regarding Colorado H.B. 10-1394 and Colorado Pool’s Motion for Partial Summary Judgment. By this order, Judge Cross granted Scottsdale’s Motion and denied that of Colorado Pool. In doing so, Judge Cross provided the following background regarding C.R.S. § 13-20-808 and the issues, as framed by the parties:

The legislature, in passing H.B. 10-1394 determined that construction defect claims present the most significant liability risk for construction professionals and found that such claims are the primary reason why construction professionals purchase general liability insurance. Therefore, the passage of HB 10-1394 is of importance to the construction industry as it directly addresses the question of coverage for the industry’s principal risk.

Section 13-20-808 (IV) provides that one of the intents of the new legislation is “[f]or the purposes of guiding pending and future actions interpreting liability insurance policies issued to construction professionals…” Moreover, Subsection 1 of the Editor’s note in C.R.S. § 13-20-808 provides that “Section 3 of chapter 253, Session Laws of Colorado 2010, provides that the act adding this section applies to all insurance policies in existence as of, or issued on or after May 21, 2010.”

Plaintiff argues that the statute applies in this matter because its claims are “pending” before the Court and are therefore controlled by C.R.S. § 13-20-808. Defendant maintains that because the statute does not apply retroactively to expired policies, the new legislation does not apply to Plaintiff’s policy. The Court agrees with Defendant. The Policy was in effect for a one year period beginning April 25, 2005. The Policy expired by its own terms on April 26, 2006. The statute refers to policies currently in existence or policies issued before the effective date of the statute but not yet expired.

Plaintiff’s policy expired on August 26, 2006. Although Plaintiff has pending claims stemming from the period when the Policy was in effect, it would be an impermissible retrospective application of the statute to apply its provisions to this action.

After setting forth the general rules regarding contract interpretation in Colorado, Judge Cross continued by stating:

The Policy covers claims for bodily injury or property damage caused by an occurrence. An occurrence is defined in the Policy. Colorado Pools seek coverage under the policy for faulty workmanship causing a defective product (pool). In its previous Motion, Scottsdale relied on the case of General Security Indem. Co. of Arizona v. Mountain States Mut. Cas. Co., 205 P.3d 529 (Colo. App. 2009) as determinative of whether Colorado Pool had coverage under the Policy. In that case, the court found that commercial general liability policies are intended to exclude coverage for poor workmanship because poor workmanship is a business risk to be borne by the insured, not a fortuitous event. Id. at 535-36.

Colorado Pool’s claim under the Policy was for faulty workmanship by Colorado Pool’s subcontractors in constructing the pool, which required Colorado Pool to incur costs to demolish and rebuild the pool. The Court concludes that the General Security case is directly analogous to the case at bar, and also finds that substandard workmanship, standing alone, is not a “fortuitous event” that results in an “occurrence” triggering coverage under the Policy as a matter of law. Furthermore, the Court finds that no “property damage” occurred, because the cost for which Colorado Pool was seeking reimbursement from Scottsdale were for repairing the defective workmanship on the pool. In other words, there was no damage to any property beyond Colorado Pool’s own work product itself, which cannot alone trigger coverage. The Court reconsiders its previous ruling that this issue is a question of fact (where there are disputed interpretations of the facts) and now concludes that the coverage issue is a matter of law. The Court concludes, as a matter of law, that there was no “occurrence” or “property damage” which would trigger coverage in this matter.

Until there is any appellate case law on the subject, I expect that there will be continued interest in any and all trial court orders interpreting or applying HB 10-1394. If you would like a copy of the order discussed in this entry, please send me an e-mail at mclain@hhmrlaw.com. Also, if you have any additional orders on point, I would very much like to see them. Please send me any orders you may have.

Thinking of lending money to your business? Think again. It could cost you a lot more than you think.

2010-10-05T22:26:00.003-06:00

In AC Excavating v. Yale, 2010WL3432219 (Colo. App. September 2, 2010), Donald Yale, a 44% shareholder of Antelope Development, LLC realized that his golf course development and management company was in trouble. Antelope had a bank account balance of just under $100,000 and liabilities to subcontractors and general business expenses of over $250,000. Yale decided to loan $157,500 of his own money to Antelope in hopes of getting out of the red. Antelope used that money to both pay general business expenses and some of the subcontractor debts.

