Colorado Construction Law Developments in 2012

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While Colorado’s General Assembly passed no significant legislation affecting construction law in 2012, the Colorado Court of Appeals handed down a number of significant rulings.

In Melssen v. Auto-Owners Insurance Company, the Colorado Court of Appeals held that a notice of claim made under Colorado’s Construction Defect Action Reform Act (CDARA) constitutes a “suit” such that an insurance company’s duty to defend was triggered. Relying on a policy definition of suit that included “any other alternative dispute resolution proceeding,” the court found that the CDARA notice of claim process constitutes an alternative dispute resolution proceeding. The ruling is significant because in 2010 Colorado’s General Assembly passed a statute that expressly states that a CDARA notice of claim triggers an insurer’s duty to defend. However, courts routinely held that the statute did not apply retroactively, but instead only applies to policies in effect on or after the date the statute was passed.

In TCD, Inc. v. American Family Mutual Insurance Company, the Court of Appeals held that an insurer’s duty to defend was not triggered by allegations of faulty workmanship standing alone, i.e., without resulting damage to other property. This decision was consistent with the prior cases but also noted that C.R.S. § 13-20-808, a statute imposing a duty to defend, did not apply retroactively. As time passes and more policies are subject to the provisions of C.R.S. § 13-20-808, the decision in TCD will no longer be applicable.

In Shaw Construction, LLC v. United Builder Services, the Court of Appeals considered when “substantial completion” of an improvement to real property occurred for purposes of triggering Colorado’s six-year statute of repose for construction defect claims. The case involved the construction of a multi-phase, multi-family residential project. The homeowners’ association sued Shaw, the general contractor, arising out of defects at certain of the condominium buildings at the project. Shaw subsequently sued a number of the subcontractors involved with the construction of those specific buildings. The subcontractors were not sued within six years of the completion of those specific buildings, but were sued within six years of the completion of the entire project. Shaw argued that the statute of repose did not begin to run until the entire project was completed. The subcontractors argued that the statute of repose began running upon completion of the building on which they performed work (i.e., when the certificate of occupancy for the building was issued). The court agreed with the subcontractors, holding “that an improvement may be a discrete component of an entire project, such as the last of multiple residential buildings.” The court declined to reach the subcontractors’ other argument, namely that “‘improvement’ should be determined even more narrowly on a trade-by-trade basis.” Consequently, in multi-unit and multi-phase projects, each building will likely be deemed to have its own statute of repose.