HALL & EVANS ROCKY MOUNTAIN LITIGATION REPORTER
August 2010 Edition
The Hall & Evans Rocky Mountain Litigation Reporter is a periodic online newsletter directed to a select group of individuals and organizations. In this issue, we review a recent opinion from the Colorado Court of Appeals, discuss new statutes in Colorado concerning liability insurance for construction professionals and allowing discretionary appeals from interlocutory decisions of trial courts, and summarize new regulations concerning the Americans With Disabilities Act.
TOPICS IN THIS ISSUE
Period of Limitations on Claim for Personal Injury Caused by Construction Defect Accrues When Homeowner First Notices the Defect
Significant Construction Defect Coverage Law Enacted in Colorado
Interlocutory Appeals Now Possible In State Court
CASES
Period of Limitations on Claim for Personal Injury Caused by Construction Defect Accrues When Homeowner First Notices the Defect. James Smith bought a home constructed by Executive Custom Homes (“ECH”). On February 6, 2004, James Smith noticed a large accumulation of ice near his front door and sent ECH an e-mail about this, asserting that it was caused by a construction defect. ECH determined that the gutters needed repair, and later performed those repairs. Nonetheless, a year later, Judith Smith (James’ wife) was injured when she slipped on an accumulation of ice near their front door.
On January 17, 2007, the Smiths filed a lawsuit against ECH for the injuries sustained by Judith Smith. ECH responded with a motion for summary judgment based on the statute of limitations contained in the Construction Defect Action Reform Act (“CDARA”). This provision states that a claimant has two years after a claim arises to file suit for a construction defect, and further explains that a claim arises when the claimant “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).
The trial court granted ECH’s motion for summary judgment, holding that the Smiths did not file suit within two years of when James Smith discovered the physical manifestations (accumulation of ice) of the defect (gutters), which ultimately caused the injury (slip and fall). The Court of Appeals agreed with this point, but reversed on the basis of the “repair doctrine.” The repair doctrine tolls a limitations period while a construction professional undertakes repair efforts intended to remedy the defect. Tolling continues until the date when the construction professional abandons his repair efforts, provided that the homeowner reasonably relied on the promises to repair and, as a result, did not institute a legal action against the construction professional.
The Supreme Court granted certiorari and affirmed on the first issue (statute of limitations) but reversed on the second issue (repair doctrine). The Supreme Court agreed with both lower courts that under the plain language of the CDARA, the Smiths’ claim for personal injury accrued when James Smith discovered the physical manifestation (accumulation of ice) of the defect (gutter) which ultimately caused the injury (slip and fall). Because the language of the statute was clear, the Supreme Court rejected the Smiths’ efforts to alter its plain meaning through reference to legislative history.
The Supreme Court disagreed, however, with the Court of Appeals on the repair doctrine. Because the CDARA included its own specific provisions for tolling during a “claim notice period,” the Supreme Court held that there was no room to incorporate an additional tolling doctrine under equitable principles. Smith v. Executive Custom Homes, 2010 Colo. LEXIS 362 (Colo. 2010).
STATUTES
Significant Construction Defect Coverage Law Enacted in Colorado.On May 21, 2010 Colorado Governor Bill Ritter signed House Bill 10-1394 “Concerning Commercial Liability Insurance Policies Issued to Construction Professionals.” Hall & Evans, LLC was actively involved with proponents, opponents and the Governor’s office during the legislative process.
The new law will dramatically change how current and future commercial general liability (“CGL”) policies issued to construction professionals may be construed by Colorado courts. Significantly, the law requires that such policies be construed under a presumption that any property damage caused by the work of a construction professional - including damage to the contractor’s own work - is an accident. The law also includes: presumptions on interpretation of CGL policies; evidence may be considered to establish an insured’s reasonable expectations to coverage; and new rules as to what events trigger an insurer’s duty to defend. Additionally, the law expands the scope of coverage under CGL policies with respect to so-called “Montrose” limitations intended to preclude coverage for continuing and progressive damage for property damage first occurring before the policy’s inception. Perhaps most remarkably, the new law applies retrospectively to all insurance policies currently in existence, as well as those issued on or after May 21, 2010.
The bill was sponsored by the plaintiffs’ bar and numerous homebuilders’ organizations who argued it would represent an antidote to several recent Colorado court decisions which have curtailed coverage for contactors under CGL policies. The first of these decisions, specifically mentioned in the H.B. 10-1394, is General Security Indemnity Co. of Arizona v. Mt. States Mutual Casualty Company, 205 P.3d 529 (Colo. App. 2009). While this case is actually about the adequacy of pleading and the trigger of an insurer’s defense obligations, the Colorado Court of Appeals in General Security concluded that claims of property damage caused solely by poor workmanship did not constitute a covered “occurrence” or accident under a CGL policy. Id. 534-535.
Following the decision in General Security, the U.S. District Court for the District of Colorado took the rule of CGL policy construction even further in the case of Greystone Constr., Inc. v. Nat’l Fire & Marine Ins. Co., 649 F. Supp.2d 1213 (D. Colo. 2009). While Greystone is a federal court decision, and is not specifically mentioned in H.B. 10-1394, this case was actually of even greater concern than General Security to the homebuilding industry: Greystone has been interpreted to hold that a contractor’s faulty workmanship is never covered under a CGL policy, even if the property damage claimed is merely consequential to the insured’s own work. Indeed, the court held very broadly that any damage arising out of poor work is not a covered “accident” or “occurrence” under a CGL policy. In fact, over the past year, numerous decisions in lower Colorado state courts have relied on both Greystone and General Security to deny coverage to contractors completely under CGL policies.