Several months later, Yale gave up on Antelope, withdrew the last $50,000 in Antelope's bank account, and foreclosed on the collateral for the loans he made to the company. AC Excavating, a subcontractor that Antelope owed approximately $40,000, filed suit against Yale for violations of the Colorado Mechanics’ Lien Trust Fund Statute [1] and civil theft [2].

Colorado’s Mechanics’ Lien Trust Fund Statute mandates that all funds disbursed to any contractor or subcontractor under any building, construction, or remodeling contract or on any construction project shall be held in trust for the subcontractors, laborers, and material suppliers of the project. The statute also requires the money to be “for which such disbursement is made,” meaning for the project the plaintiff-subcontractor worked on.

The statute’s purpose is to prevent general contractors from taking payment for subcontractor work and not paying its subcontractors. The statute establishes a trust of all money paid to the general contractor for a project. In addition, if a person is in complete control of the finances of the general contractor, that person can be held personally liable for any breaches of the statute.

The court broke the Trust Fund Statute analysis into three parts: 1) the source of disbursements; 2) the purpose behind disbursements, and; 3) the project itself. The court then analyzed AC Excavating’s claim of civil theft.

Yale’s first argument was that because the funds were his own voluntary contribution to the struggling company, that they should not be within the scope of the statute. However, contrary to the trial court ruling, the Court of Appeals held that the legislature did not intend to limit the source of the funds because they used the language “all funds disbursed.”

Yale’s next argument was that because he intended the money to be used only for general business expenses, not subcontractor debt, it was not within the scope of the statute. The court held that using a subjective intent of the source of money would defeat the purpose of the statute, to protect subcontractors.

Yale’s final argument was that the loan was not made specifically for the development that AC excavating worked on. However, the court pointed out that Antelope had only one development and it used a single bank account for all of its operations. Therefore, the money was for that development.

Last, the court ruled that Yale was also liable for the civil theft statute because when he withdrew the last of Antelope’s bank balance, he knowingly used the money in a manner that would deprive AC Excavating of its use or benefit.

I do not know Donald Yale, but I assume that he did not know he was breaking any laws when he reached into his pockets in an attempt to save his company. He certainly was entitled to keep his money and let the company sink. Instead, he is now personally liable for the debts Antelope owed to AC Excavating and any other subcontractor that files suit. Make sure you and your clients learn from this harsh lesson.

[1] C.R.S. § 38-22-127.

[2] C.R.S. § 18-4-401.

David M. McLain to speak at next week's Rocky Mountain Builder Conference & Expo

2010-10-03T20:18:00.000-06:00

I am honored to have been asked again this year to present at the Colorado Association of Home Builders' Rocky Mountain Builder Conference, to be held October 6 - 9 at the Park Hyatt Resort & Spa in Beaver Creek. Each year, the RMBC provides an amazing and fun opportunity for builders and those in related trades to gain valuable education, to learn about the newest and hottest products and services, and to network with others in the industry from around the state.

This year, Jon Lindstrom, with Willis of Colorado, and I will be discussing the latest developments and trends regarding construction defect litigation and coverage available to protect builders. If you haven't yet registered, it's not too late. Sign up here and we will see you in Beaver Creek.

HBA of Metro Denver speaks out about Colorado House Bill 10-1394.

2010-09-22T21:56:00.000-06:00

In a recent edition of the Home Builder Advocate, the Home Builders Association of Metro Denver included an article entitled, "What was accomplished by the passage of House Bill 1394? What does it mean to our industry?" In defense of the HBA's support of the bill, the article states:

Since the signing of House Bill 1394 by Gov. Ritter, some members have heard from a few fellow construction professionals that they have experienced an increase in their general liability insurance rates. The Colorado Association of Home Builders (CAHB), believes that rates for some policies have in fact increased, but they also believe that for those construction professionals with appropriate general liability insurance coverage prior to the passage of HB-1394, there were no significant changes in their premiums or coverage.

