25 October 2012

Court of Appeals finds coverage for "rip and tear" damages associated with repairing construction defects

The Colorado Court of Appeals issued a significant ruling today concerning insurance coverage for construction defects. In Colorado Pool Systems, Inc. v. Scottsdale Insurance Co., 2012 COA 178, the court reversed summary judgment for a carrier that had initially approved, but later rejected, a claim by a swimming pool contractor for the cost of repairing work that the owner had refused to accept. Relying on the Tenth Circuit's decision in Greystone Construction, Inc. v. National Fire & Marine Insurance Co., 661 F.3d 1272 (10th Cir. 2011), the court held that the contractor's policy could provide coverage for the "rip and tear" damages that occurred during replacement of the defective components, even if the policy did not cover the components themselves.

Notably, the court declined to apply Colorado Revised Statute § 13-20-808; although the court held that the statute was intended to apply retroactively to existing insurance policies, it concluded that applying it to facts of this case would be unconstitutional.

The decision arguably creates a split of authority within the court of appeals, which may lead to further review by the Colorado Supreme Court.

The Witt Law Firm's Jesse Witt and Marci Achenbach filed a friend-of-the-court brief on behalf of the Colorado Trial Lawyers Association in support of the insured contractor.

The full opinion is available on the court's website.

18 July 2012

Tenth Circuit affirms dismissal of declaratory relief action in construction defect insurance dispute

The Tenth Circuit issued a helpful opinion today concerning declaratory judgment actions and insurance coverage for construction defects. The panel affirmed a federal district court's order dismissing an insurance carrier's declaratory relief suit against a homeowner association that was seeking to garnish a builder's insurance policy in Kansas state court.

The US District Court for the District of Colorado has reached the same result in at least three unpublished rulings in recent years, but this precedent should help clarify the issue in future disputes.

15 June 2012

Interlocutory appeals in Colorado

Trial Talk magazine published its annual appellate practice issue this week, and it features an article by Mr Witt on the newly adopted statute permitting interlocutory appeals in Colorado state courts. The article discusses the history of the law, analyzes the first decisions interpreting it, and provides suggestions for practitioners. Click here to read the full text.

16 April 2012

Firm wins jury verdict for HOA

On Friday, a Douglas County jury returned a verdict in favor of one of The Witt Law Firm's clients, a Lone Tree homeowner association seeking to recover the cost of rebuilding a road in its community. The evidence showed that the community's developer had not prepared the road's subgrade properly in the late 1990's, which caused the association to incur significant repair expenses in 2011.

The developer argued that the statute of limitations precluded recovery, but the association successfully established that the developer had not relinquished ownership of the road until shortly before the association performed the repairs in question.

Jesse Witt and Marci Achenbach represented the association at trial.

06 March 2012

Witt named to 2012 Super Lawyers

The Witt Law Firm is proud to announce that its principal, Jesse Howard Witt, has been recognized as a Rising Star in construction law by Colorado Super Lawyers.

Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The selection process is multi-phased and includes independent research, peer nominations, and peer evaluations. The objective is to create a credible, comprehensive and diverse listing of outstanding attorneys that can be used as a resource for attorneys and consumers searching for legal counsel. Since Super Lawyers is intended to be used as an aid in selecting a lawyer, it is limited to those who can be hired and retained by the public.

To be eligible for inclusion in Rising Stars, a candidate must be either 40 years old or younger or in practice for ten years or less. While up to five percent of the lawyers in the state are named to Super Lawyers, no more than two and a half percent are named to the Rising Stars list.

07 February 2012

Court of Appeals issues notable construction law opinions

The Colorado Court of Appeals issued several opinions last Thursday that may be of interest to those who litigate construction claims. I have included the court’s new citation format, though I retain doubts about whether it will catch on.

