COLORADO CONSTRUCTION CLAIMS RESOURCES
1 Construction Claims
- 1.1 Limitations & Repose Periods
- 1.2 Right to Repair Laws and/or Pre-Suit Statutory Procedures
- 1.3 Indemnity and Contribution
- 1.4 Certificate of Merit – Experts
- 1.5 Economic Loss Doctrine
- 1.6 Contractor Licensing Requirements
- 1.7 Common Law & Statutory Claims
- 2 Construction Damages
3 Coverage Trigger of Coverage
- 3.1 Definition of an Occurrence
- 3.2 Duty to Defend
- 3.3 Coverage Defenses
- 3.4 Choice of Law (Forum Selection Clauses)
- 3.5 Targeted Tenders
- 3.6 Consent Judgments
All actions against a construction professional related to the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property shall be brought within two years after the claim for relief arises, and not thereafter, but in no case shall such an action be brought more than six years after the substantial completion of the improvement to the real property. C.R.S. § 13-80-104(1)(a). In case any such cause of action arises during the fifth or sixth year after substantial completion of the improvement to real property, said action shall be brought within two years after the date upon which said cause of action arises. C.R.S. § 13-80-104(2)
A first-party claim for relief arises at the time the claimant or the claimant’s predecessor in interest discovers or in the exercise of reasonable diligence should have discovered the physical manifestations of a defect in the improvement which ultimately causes the injury. C.R.S. § 13-80-104(1)(b)(I).
Third-party claims, including, but not limited to claims for indemnity or contribution, by a construction professional against a person who is or may be liable to it for all or part of the its liability to a third person arise at the time the third person’s claim against the construction professional is settled or at the time final judgment is entered on the third person’s claim against the construction professional, whichever comes first; and must be brought within ninety days after the claims arise, and not thereafter. C.R.S. § 13-80-104(1)(b)(II).C.R.S. § 13-80-104(3)
Colorado’s Construction Defect Action Reform Act (“CDARA”), C.R.S. § 13-20-801, et seq., contains a notice of claim process, but not a true right to repair. The notice of claim process applies to any claim against a construction professional, including “an architect, contractor, subcontractor, developer, builder, builder vendor, engineer, or inspector performing or furnishing the design, supervision, inspection, construction, or observation of the construction of any improvement to real property.” See C.R.S. § 13-20-802.5(4). No later than 75 days before the lawsuit is filed (or 90 days for a commercial property), a claimant must deliver to the construction professional a written notice that describes the alleged defect “in reasonable detail sufficient to determine the general nature of the defect, including a general description of the type and location of the construction that the claimant alleges to be defective and any damages claimed to have been caused by the defect.” C.R.S. 13-20-802.5(5); see also C.R.S. § 13-20-803.5(1).
The claimant is also obligated to provide the construction professional with access to the allegedly defective construction within 30 days of service of the notice of claim so that the construction professional may make an inspection. Within 30 days of the completion of the inspection process (or 45 days for a commercial property) the construction professional may make an offer of settlement to the claimant. If the offer is accepted, the matter is considered resolved. If no offer is made or if the offer is rejected, the matter may proceed to litigation. See, generally, C.R.S. § 13-20-803.5. Any claimant who files a lawsuit without first going through the notice of claim process faces the possibility that, upon motion by the construction professional or upon the court’s own initiative, the litigation will be stayed while the notice of claim process is conducted. See C.R.S. § 13-20-803.5(9).
In addition to the notice of claim process mandated by CDARA, numerous municipalities throughout Colorado have passed local ordinances that either mandate their own notice of claim procedures or include specific rights to repair. It remains to be seen whether such ordinances are preempted by CDARA, Colorado’s Common Interest Ownership Act (“CIOA”), C.R.S. § 38-33.3-101, et seq., or are otherwise unenforceable.
“[A]ny provision in a construction agreement that requires a person to indemnify, insure, or defend in litigation another person against liability for damage arising out of death or bodily injury to persons or damage to property caused by the negligence or fault of the indemnitee or any third party under the control or supervision of the indemnitee is void as against public policy and unenforceable.” C.R.S. § 13-21-111.5(6)(c). A construction professional may still require an indemnitor to carry insurance naming the construction professional as an additional insured, “but only to the extent that such additional insured coverage provides coverage to the indemnitee for liability due to the acts or omissions of the indemnitor.” C.R.S. § 13-21-111.5(6)(d)(I). Any provision in a construction contract requiring additional insurance coverage for damages from any acts or omissions not caused by the negligence or fault of the party providing such insurance coverage is also void as against public policy. Id.