To adequately explain why CAHB supported the measure and why it was so important to our industry, we have attached two documents provided to us by CAHB which will help answer any questions that you may have regarding the provisions of HB-1394 or if you feel like you have been adversely affected by the new law. The summary of the two documents, “Colorado Instructs Courts on How to Interpret Liability Policies Issued to Contractors,” and a legal opinion from the law firm of Sherman & Howard, are particularly important. We encourage you to read both documents (see attachments) for a clear explanation of what was accomplished by the passage of House Bill 1394.

One issue addressed that is of particular importance is making clear why the exit from Colorado of some insurance companies due to the passage of HB 1394 will increase consumer protection and provide construction professionals with the general liability insurance that they thought they had actually purchased – an improvement for both the industry and the consumer. The last paragraph in the Sherman & Howard document states “while certain insurers have announced intent to vacate the Colorado construction market as a result of the new law, we believe these insurers never intended to provide coverage for construction defect claims.” Many of the policies written with a “super Montrose” exclusion, were never intended to provide insurance protection but rather a certificate of coverage which would have failed to protect both its purchaser and the public at large.

Should you have any questions regarding this bill, please do not hesitate to contact Rob Nanfelt, Executive Vice Officer of CAHB at rob@hbacolorado.com or at 303-691-2242. Or if you’d like perspective regarding CAHB’s own general liability insurance program, please contact Jon Lindstrom at 303-765-3635.

Most importantly, you should be aware that this legislation has saved several Colorado contractors from bankruptcy since, with its passage, the insurance companies that had issued policies to them are now involved in defending the companies and paying damages where appropriate.

To access the final version of the bill, go to http://www.state.co.us/gov_dir/olls/sl2010a/sl_253.pdf.

To obtain copies of any of the documents attached to this edition of the Home Builder Advocate, please contact David M. McLain by e-mail at mclain@hhmrlaw.com or by phone at (303) 987-9813.

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Sheri H. Roswell to Speak at MC Consultants' 16th Annual West Region Construction Defect and Insurance Coverage Conference

2010-09-20T23:07:00.000-06:00

Later this week, our own Sheri Roswell, will moderate and participate in a panel discussion regarding Rocky Mountain Coverage and Current Trends. Other panelists will include:

Robert N. Clark, Esq., Robertson Clark, LLP;
Edward J. Godin, Esq., Godin & Baity;
Michael A. Hearn, Esq., McKenzie Rhody & Hearn;
Brad Ramming, Esq., Sweetbaum, Levin & Sands, P.C.;
Ivan A. Sarkissian, Esq., McConaughy & Sarkissian, P.C.
Clayton Sharkey, IMA of Colorado, and;
Bradley N. Shefrin, Esq., Pryor Johnson Carney Karr Nixon

This panel will discuss recent case law affecting coverage for construction defect cases in Colorado, including the General Security and Greystone decisions as well as the recent, controversial, legislation affecting coverage, Colorado House Bill 10-1394. The panel will also discuss the practical ramifications of the new legislation and ways in which insurers may attempt to write around the new law.

About Sheri H. Roswell:

Ms. Roswell is a founding member of Higgins, Hopkins, McLain & Roswell, LLC. For the past fifteen years her practice has focused on the defense of a complex construction defect lawsuits on behalf of developers, general contractors, and other construction professionals. Ms. Roswell’s practice also frequently includes providing consulting and risk management services to clients in both residential and commercial construction matters. Her clientele includes a variety of construction professionals, from Fortune 400 companies to single contractor entities.

Ms. Roswell received her undergraduate education at the University of Colorado, School of Business in Boulder, Colorado and her Juris Doctorate from the University of Denver, College of Law.

Ms. Roswell speaks locally and nationally on topics pertinent to the construction industry; lecturing to attorneys, construction professionals, and insurance organizations. To contact her, call (303) 987-9812 or e-mail roswell@hhmrlaw.com.

Tougher for Insurance Carriers to Reserve the Right to Recoup Litigation Costs in Wyoming.

2010-09-15T22:01:00.000-06:00

The United States Court of Appeals for the Tenth Circuit, interpreting Wyoming law, recently held that a reservation-of-rights letter from an insurance company to its insured was not sufficient to allow the insurer to recoup the costs of defending the insured in construction litigation. Rather than relying on a reservation-of-rights letter to seek recoupment of defense costs, an insurance company subject to Wyoming law should deny defense of companies at the outset if they do not agree to bear the costs.

