The Colorado General Assembly’s 2024 legislative session is well underway, and this year’s session includes a bill that could impose substantial insurance disclosure requirements on owners or developers selling residential projects within the state.

House Bill 24-1083 includes two separate components. First, the Colorado Division of Insurance would be required to conduct a study of construction liability insurance for construction professionals in Colorado. The study’s aim is to gather additional information about insurance issued to contractors, including the identities of insurers; rates and basis for rates; risk factors used to set rates; comparison of rates to other rates in other states for policies designed to cover similar residential projects; coverage terms; common limitations and exclusions; and appropriate policy limits for different types of projects based on size and cost of construction. 

The second (more controversial) aspect of the bill would impose affirmative obligations on sellers of a “new residence” within a “residential project” to disclose to buyers certain insurance information and to file that information with the applicable County Clerk and Recorder as a matter of public record. 

“Residential projects” are defined as developments with two or more for-sale residences for separate ownership, while “new residence” means a structure or unit in a residential project. 

The bill would require the seller of the new residence to disclose to the buyer and record with the County Clerk and Recorder at least 14 days prior to closing the following:

• Identification of each “construction liability policy” and the insurer that provides coverage for a "construction professional’s” work on the residence.
  • “Construction liability policy” includes any CGL, E&O, D&O, CCIP, OCIP, any other excess or umbrella policy, and any policy where a construction professional may be entitled to a defense or indemnity as an additional insured or as an enrolled contractor in a CCIP or OCIP.
  • “Construction professional” broadly includes architects, contractors, subcontractors, developers, builders, builders’ vendors, engineers, or supervising inspectors. 
• For each policy disclosed, the seller must identify:
  • The amount of policy limits;
  • The policy period and whether coverage is on a claims-made or occurrence basis; and
  • Identification of all relevant exclusions from coverage, including exclusions in an endorsement that may impact coverage based on the type of construction loss. 

The bill would create a private right of action for a buyer to file a civil suit against the seller to compel disclosure of the insurance information. Fines of up to $500 may be imposed on a seller for noncompliance. The bill would also impose damages of “reasonable attorneys fees and costs, multiplied by three” if the seller did not procure for the new residence an insurance policy providing coverage for property damage resulting from construction defects. 

The information required to be disclosed for any residential development would be substantial, including all policies for all subcontractors who worked on the project. In some cases, the proposed disclosure requirements seem unworkable. For example, determining the applicable exclusions from coverage is not possible until a loss has actually occurred. So identifying “relevant” exclusions up front may be difficult unless the defects have already manifested. Relatedly, although it is common on most projects for the general contractor and developer to have certificates of insurance for subcontractors identifying the insurers, types of coverage, and policy limits, it is uncommon for the general contractor or the developer to have full copies of those policies to be able to identify and disclose “relevant” policy exclusions. Moreover, developers who do not contract directly with the subcontractors may lack the ability to ensure subcontractors maintain insurance for construction defects for completed operations that would continue in effect after the buyer takes possession.