Colorado’s Uniform Contribution Among Tortfeasors Act, C.R.S. § 13-50.5-101, et seq., provides that where two or more persons become jointly or severally liable in tort for the same injury to person or property or for the same wrongful death, there is a right of contribution among them even though judgment has not been recovered against all or any of them. C.R.S. § 13-50.5-102(1). “The right of contribution exists only in favor of a tortfeasor who has paid more than his pro rata share of the common liability, and his total recovery is limited to the amount paid by him in excess of his pro rata share. No tortfeasor is compelled to make contribution beyond his own pro rata share of the entire liability.” C.R.S. § 13-50.5-102(2). “There is no right of contribution in favor of any tortfeasor who has intentionally, willfully, or wantonly caused or contributed to the injury or wrongful death.” C.R.S. § 13-50.5-102(3). “A tortfeasor who enters into a settlement with a claimant is not entitled to recover contribution from another tortfeasor whose liability for the injury or wrongful death is not extinguished by the settlement nor in respect to any amount paid in a settlement which is in excess of what was reasonable.” C.R.S. § 13-50.5-102(4). “A liability insurer, who by payment has discharged in full or in part the liability of a tortfeasor and has thereby discharged in full its obligation as insurer, is subrogated to the tortfeasor’s right of contribution to the extent of the amount it has paid in excess of the tortfeasor’s pro rata share of the common liability. This provision does not limit or impair any right of subrogation arising from any other relationship.” C.R.S. § 13-50.5-102(5). “This article does not impair any right of indemnity under existing law. Where one tortfeasor is entitled to indemnity from another, the right of the indemnity obligee is for indemnity and not contribution, and the indemnity obligor is not entitled to contribution from the obligee for any portion of his indemnity obligation.” C.R.S. § 13-50.5-102(6). “This article shall not apply to breaches of trust or of other fiduciary obligation.” C.R.S. § 13-50.5-102(7).
With respect to construction contracts, the Uniform Contribution Among Tortfeasors Act provides:
(a) Any public contract or agreement for architectural, engineering, or surveying services; design; construction; alteration; repair; or maintenance of any building, structure, highway, bridge, viaduct, water, sewer, or gas distribution system, or other works dealing with construction, or any moving, demolition, or excavation connected with such construction that contains a covenant, promise, agreement, or combination thereof to defend, indemnify, or hold harmless any public entity is enforceable only to the extent and for an amount represented by the degree or percentage of negligence or fault attributable to the indemnity obligor or the indemnity obligor’s agents, representatives, subcontractors, or suppliers. Any such covenant, promise, agreement, or combination thereof requiring an indemnity obligor to defend, indemnify, or hold harmless any public entity from that public entity’s own negligence is void as against public policy and wholly unenforceable.
(b) This subsection (8) shall not apply to construction bonds, contracts of insurance, or insurance policies that provide for the defense, indemnification, or holding harmless of public entities or contract clauses regarding insurance. This subsection (8) is intended only to affect the contractual relationship between the parties relating to the defense, indemnification, or holding harmless of public entities, and nothing in this subsection (8) shall affect any other rights or remedies of public entities or contracting parties.
(c) If the indemnity obligor is a person or entity providing architectural, engineering, surveying, or other design services, then the extent of an indemnity obligor’s obligation to defend, indemnify, or hold harmless an indemnity obligee may be determined only after the indemnity obligor’s liability or fault has been determined by adjudication, alternative dispute resolution, or otherwise resolved by mutual agreement between the indemnity obligor and obligee.
Within sixty days after service of a claim against a licensed professional, including an architect, engineer, or professional land surveyor, the claimant’s attorney must file a certificate of review declaring that the attorney has consulted with a person who has expertise in the area of the alleged conduct, the professional has reviewed the known facts, and based on the review of such facts, has concluded that the filing of the claim does not lack substantial justification. C.R.S. § 13-20-602(1), (3). Failure to file a certificate of review shall result in the dismissal of the claim for which it is necessary. C.R.S. § 13-20-602(4).
The Economic Loss Doctrine in Colorado states that, “a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law.” Town of Alma v. Azco Construction, Inc., 10 P.3d 1256, 1264 (Colo. 2000). The Economic Loss Doctrine does not preclude negligence claims in residential construction defect cases against homebuilders, subcontractors, architects, engineers, or inspectors because such professionals owe duties of care, independent of any contract, to the property owner. See, e.g., A.C. Excavating, et al. v. Yacht Club II Homeowners Association, Inc., 114 P.3d 862 (Colo. 2005). The Economic Loss Doctrine still precludes negligence actions between the construction and design professionals that build a commercial project when a series of interrelated, written contracts exists between them. BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 99 (Colo. 2004).