In Emp’rs Mut. Cas. Co. v. Bartile Roofs, Inc., 2010 WL 3473382 (C.A.10 (Wyo.)), the insurance company (“EMC”) agreed to defend Bartile based on the commercial general liability (“CGL”) insurance policy it issued to Bartile. At the same time, EMC reserved its right to “recoup defense costs from Bartile should it be determined that EMC had no duty to defend Bartile in this litigation.”

Ruling on EMC’s motion for summary judgment, the District Court for Wyoming determined that EMC had no duty to defend Bartile. However, the court also held EMC could not recover its costs of defending Bartile. The 10^th Circuit Court of Appeals affirmed the decision.[1] The Court of Appeals first noted that the CGL insurance policies issued to Bartile contained no provision for recovering defense costs from Bartile. The court then pointed to Wyoming case law that supported its decision. In Shoshone First Bank v. Pac. Emp’rs Ins. Co., 2 P.3d 510 (Wyo. 2000), the court held that a reservation letter cannot unilaterally change an insurance contract. Further, "if an insurance carrier believes that no coverage exists, then it should deny its insured a defense at the beginning instead of defending and later attempting to recoup from is insured the costs of defending the underlying action." Am. States Ins. Co. v. Ridco, Inc., No. Civ. 95CV158D, 1996 WL 334001184.

Wyoming follows the minority position regarding reservation letters and recoupment of costs. EMC attempted to change that in its reply brief. First, EMC argued that its reservation letter is enforceable because it was immediate, explicit, and provided adequate notice of the possibility of reimbursement. Next, EMC argued for enforcement because it was an implied-in-fact contract. Last, it argued for enforcement because the defense was provided under the reservation letter, not the CGL policy.

Unfortunately for EMC, the court did not weigh in on these issues because EMC waived them by not raising them at the District Court level. Also worth mentioning, the term “accident” (the event that triggered EMC’s duty to defend under the CGL) was not defined in the CGL policy. The court looked to state law for the definition and found that Wyoming and Utah define the term “accident” differently when interpreting CGL policies. “Wyoming law focuses on the unexpectedness of the event, while Utah law focuses on the unexpectedness of the result or injury.” Emp’rs, at 15. Nonetheless, the court held that difference immaterial because neither definition would have triggered coverage under the CGL policy.

Chad Johnson is a 2009 graduate of the University of Denver Sturm College of Law and is a recent addition to Higgins, Hopkins, McLain & Roswell.

[1] The Court of Appeals also went into detail about the procedural issues raised by Bartile. Those issues were personal jurisdiction, venue, and choice of law. However, the most noteworthy issues for purposes of this blog are the recoupment-of-costs and “accident” issues.

Lessons learned from a recent trial. Be careful about the evidence you are creating.

2010-08-25T20:38:00.000-06:00

I recently had the opportunity to represent a general contractor in a trial, defending against claims both of construction defects and of delay related damages. Ultimately the case settled during the trial and we were able to achieve a favorable result. Looking back on the trial, what stayed with me was the troublesome evidence introduced by the claimant, not related to the alleged construction defects, but related to the delay related damages.

Blown up on a 4' by 6' poster board for use during opening statements and throughout the trial was a copy of an article printed in my client's internal newsletter recounting the difficulties on the project and, specifically, how those difficulties resulted in delays and cost overruns. What made this especially problematic was that the article's author engaged in a certain amount of exaggeration and hyperbole in order to make his points. This was very compelling evidence and posed an almost insurmountable obstacle when trying to refute the claims for delay related damages.

The purpose of this blog post is not to suggest that companies should not learn from their mistakes, even if that means publishing an article in an internal newsletter. In the long run, I think that it is of utmost importance that companies learn from their mistakes. What I am suggesting is that companies should be careful in the manner in which they communicate, even internally, about those mistakes. The lessons to be learned from an internal newsletter would be no less valid if the article is published after the active or anticipated litigation is resolved. To the contrary, the lessons may be better received if the article is also able to include a description, not only of the mistakes made, but also of the ensuing dispute and its outcome. Regardless of when such an article is published, it is of paramount importance that it be absolutely and completely accurate in the description of the facts. It is exceedingly hard to defend against such evidence at the time of trial by arguing that the author engaged in exaggeration and hyperbole.