While Greystone is currently up on appeal to the Tenth Circuit Court of Appeals, and the central issue has been certified to the Colorado State Supreme Court, clarification of the law was not anticipated quickly enough for the homebuilding industry. H.B. 10-1394 was essentially an overreaction by the homebuilders to General Security, Greystone and their progeny. The new law takes the issue to the other extreme, requiring that any CGL policy issued to a construction professional be interpreted to mean that any damage caused by poor workmanship is an accident, and would therefore constitute a covered “occurrence” under most CGL policies. This means that CGL policies must be read as a form of performance bond, rather than a true liability policy covering only fortuitous events.
H.B. 10-1394 also includes a section limiting the scope of so-called “Montrose” endorsements. Those endorsements were typically added to CGL policies in response to a 1995 California decision, Montrose Chemical Corp. v. Admiral Ins. Co, 913 P.2d 878 (Cal. 1995). Montrose held that continuous and progressive damage occurring during a policy period had to be covered under a CGL policy even if the event causing such damage did not happen during the relevant policy period. The endorsements drafted in response to Montrose imposed limitations on coverage for property damage incepting prior to the policy period and known (or in some cases unknown) to the insured prior to the inception of the policy. This section of H.B. 10-1394 supercedes such limitations, and requires an insured’s actual knowledge of such damage before the limitation may be enforced. Any policy imposing a contrary limitation is deemed void and unenforceable as to the force of that provision.
In addition to the more critical aspects of this law summarized above, H.B. 10-1394 also attempts to codify standard rules of policy interpretation such as an insured’s reasonable expectations to coverage. Of course, it does not codify the countervailing standards of interpretation favorable to insurers. Additionally, in establishing the reasonable expectations of an insured to coverage, H.B. 10-1394 would require courts to consider any non-privileged “writings” of an insurer upon which its coverage decisions are made. Excluded from this are an insurer’s records protected by C.R.S. §24-72-100.1, et seq., attorney-client privileged documents, and documents subject to the “work-product” privilege. Finally, the new law expands the trigger of an insurer’s duty to defend claims against its insured to be the earlier of the date of notice of claim pursuant to C.R.S. §13-20-803.5 under Colorado’s Construction Defect Action Reform Act (“CDARA”), or the date a formal complaint is filed against the insured. Accordingly, when a CDARA notice of damages is served, insurers will lose the ability to deny a defense to an insured pending filing of a “suit” as typically defined in a standard CGL policy.
Perhaps most significantly, H.B. 10-1394 is made retroactive, applying to contracts in force as well as those issued going forward. Coupled with Colorado’s 2-year statute of limitations, and 6 to 8-year statute of repose on construction defect actions, this particular provision will undoubtedly trigger Constitutional challenges by carriers whose current policies are substantively rewritten pursuant to this new law.
Hall & Evans will continue to watch for significant developments pertaining to this law and advise its clients accordingly. We invite our clients to contact us to discuss the particular impact of this law on their interests, including the availability of coverage in insurance market and the affect on current claims and litigation.
Interlocutory Appeals Now Possible In State Court. The Colorado General Assembly has passed, and the Governor of Colorado has signed into law, a statute allowing for permissive appeals of interlocutory decisions in state court. The new statute, C.R.S. § 13-4-102.1 enables the trial court to certify for immediate appeal an order which involves a “controlling and unresolved question of law.” If the trial court grants such certification, the judges of the Court of Appeals then have discretion to allow or disallow the appeal. This procedural device should be useful in complex cases where discrete issues control the outcome but rest upon questions of law not yet resolved in Colorado.
REGULATIONS
On July 26, 2010, the Department of Justice (“DOJ”) issued new regulations and standards under the Americans With Disabilities Act (“ADA”). These regulations address requirements for state and local governments subject to Title II of the ADA, and private entities subject to Title III. The regulations update standards concerning construction and alteration of facilities governed by the ADA, including hotels, restaurants, commercial buildings and state and local government buildings. During the 18 month period following July 26, 2010, the new regulations allow covered entities a choice of following either the new standards or the old standards. After that 18 month window closes, covered entities must follow the new standards.
CONTRIBUTING AUTHORS AND EDITORS
Andrew D. Ringel, Esq. at 303-628-3453 or by e-mail at .(JavaScript must be enabled to view this email address); Beth Dickhaus, Esq. at 303-628-3376 or by email at .(JavaScript must be enabled to view this email address); Benton Barton, Esq. at 303-628-3403 or by email at .(JavaScript must be enabled to view this email address); Cathleen Heintz at 303-628-3307 or by email at .(JavaScript must be enabled to view this email address); Robert M. Ferm, Esq. at 303-628-3380 or by email at .(JavaScript must be enabled to view this email address); and Malcolm Mead, Esq. at 303-628-3301 or by email at .(JavaScript must be enabled to view this email address).
If you do not wish to receive the Hall & Evans Rocky Mountain Litigation Reporter please click here or email .(JavaScript must be enabled to view this email address). If you have inquiries or comments, please contact Robert Ferm at 303-628-3380 or by email at .(JavaScript must be enabled to view this email address); or Malcolm Mead at 303-628-3301 or by e-mail at .(JavaScript must be enabled to view this email address).
The Hall & Evans Rocky Mountain Litigation Reporter is for informational purposes only and not for the purpose of offering legal advice or a legal opinion on any matter. No reader should act or refrain from acting on the basis of any statement in the Hall & Evans Rocky Mountain Litigation Reporter without seeking advice from qualified legal counsel on the particular facts and circumstances involved. Links to full text of opinions are provided by the Colorado Bar Association (http://www.cobar.org).