The State of Colorado does not license general contractors. Instead, general contractors must comply with the licensing requirements of the local jurisdictions, either municipalities or counties, in which they operate. The State of Colorado does license professional engineers, architects, professional land surveyors, electricians, and plumbers.
The elements of a claim for breach of express warranty are: (1) when the builder sold the homeowners their home, the builder included an express written warranty; (2) the builder failed to comply with the provisions of the express written warranty; and (3) this failure was a cause of the homeowners’ damages. See, e.g., CJI-CIV. 4th 14:8 (2018).
In the majority of cases, the sale of a new home includes an express written warranty extended from the builder to the purchaser. This warranty contains language warranting that the home will be free from “defects” for one to two years. Some homes are also sold with warranties containing extended protection, typically for ten years, covering the “structural” elements of the home. If a structural warranty is included, it is most often issued by a company specializing in residential structural warranties. It is the builder that enrolls the homeowner in the structural warranty program. Structural warranty companies have a long history of denying all but the most extreme claims involving homes which are unsafe, unsanitary, or otherwise uninhabitable.
Plaintiffs generally assert that an express warranty is breached when any defect manifests itself during the first year, and/or when a structural defect appears in the first ten years after construction, and such defect is not cured by the builder or applicable warranty program insurer. The primary defenses to a claim for breach of express warranty are that there was no express warranty given or that the builder and/or applicable warranty program complied with the terms of the warranty and/or that the warranty expired before the claimed defect arose.
a.Claims for Breach of Implied Warranty
In order to recover for breach of an implied warranty, plaintiffs must establish that: (1) the builder entered into a contract with the plaintiffs for the construction and/or sale of a residential structure; and (2) when the builder gave possession of the residential structure to the plaintiffs, it did not comply with one or more of the warranties implied by law as part of the transaction. CJI-CIV. 4th 30:54 (2018).
In Colorado, when a builder sells a newly constructed home, the law imposes implied warranties of habitability and workmanlike construction. In essence, when a builder sells a home, it implicitly guarantees that the house is habitable, that it was built in a workmanlike manner, that it complies with applicable building codes, and that it is reasonably suited for its intended use.
Colorado appellate opinions have likened this implied warranty to “strict liability for construction defects.” Davies v. Bradley, 676 P.2d 1242, 1245 (Colo. Ct. App. 1983) Defects which give rise to the application of these implied warranties include, but are not limited to, heaving and cracking basement slab-on-grade floors, improper exterior grade, cracks in surfaces of the home interiors and exterior fascia, tilting or “racking” of doors and windows, reduction of the void space between the foundation and interior walls, and water intrusion.
b.Colorado’s Homeowner Protection Act:
In 2007, the Colorado Legislature enacted the Homeowner Protection Act, C.R.S. § 13-20-806(7)(a), which retroactively makes void as against public policy any disclaimer of implied warranty or any other waiver or limitation of a legal right afforded to homeowners under the Construction Defect Action Reform Act or the Colorado Consumer Protection Act.
The elements for a claim of negligence are: (1) the homeowner incurred damages; (2) the builder breached an applicable duty of care; and (3) the builder’s breach of care was a cause of the homeowner’s damages. CJI-CIV. 4th 30:54 (2018).
a.Contractor’s Liability for its Own Negligence
A builder owes a duty to purchasers to construct homes with reasonable care. If it fails to meet that duty, the builder can be deemed negligent. In order to build a home in a non-negligent manner, the builder must, at a minimum, conform to the industry standards of care in effect when the home was constructed. However, in certain circumstances, including situations where it can be established that an entire industry is performing in a negligent manner, a higher standard is imposed. Namely, the builder must utilize construction techniques and precautions in conformance with the best available technology (i.e., the “state of the art”).
The availability of a negligence claim is not limited to the first purchaser of a home. Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041, 1042-43 (Colo. 1983). In the context of the purchase of a used home, an owner asserting a negligence claim against the builder must demonstrate that the defect was latent or hidden at the time of the sale, and must show that the builder caused the defect. Id. A second or subsequent purchaser of a home assumes the risk of patent and/or obvious defects and cannot successfully sue a builder for those defects.
b.Contractor’s Liability for the Negligence of its Subcontractors
Not only do plaintiffs seek to hold the builder responsible for its own negligence, but they also assert that the builder is responsible for the negligent acts or omissions of its subcontractors based upon the vicarious liability theory of respondeat superior. Some plaintiffs argue that the general contractor and/or builder have a non-delegable duty to ensure the proper workmanship of a home. In cases involving homes constructed over steeply dipping bedrock, plaintiffs sometimes assert a builder is liable for the negligence of its subcontractors based on the theory that construction on these soils constitutes an inherently dangerous activity.
i.Non-Delegable Duty Doctrine
In attempting to hold a builder liable for the negligence of its subcontractors, plaintiffs argue that the builder owes a duty of reasonable care to the homebuyer that it cannot delegate. There are some cases which suggest that builders owe a non-delegable duty of reasonable care in the construction of homes sufficiently broad to make them responsible for the negligence of its subcontractors and design professionals also.