In Swinerton Builders v. Nassi, 2012 COA 17, the court held that a builder could enforce a contractual fee-shifting provision against an individual found liable as the alter ego of a corporate developer. The parties had previously executed a contract, based on the AIA A201 form, which granted attorney fees to the prevailing party in the event of a dispute. After an arbitrator found that the developer, Beauvallon Corporation, had breached its contract, the builder filed suit in Denver District Court to enforce the arbitrator’s award. The court allowed the builder to pierce the corporate veil and hold Beauvallon’s president, Craig Nassi, liable for the award as the company’s alter ego, but it denied the builder’s request for attorney fees. The Court of Appeals reversed and ruled that, once the corporate veil was pierced, Nassi became liable for all of the corporation’s contractual obligations, including the fee-shifting clause.

In Colorado Special Districts Property & Liability Pool v. Lyons, 2012 COA 18, the court affirmed dismissal of bad faith claims against a public insurance entity on governmental immunity grounds. The case arose from several banks’ claims for damages arising from a developer’s sale of construction bonds. Two of the developer’s directors, William S. Lyons Jr. and William S. Lyons III, requested that a state insurance pool defend and indemnify them. The insurance pool filed a complaint for declaratory relief, and the Lyonses counterclaimed for bad faith. The court found that the Lyonses sought relief in tort, that the pool was a public entity, and that the pool had not waived its sovereign immunity. As such, the Colorado Governmental Immunity Act precluded the claims.

Finally, in Shaw Construction, LLC v. United Builder Services, Inc., 2012 COA 24, an interlocutory appeal from a summary judgment ruling, the court held that the statute of repose for a multi-phase condominium development could begin to run when a discrete component of the project was completed, and that the Construction Defect Action Reform Act (CDARA) only tolled the statute of limitations and repose for those parties who had received a notice of claim. The case began in 2007 when the community’s HOA served Shaw, the general contractor, and other parties with a notice of claim under CDARA. The HOA later filed suit, and it named Shaw as a defendant in 2010. Shaw then filed a third-party complaint against its subcontractors and served them with its own notice of claim the following day. The subcontractors moved for summary judgment based on the six year statute of repose, arguing that they had completed their work at least six years and nineteen days before Shaw had filed its complaint, and the trial court agreed.

On appeal, Shaw argued that the trial court had erred because (a) the project as a whole did not reach completion until several months after the subcontractors finished their work, and (b) the HOA’s 2007 notice of claim had tolled the statute of repose as to all parties. The Court of Appeals rejected both arguments. The court first reviewed the legislative history of CDARA and concluded that its tolling provisions were only intended to apply to those parties that had received actual notice of a claim for defective construction. The court then held that the statute of repose should be measured from the date that a particular “improvement to real property” reached substantial completion, not from the date that the entire project was completed; because Shaw offered no facts to suggest that the subcontractors had performed work on their improvement within the six years preceding the filing of Shaw’s third-party complaint, the court ruled that summary judgment was proper. The court also approved the holding of Thermo Development, Inc. v. Central Masonry Corp., 195 P.3d 1166, 1170 (Colo. App. 2008), wherein another division had concluded that the 2001 CDARA amendments were merely intended to extend the statute of limitations for indemnity claims, not the statute of repose. Judge Jones concurred in the result but dissented from the panel’s decision to entertain interlocutory review of the ruling.

Personally, I can understand the reasoning of the decision in Shaw, but I feel that it raises troubling policy issues. Statutes of limitations and repose are intended to discourage stale claims, not bar meritorious causes of action or create extra litigation. Restricting a general contractor’s right to recover indemnity from culpable subcontractors hurts the construction industry by forcing innocent builders to bear the cost of others’ mistakes, and by encouraging contractors to sue numerous potential parties at the outset of a case. In this regard, I do not believe that the Shaw and Thermo Development opinions accurately reflect the intent of CDARA’s drafters, and I hope that future court decisions correct this.

Update: The Colorado Supreme Court overruled Shaw and Thermo Development in 2017, as discussed in this article.