Colorado SB 13-052 would gut homeowner rights in construction defect disputes

The Colorado General Assembly is considering a bill that would gut legal protections for many homeowner associations in the Denver Metro Area. Entitled the “Transit-oriented Development Claims Act of 2013,” the bill claims to encourage the construction of new multi-family communities near light rail stations. In reality, however, the bill would simply make builders immune from legal responsibility for many negligent acts.

Sponsored by Senator Mark Scheffel (R-Douglas), Senator Bill Cadman (R-El Paso), and Representative Brian DelGrosso (R-Larimer), SB 13-052 would create a special procedure to be followed whenever a homeowner or HOA identifies potential construction defects in a “transit-oriented development” project. In any such community, the builder responsible for the defects would have a broad right to enter the property and make whatever repairs the builder felt were appropriate, without approval or consent from the homeowners. If the repairs were inadequate, the homeowners’ only option would be to participate in binding arbitration before a private dispute resolution service; the homeowners’ right to trial by impartial judge or jury would be forfeited. In addition, builders would enjoy complete immunity from any claims for environmental contamination, excess sound transmission, mold, odors, humidity, smoke, or fumes, and builders would have no obligation to repair such problems.

The real catch in this bill, however, is the definition of “transit-oriented development.” The bill does not limit its scope to communities near light rail; instead, the bill comprises all multi-family projects within “within one-half mile of any commuter rail stop, commuter light rail stop, or commuter bus stop.” By including bus stops in this definition, the bill could potentially ensnare hundreds of condominium and townhome communities within the RTD zone, including numerous projects that are nowhere near any light rail lines.

Whether the bill would apply to existing communities or merely affect future construction is unclear. The bill would also amend the statute of limitations and repose to make it easier for builders to sue subcontractors for indemnity.

At The Witt Law Firm, we represent a broad client base of contractors, homeowners, and associations. We support efforts to improve construction law, particularly where such efforts balance the rights of construction professionals and homeowners. Construction professionals should absolutely be able to build quality projects without the fear of litigation, just as homeowners should be able to expect homes that are built in compliance with local codes and industry standards. We do not believe that SB 13-052 would further either of these goals. By shielding builders from liability for their own negligence, this bill would reward those who use cheap materials and unqualified workers, and it would make it harder for honest, competent contractors to stay competitive.

If our legislators want to create incentives for building near light rail, we would encourage them to look at other options besides creating immunity for shoddy construction work. Expanding resources for building code education and stricter contractor licensing standards, for example, could help weed out negligent contractors and thereby reduce overall litigation. Offering special financing to those who build quality homes in designated areas could help draw developers to this market. There are many valid ways to approach this issue without penalizing innocent homeowners. Erecting leaky homes with environmental hazards near our train and bus stops, however, is not the answer.

Update: The Senate Judiciary Committee rejected SB 13-052 on 17 April 2013. Click here for more information.

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.

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.

Mid-Continent Cas. Co. v. The Village at Deer Creek Homeowners Ass'n, Inc.

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.