Most, if not all, of the cases relied on by plaintiffs impose a non-delegable duty that arises by statute. However, there is no statute in Colorado that imposes a non-delegable duty on builders. To the contrary, C.R.S. § 13-21-111.5(1), the Colorado Contribution Among Tortfeasors Statute, clearly mandates that “no defendant shall be liable for an amount greater than that represented by the degree or percentage of the negligence or fault attributable to such defendant that produced the claimed injury, death, damage, or loss. . . .” Thus, assuming that only tort theories remain in the case at the time the fact-finder renders its verdict, it is questionable whether a builder would be held liable for the acts or omissions of subcontractors who have been named as parties or who have been properly designated as nonparties.
ii.Inherently Dangerous Activity Doctrine
Where homes are constructed in areas designated as steeply dipping bedrock hazard zones, plaintiffs argue that the construction of the home constitutes an inherently dangerous activity. Steeply dipping bedrock is a type of expansive soil in which underlying bedrock lies at a slant rather than in horizontal planes. When the bedrock in these formations swells, it can cause extreme damage to structures constructed on it, often substantially more severe than the damage otherwise caused by horizontally-bedded expansive soils. Traditional methods for site exploration and traditional construction methods utilized to accommodate for expansive soils have proven largely unsuccessful in areas of steeply dipping bedrock. While damage to structures has been noted in these areas for decades, it was not until April 1995 that the first regulations concerning dipping bedrock were adopted in Jefferson County, the areas in which such bedrock is most commonly found in this region. The regulations contain minimum standards and building technique recommendations for construction in the designated hazard zones.
In general, inherently dangerous activities are those that: (1) present a special or peculiar danger to others that is inherent in the nature of the activity or the particular circumstances under which the activity is to be performed; (2) are different in kind from the ordinary risks that commonly confront persons in the community; and (3) the builder knows or should know the risk is inherent in the nature of the activity or in the particular circumstances under which the activity is to be performed. Huddleston v. Union Rural Elec. Ass’n, 841 P.2d 282 (Colo. 1992). It has been our position, on behalf of builders, that building a home, regardless of the type of soil upon which the home is built, is not, as a matter of law, an inherently dangerous activity. In several expansive soils cases, this issue has been the subject of motions in limine filed on behalf of the builders. These cases have been resolved prior to a court ruling on the issue.
Plaintiffs pursuing this claim assert that the builder did not provide them with adequate information to allow for an informed decision about the purchase of a home. Typically, this claim manifests itself in a complaint about a home built on expansive soils or a home which contains latent construction defects. To prevail on this claim, plaintiffs must prove three facts: (1) the builder either negligently provided false information or omitted information; (2) plaintiffs relied on the information or lack thereof; and (3) the plaintiffs’ reliance was a cause that of the damage being claimed. CJI-CIV. 4th 9:4 (2018).
When bringing this claim, plaintiffs usually argue that the builder either gave them no information or insufficient information regarding the soils upon which their home was built, the potential effects of such soils, the different types of construction materials and techniques employed by the builder, and/or the quality of construction. Plaintiffs must then prove that they relied on the misrepresentation or omission at issue in their purchase of the property and that they experienced damage as a result of their reliance.
The builder does have a few defenses to this claim. A simple one is that the plaintiff unreasonably relied on the misrepresentation. Such a defense falls under contributory negligence and may be a complete defense but often is only partial. More often a builder’s best defense is that the builder did provide sufficient information regarding expansive soils, construction materials and techniques used, or that the information, if given, would not have changed the plaintiffs’ decision to purchase the home. It is important to note that where a builder has documentation, signed by the purchaser, acknowledging that purchaser received information about soils conditions or construction specifications prior to closing, a plaintiff’s negligent misrepresentation/omission claim may be minimized but not eliminated entirely.
Violation of the Soils Disclosure Statute, C.R.S. § 6-6.5-101
The Colorado Soils Disclosure Statute, C.R.S. § 6-6.5-101(1), provides:
At least fourteen days prior to closing the sale of any new residence for human habitation, every developer or builder or their representatives shall provide the purchaser with a copy of a summary report of the analysis and the site recommendations. For sites in which significant potential for expansive soils is recognized, the builder or his representative shall supply each buyer with a copy of a publication detailing the problems associated with such soils, the building methods to address these problems during construction, and suggestions for care and maintenance to address such problems.