Be sure to learn from your mistakes, but do not repeat those reported here.

Unsigned Arbitration Agreements: Can They Be Enforced?

2010-08-14T09:36:00.000-06:00

Most lawyers know that a lack of signature on a written agreement does not necessarily negate the existence of a contract. Following the common law, if both parties mutually assent to an agreement then it may be legally enforced. Also, under the common law, if one party performs under the unsigned contract it may be legally enforceable. Logically then, such unsigned agreements are given the full weight of the law. But, does the common law cover unsigned subcontracts that include provisions for mandatory arbitration? According to the Colorado Court of Appeals in E-21 Engineering, Inc. v. Steve Stock & Assoc., Inc., --- P.3d ----, 2010 WL 3035168 (Colo. App. August 5, 2010), the answer is yes.

In E-21, the Colorado Court of Appeals was faced with a matter of first impression in which E-21 Engineering, Inc. sent Steve Stock & Associates, Inc. a letter of intent to enter into a subcontract which included a clause requiring mandatory arbitration. Neither E-21 nor Stock signed the subcontract and Stock began work according to the subcontract. E-21 subsequently wrote stock, rescinding the letter of intent claiming that neither party executed the subcontract and thus no agreement exists. Stock replied, informing E-21 that such rescinding of the letter constituted a breach of contract. Stock then filed a demand for arbitration, as per the subcontract, with the American Arbitration Association. After a few years and following settlement discussions, E -21 filed a response seeking to stay arbitration primarily arguing that there existed no agreement to arbitrate between the parties. The trial court agreed with E-21 and based its decision on the fact that Colorado case law did not support compelling a party to arbitrate if that party did not sign a written agreement.

The Court of Appeals disagreed. First, the Court of Appeals reviewed the agreement to arbitrate de novo. Lane v. Urgitus, 145 P.3d 672, 677 (Colo. 2006). Next, analyzing the Colorado Uniform Arbitration Act (CUAA), the court found that the act, although requiring that an arbitration agreement must be contained in a record, does not specifically require signatures by the parties. C.R.S. § 13-22-206(1); see C.R.S. § 13-22-201 to -230. Since the CUAA is silent on signature requirements, the court determined that the statute is ambiguous and must be interpreted according to legislative objectives. Cork v. Sentry Ins., 194 P.3d 422, 425-26 (Colo. App. 2008). Finally, the court found that state law principles permit contract formation without signatures and govern the “[determination of] whether parties have agreed to arbitrate.” Lane v. Urgitus, 145 P.3d at 677; see Smith v. Multi-Financial Sec. Corp., 171 P.3d 1267, 1272 (Colo. App. 2007) (holding that arbitration agreements may be binding on parties in some circumstances notwithstanding their lack of signature).

The court further noted that under the Federal Arbitration Act (FAA) 9 U.S.C § 2 other courts have held that a signature is not a necessary requirement for a binding arbitration agreement. See, e.g., Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1369 (11th Cir. 2005); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987); Med. Dev. Corp. v. Indus. Molding Corp., 479 F.2d 345, 348 (Colo. App. 2007). The court cited these federal cases despite the fact that they are not controlling because the FAA and CUAA share the substantially similar language. Ingold v. AIMCO/Bluffs, LLC Apartments, 159 P.3d 116, 120 (Colo. 2007).

The court concluded that a mere lack of signature does not nullify an otherwise viable, enforceable agreement to arbitrate. Left up for interpretation in the E-21 case is whether the underlying subcontract was enforceable, but for now any forgetful general contractors may retain the ability to compel arbitration should they miss a signature line. Of course, prudence recommends signing all agreements one wishes to enter into, if only to avoid the courtroom.