If, prior to closing, a plaintiff received only a summary soils report from the builder, the plaintiff will typically argue that the summary was inadequate and that it was not provided with sufficient information to make an informed decision. Alternatively, if the plaintiff received the entire soil report prior to closing, the plaintiff will often assert that it received too much complex, technical information that could not be reasonably understood by a lay person.
As a practical matter, plaintiffs’ attorneys have previously brought negligence per se claims when there has been a violation of either the Colorado Soils Disclosure Statute, discussed above, or the applicable building codes. However, recent changes to the Colorado Construction Defect Action Reform Act, C.R.S. § 13-20-801, et seq. (the “CDARA”) prohibit plaintiffs’ attorneys from bringing negligence claims based solely on alleged violations of the building code unless such alleged violation results in actual damage, actual loss of use of real or personal property, bodily injury, or a significant risk of bodily injury. C.R.S. 13-20-804.
It is beyond dispute that initial purchasers of new homes are in the class of persons intended to be protected by the Soils Disclosure Statute and the applicable building code. Further, damage caused by expansive soils or by construction defects generally are clearly the type of injury sought to be protected against by the statute and the applicable building code. Accordingly, where the plaintiff can establish the builder violated either the Soils Disclosure Statute or the building code, the plaintiff is likely to prevail on a claim for negligence per se.
Colorado Consumer Protection Act, C.R.S. § 6-1-101, et seq.
In Colorado construction defect litigation, plaintiffs assert Colorado Consumer Protection Act (“CCPA”) claims to encourage settlement of cases. The broad language of the CCPA allows for alleged violations of the CCPA to be made in most common business transactions, including the sale of real property. The threat of the harsh civil penalties under the CCPA were previously used to place defendants in a position where they were compelled to settle or face paying three times the actual damages and plaintiffs’ attorney fees. Currently, however, the treble damages and attorney fees component allowed are statutorily capped at $250,000 per claimant. C.R.S. § 13-20-806(3).
The deceptive trade practices to which the CCPA applies are varied. In addition to many affirmative misrepresentations that may be considered deceptive trade practices, the CCPA also prohibits the omission of material information that was known at the time of an advertisement or sale if such an omission was intended to induce the consumer to enter into a transaction. In construction litigation, plaintiffs’ attorneys allege that material information such as information related to expansive soils, construction techniques or materials, or overall construction quality was withheld from homebuyers.
The elements of a claim for violation of the CCPA are: (1) the homebuyer incurred damages; (2) the builder engaged in conduct that violates the CCPA; and (3) the builder’s conduct was a cause of the homebuyer’s damages.
Plaintiffs’ attorneys usually assert violations of certain subsections of C.R.S. § 6-1-105. These subsections include C.R.S. § 6-1-105 (e), (g), (i), (r), and (u). C.R.S. § 6-1-105 states, in relevant part:
(1) A person engages in a deceptive trade practice when, in the course of his business, vocation, or occupation, he:
(e)Knowingly makes a false representation as to the characteristics, ingredients, uses, benefits, alterations, or quantities of goods, food, services, or property or a false representation as to the sponsorship, approval, status, affiliation, or connection of a person therewith;
(g)Represents that goods, food, services, or property are of a particular standard, quality, or grade . . . if he knows or should know that they are of another;
(i)Advertises goods, services, or property with intent not to sell them as advertised;
(r) Advertises or otherwise represents that goods or services are guaranteed without clearly and conspicuously disclosing the nature and extent of the guarantee, any material conditions or limitations in the guarantee which are imposed by the guarantor, the manner in which the guarantor will perform, and the identity of such guarantor. . . . Guarantees shall not be used which under normal conditions could not be practically fulfilled or which are for such a period of time or are otherwise of such a nature as to have the capacity and tendency of misleading purchasers or prospective purchasers into believing that the goods or services to guaranteed have a greater degree of serviceability, durability, or performance capability in actual use that is true in fact. The provisions of this paragraph apply not only to guarantees but also to warranties, to disclaimer or warranties, to purported guarantees and warranties, and to any promise or representation in the nature of a guarantee or warranty;
(u)Fails to disclose material information concerning goods, services, or property which information was known at the time of an advertisement or sale if such failure to disclose such information was intended to induce the consumer to enter into a transaction; . . .
“[T]he CCPA does not, as a matter of law, make actionable a statement which would otherwise be mere puffery.” Park Rise Homeowners Ass’n, Inc. v. Res. Const. Co., 155 P.3d 427, 435 (Colo. Ct. App. 2006). “A statement about ‘quality construction’ . . . represents a statement of opinion, the meaning of which would depend on the speaker’s frame of reference, such as mass produced housing versus a custom built home. It is not a specific representation of fact subject to measure or calibration.” Id. at 436.
Despite the limitations set forth in the CDARA, the threat of the civil penalties under the CCPA is still a powerful incentive for builders to settle construction defect cases in Colorado. Although the Colorado Legislature has increased plaintiffs’ burden of establishing a violation of the CCPA at trial, the actual pretrial threat of the civil penalties has not been eliminated. As such, Colorado plaintiffs will continue to assert CCPA violations against builders and construction contractors and use, even with the reduced CDARA amount, the CCPA claims as leverage to negotiate settlement of construction defect claims.
Unless a claimant prevails on its claim for violation of the CCPA and the construction professional did not make a reasonable offer through the notice of claim process, a construction professional is not liable for more than “actual damages.” C.R.S. § 13-20-806(1). Actual damages is defined as “the fair market value of the real property without the alleged construction defect, the replacement cost of the real property, or the reasonable cost to repair the alleged construction defect, whichever is less, together with relocation costs, and, with respect to residential property, other direct economic costs related to loss of use, if any. . .” C.R.S. § 13-20-802.5(2).
There is no separate measure of damages in Colorado construction defect cases for diminution in value.
Colorado law generally allows a jury to assess punitive damages in situations where they award damages for wrongs caused by fraud, malice, or willful and wanton conduct. However, the CDARA’s definition of actual damages and its limitation on damages, do not provide for the availability of punitive damages. There is no appellate authority on the topic of whether the CDARA bars an award of punitive damages in construction cases. As a practical matter, punitive damages are rarely ever sought by plaintiffs’ attorneys.
Attorney’s fees in Colorado can only be awarded pursuant to contract or statute. The two statutes most often cited as giving rise to an award of attorney’s fees are the Colorado Consumer Protection Act, C.R.S. § 6-1-101, et seq., and the Colorado Common Interest Ownership Act, C.R.S. § 38-33.3-101, et seq. The treble damages and attorney’s fees component awardable pursuant to the CCPA are statutorily capped at $250,000 in any action against a construction professional. C.R.S. § 13-20-806(3).
As a general rule, joint and several liability for construction defect claims does not exist in Colorado. C.R.S. § 13-21-111.5(1) provides that “no defendant shall be liable for an amount greater than that represented by the degree or percentage of the negligence or fault attributable to such defendant that produced the claimed injury, death, damage, or loss.”
However, plaintiffs’ attorneys attempt to circumvent this general rule by arguing that the defendants acted in concert as co-conspirators. Pursuant to C.R.S. § 13-21-111.5(4), the law imposes joint liability when “two or more persons … consciously conspire and deliberately pursue a common plan or design to commit a tortious act.”
As it commonly relates to construction defect claims, if a plaintiff can prove that two or more defendants consciously conspired and deliberately pursued a common plan or design, i.e., to build a home or residential community, and such a plan results in the commission of a tort, i.e., negligence, courts can then hold defendants jointly and severally liable. See Resolution Trust Corp. v. Heiserman, 898 P.2d 1049 (Colo. 1995).
Rip and tear damages are awardable to plaintiffs in construction defect cases as part of the cost of repair. At least one appellate court has found that there is coverage for rip and tear damage to nondefective work. Colorado Pool Systems, Inc. v. Scottsdale Ins. Co., et al., 317 P.3d 1262 (Colo. Ct. App. 2012).
The definition of awardable actual damages under the CDARA does not include consequential damages, except for “relocation costs, and, with respect to residential property, other direct economic costs related to loss of use, if any. . .” C.R.S. § 13-20-802.5(2).
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 unless the property damage is intended and expected by the insured. Nothing in this subsection (3): (a) Requires coverage for damage to an insured’s own work unless otherwise provided in the insurance policy; or (b) Creates insurance coverage that is not included in the insurance policy.
An occurrence sufficient to trigger coverage under an occurrence policy need not be sudden, but must be a specific accident or happening within the policy period. . . . A long term exposure to a harmful condition that results in damage or injury may be an occurrence. . . . Where property damage is gradual over some period of time, the trial court may make a reasonable estimate of the portion of the damage that is attributable to each year. The trial court may allocate liability to each policy triggered by the damage.
(a) An insurer’s duty to defend a construction professional or other insured under a liability insurance policy issued to a construction professional shall be triggered by a potentially covered liability described in:
(I) A notice of claim made pursuant to section 13-20-803.5; or
(II) A complaint, cross-claim, counterclaim, or third-party claim filed in an action against the construction professional concerning a construction defect.
(b)(I) An insurer shall defend a construction professional who has received a notice of claim made pursuant to section 13-20-803.5 regardless of whether another insurer may also owe the insured a duty to defend the notice of claim unless authorized by law. In defending the claim, the insurer shall:
(A) Reasonably investigate the claim; and
(B) Reasonably cooperate with the insured in the notice of claims process.