- Brady Iandiorio is HHMR's newest law clerk. He recently graduated from the University of Oregon School of Law and sat for the Colorado bar exam. We expect that Brady will join HHMR as an associate this fall. - D. McLain

Scope of Arbitration Clauses and Waiver of Rights to Arbitration

2010-08-12T00:03:00.000-06:00

In some cases, plaintiffs may be able to force a dispute into a court proceeding even though an arbitration agreement between the parties controls and even though the defendants may argue that an arbitration clause divests the court system of its jurisdiction over the dispute seeking to have the matter resolved through arbitration instead of a trial by jury. The pros and cons for having disputes heard in mediation, arbitration, or judicial proceeding will be the topic of a future Colorado Construction Litigation blog entry. The following discusses the court’s method for determining the scope of an arbitration agreement and whether or not a party has waived its rights to enforce the arbitration clause. These were the issues in the recent U.S. District Court decision, Stone v. Vail Resorts Development Co., 2010 WL 2653314, 5 (D.Colo.).

In that case, the plaintiffs purchased a condominium from defendants and alleged that they were promised assigned parking spaces, but that defendants secretly substituted a document that only provided for valet parking. Plaintiffs’ allegations included breach of contract and violation of the Colorado Consumer Protection Act (“CCPA”) claims, among others. After plaintiffs instituted the lawsuit, defendants filed a motion, arguing that an arbitration clause in the Condominium Declarations governed “all claims arising out of the interpretation, applications or enforcement” of the Declaration. In response, plaintiffs argued that their claims did not arise out of the arbitration agreement, that defendants waived their right to arbitration, and that plaintiffs’ CCPA claims were not subject to arbitration.

In its order, the court discussed the broad support for arbitration agreements, citing prior cases referring to a “strong federal policy encouraging the expeditious and inexpensive resolution of disputes through arbitration.” The order further stated that “Courts must interpret arbitration clauses liberally, and all doubts must be resolved in favor of arbitration.”

In deciding whether [laintiffs’ claims were subject to the arbitration agreement, the court began its analysis as to whether the particular clause was narrow or broad. If the clause is narrow, then only the limited subject is subject to arbitration and other disputed matters would be determined to be outside the arbitration agreement’s purview. If the clause is broad, then a presumption arises of arbitrability, including even collateral issues. The Declaration called for “all Claims arising out of or relating to the interpretation, application, or enforcement of this Declaration. . . .” Plaintiffs argued that their claims did not arise out of the Declaration, but out of promises by defendants related to parking rights. The court disagreed, focusing on the phrase "arising out of or relating to," as evidence of the parties intent to apply the clause broadly, and that plaintiffs’ claims fell within the scope of the arbitration provision.

Plaintiffs argued that defendants waived their rights to compel arbitration because defendants did not assert their right to arbitration as an affirmative defense in their answer to plaintiffs’ complaint. The court cited six factors to consider when determining whether a party has waived such rights:

(1) whether the party's actions are inconsistent with the right to arbitrate;
(2) whether “the litigation machinery has been substantially invoked” and the parties “were well into preparation of a lawsuit” before the party notified the opposing party of an intent to arbitrate;
(3) whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay;
(4) whether a defendant seeking arbitration filed a counterclaim without asking for a stay of the proceedings;
(5) “whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place”; and
(6) whether the delay “affected, misled, or prejudiced” the opposing party.

The court remarked that defendants filed their motion to compel arbitration approximately 75 days after being served with plaintiffs’ complaint, and that defendants raised the issue of arbitration in initial disclosures and a scheduling conference. Therefore, the court found that defendants acted consistently with their rights to arbitration, that the defendants did not request arbitration as a delay tactic or to mislead or prejudice the plaintiffs.

Although plaintiffs argued without citing any persuasive authority or support that their CCPA claim was not subject to arbitration, the court disagreed. The court stated that plaintiff’s claims were based on promises regarding parking rights set out in the purchase of their condominium and the Declaration, and found that these claims were also subject to arbitration.

Stone v. Vail Resorts Development Co. is a recent example of numerous decisions where arbitration clauses are a favored method of dispute resolution. This is a trial court order only in and is not binding authority, but it is instructional, nonetheless. An earlier Colorado Supreme Court case, City and County of Denver v. District Court In and For City and County of Denver, 939 P.2d 1353 (Colo. 1997), utilized the same six factors in its determination that an alternate dispute resolution provision in a contract had not been waived.

Courts generally will resolve doubts in favor of arbitration. However, when preparing a contract with an arbitration clause, one should take care that the clause is as broad as needed. Further, if named as a defendant in a dispute where an arbitration agreement may govern, the defending party should assert early and often its right to arbitration, in order to enforce and preserve that right.