(II) This paragraph (b) does not require the insurer to retain legal counsel for the insured or to pay any sums toward settlement of the notice of claim that are not covered by the insurance policy.
(III) An insurer shall not withdraw its defense of an insured construction professional or commence an action seeking reimbursement from an insured for expended defense cost unless authorized by law and unless the insurer has reserved such right in writing when accepting or assuming the defense obligation.
Colorado’s anti-indemnity statute is found at C.R.S. §13-21-111.5(6)(a)(VII)(b) and it states that “…any provision in a construction agreement that requires a person to indemnify, insure, or defend in litigation another person against liability for damage arising out of death or bodily injury to persons or damage to property caused by the negligence or fault of the indemnitee or any third party under the control or supervision of the indemnitee is void as against public policy and unenforceable.”
However, the next subsection states that the rule cited above does not affect any provision in a construction agreement that allows for indemnity so long as indemnification obligation represents the degree or percentage of negligence or fault attributable to the indemnitor. In other words, as long as the subcontractor is indemnifying the general contractor for the subcontractor’s negligence and not also the general contractor’s negligence, then Colorado will enforce the indemnity agreement.
a.Coverage for AI’s own negligence vs. vicarious liability for Named Insured
Colorado’s anti-indemnity statute does not “apply to contract provisions that require the indemnitor to name the indemnitee as an additional insured on the indemnitor’s policy of insurance, but only to the extent that such additional insured coverage provides coverage to the indemnitee for liability due to the acts or omissions of the indemnitor. Any provision in a construction agreement that requires the purchase of additional insured coverage for damage arising out of death or bodily injury to persons or damage to property from any acts or omissions that are not caused by the negligence or fault of the party providing such additional insured coverage is void as against public policy.” C.R.S. §13-21-111.5(6)(a)(VII)(d).
b.Determining Primary and Non-Contributory vs. Excess Position
“In contrast to primary insurance – which. . . covers an injury at the first level before any other insurance is exhausted - excess insurance ‘is activated only after the magnitude of the loss exceeds the limits of the applicable ‘primary’ insurance.’” Lafarge N. Am., Inc. v. K.E.C.I. Colorado, Inc., 250 P.3d 682, 690 (Colo. Ct. App. 2010). “A liability policy can be primary or excess, may cover liability on a ‘pro rata’ basis, or may contain an ‘escape’ clause providing that it will not cover any loss that is also covered by another policy.” Id. “When one insurance policy is ‘primary’ and the other policy is ‘excess,’ the primary insurer pays for damages up to the limits of its policy; when that policy is exhausted, the excess insurer covers any remaining damages up to the limits of its policy.” Allstate Ins. Co. v. Avis Rent-A-Car Sys., Inc., 947 P.2d 341, 346 (Colo. 1997). “Any ambiguity in the operation of the excess clauses must be resolved against the insurers and in favor of the insured.” Id. “The general law, . . . is that an ‘other insurance’ clause which makes a policy excess if there is other insurance will be enforced, so long as there is not a conflicting ‘other insurance’ clause making both policies excess.” Farmington Cas. Co. v. United Educators Ins. Risk Retention Grp., Inc., 117 F.Supp. 2d 1022, 1027 (D.Colo. 1999). “[I]f two or more policies of the same type each contains an excess clause, and they cannot be reconciled with each other, they are declared to be repugnant. As a consequence, each policy is required to make some pro-rata payment for the loss suffered.” Allstate Ins. Co. v. Frank B. Hall & Co. of California, 770 P.2d 1342, 1345 (Colo. Ct. App. 1989).
c.AI carrier’s rights to reimbursement for defense expenses from other, co-primary carriers
Equitable contribution is recognized under Colorado law and is “a means of apportioning a loss between two or more insurers who cover the same risk so that each insurer pays its fair share of the common obligation.” Cont’l W. Ins. Co. v. Colony Ins. Co., 69 F.Supp. 3d 1075, 1084 (D.Colo. 2014) (quoting Allstate Ins. Co. v. W. Am. Ins. Co., 2011 WL 11065655, at *3 (D.Colo. Nov. 21, 2011)).
The Colorado Supreme Court has declined to define the circumstances under which insurers are obligated to provide independent counsel to insureds. Hartford Ins. Grp. v. Dist. Court for Fourth Judicial Dist., 625 P.2d 1013, 1018 (Colo. 1981). To our knowledge, no Colorado court has addressed whether an insurer has an obligation to provide independent counsel when it has issued a reservation of rights. See, e.g., Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083, 1098 note 7 (Colo. 1991).
The policy of Colorado favors the interpretation of insurance coverage broadly for the insured. C.R.S. § 13-20-808(1)(b)(I). Nothing contained in C.R.S. § 13-20-808 requires “coverage for damage to an insured’s own work unless otherwise provided in the insurance policy; or creates insurance coverage that is not included in the insurance policy.” C.R.S. § 13-20-808(3). “If an insurance policy provision that appears to grant or restore coverage conflicts with an insurance policy provision that appears to exclude or limit coverage, the court shall construe the insurance policy to favor coverage if reasonably and objectively possible.” C.R.S. § 13-20-808(5).
If an insurer disclaims or limits coverage under a liability insurance policy issued to a construction professional, the insurer shall bear the burden of proving by a preponderance of the evidence that:
(a) Any policy’s limitation, exclusion, or condition in the insurance policy bars or limits coverage for the insured’s legal liability in an action or notice of claim made pursuant to section 13-20-803.5 concerning a construction defect; and
(b) Any exception to the limitation, exclusion, or condition in the insurance policy does not restore coverage under the policy.
“An insurer shall notify any additional insured by endorsement on a general liability policy, whose interests are affected by a liability claim, of the results of the insurer’s investigation of such claim and the status of the claim within a reasonable period of time.” 3 Colo. Code Regs. § 702-5:5-1-15, § 5(A). “‘Reasonable period of time’ means within ninety (90) calendar days after a liability claim is received, provided the insurer is able to identify the additional insured by endorsement based on a review of the records of the insurance company or information obtained from the named insured.” Id. at § 4(C).
(1) A provision in a liability insurance policy issued to a construction professional excluding or limiting coverage for one or more claims arising from bodily injury, property damage, advertising injury, or personal injury that occurs before the policy’s inception date and that continues, worsens, or progresses when the policy is in effect is void and unenforceable if the exclusion or limitation applies to an injury or damage that was unknown to the insured at the policy’s inception date.
(2) Any provision in an insurance policy issued in violation of this section is void and unenforceable as against public policy. A court shall construe an insurance policy containing a provision that is unenforceable under this section as if the provision was not a part of the policy when the policy was issued.
(3) This section applies only to an insurance policy that covers occurrences of damage or injury during the policy period and that insures a construction professional for liability arising from construction-related work.
“Under the notice-prejudice rule, an insured who gives late notice of a claim to his or her insurer does not lose coverage benefits unless the insurer proves by a preponderance of the evidence that the late notice prejudiced its interests.” MarkWest Energy Partners, L.P. v. Zurich Am. Ins. Co., 411 P.3d 1080, 1082 (Colo. Ct. App. 2016).
State Farm Mut. Auto. Ins. Co. v. Secrist, 33 P.3d 1272, 1275 (Colo. Ct. App. 2001) (internal citations omitted).
In dealing with choice of law or forum selection clauses, Colorado has adopted the Restatement (Second) approach for tort and contract actions. Wood Bros. Homes v. Walker Adjustment Bureau, 601 P.2d 1369, 1372 (Colo. 1979). “Where a conflict of laws question is raised, the objective of the Restatement (Second) is to locate the state having the ‘most significant relationship’ to the particular issue. In analyzing which state has the most significant relationship, the principles set forth in Restatement (Second) sections 6 and 188 are to be taken into account. Once the state having the most significant relationship is identified, the law of that state is then applied to resolve the particular issue.” Id. at 1372.
Under Colorado law “the relative liability of each subcontractor, the respective policy limits of the triggered policies, and the insurers’ time on the risk are factors that might be relevant to the ultimate allocation of the defense costs among the insurers. But those are matters to be resolved among the insurers, either by agreement or in a separate suit for contribution from carriers who paid less than a reasonable share. The duty to defend the insured is joint and several and exists from the moment that a policy is triggered.” D.R. Horton, Inc.-Denver v. Mountain States Mut. Cas. Co., 69 F.Supp. 3d 1179, 1195–96 (D.Colo. 2014) (internal citations omitted).
[W]hen it appears that the insurer—who has exclusive control over the defense and settlement of claims pursuant to the insurance contract - has acted unreasonably by refusing to defend its insured or refusing a settlement offer that would avoid any possibility of excess liability for its insured, the insured may take steps to protect itself from potential exposure to such liability. One way for an insured to protect itself is through the use of an agreement whereby the insured assigns its bad faith claims to the third party, and in exchange the third party agrees to pursue the insurer directly for payment of the excess judgment rather than the insured.
Nunn v. Mid-Century Ins. Co., 244 P.3d 116, 119–20 (Colo. 2010) (internal citations omitted). That said, “the stipulated judgment will not be binding on the insurer until the insurer has had an opportunity to defend itself at trial.” Id. at 123.