A bill to change construction defects law favorably for property owners has stayed parked on the Colorado Senate’s second readings calendar for several weeks. An overall expansion of property owners’ ability to bring defects claims, Senate Bill 138 has players in the construction industry worried about increased exposure to litigation raising costs of construction and making Colorado’s affordable housing crisis worse.
Sponsor Sen. Robert Rodriguez said there’s not currently a set date for when the full Senate will actually vote. He was coy about the likelihood the bill may get pulled and brought back in a later session.
“I haven’t spoken with all my colleagues to see [what] they’re O.K. with and not O.K. with,” he said. Rodriguez added targeting the small proportion of bad actors in the construction industry is a key concern among stakeholders.
Senate Bill 138 extends the time period after a construction project is completed that a property owner has to file a claim for construction defects, called the statute of repose, from six to 10 years. It also changes when the separate statute of limitations to file a claim starts running. Currently, a property owner has two years from when they discover a problem, or reasonably should have discovered it. The bill changes that trigger to start the two years running when a property owner discovers the source of the problem — in other words, knows it’s due to a construction defect and not normal wear and tear on the property.
Senate Bill 138 also clarifies both the statute of repose and statute of limitations are subject to statutory and equitable tolling.
Opinions about whether the bill will harm the construction industry have split with property owners and plaintiffs’ lawyers who represent them on one side, and those in the construction industry and defense attorneys on the other. Property owners who support the bill have echoed Rodriguez’ sentiment about the need to target bad actors in the construction industry. They testified about instances of discovering problems with their homes and the builders using Band-Aid repairs to lead them to believe the problem was fixed until the statute of limitations for filing a defect claim ran out.
Insurance companies have been noticeably absent from the loudest clamoring about the bill, but insurance costs are a bellwether of risk in the construction industry. Risks of a project, insurance premiums and willingness to build all feed into each other.
Andy D’Entremont, head of claims of the national construction group at EPIC Insurance Brokers & Consultants who is based in Birmingham, said project-specific insurance assesses risk by looking at factors such as the project’s location, complexity and size. Whether a contractor has a history of claims against them for construction defects during their projects’ statutes of repose also factors in. He said beachside condominiums are a front-and-center example of exposure to risk of defects claims because water infiltration problems can lead to construction defects claims over a project’s design or waterproofing.
D’Entremont said insurance carriers look at that type of history to find out “was it that they did have issues related to their construction activities, or were they just unlucky enough to be caught up in something that really didn’t have anything to do with what they did?”
Brian McDonnell, a managing principal of specialty construction practice at EPIC who is based in California, said law changes that expand property owners’ ability to bring defects claims do tend to affect the availability and price of liability insurance for builders.
“A lot of carriers don’t want 12 years of potential liability that they don’t know about, and that affects all of the ratios: Their capital, their surplus, their ability to understand where those losses are coming from and when they’re going to come. So a lot of carriers just don’t want to be involved in that long-term business.”
He said difficulty of getting insurance based on perceived risk – can influence builders’ decisions to not get involved with certain types of projects at all because of their exposure to litigation. “It does have an impact on the pool of available contractors, which in turn increases the price,” McDonnell said. D’Entremont called increased costs of construction “the end of the circle” where risks of a project because of litigation exposure, insurance prices and willingness to build all create a feedback loop. “Everything is exponentially increased in terms of pricing,” he said. “Everybody is going to over-insure at whatever available costs they have, so it drives up the overall cost on projects.”
—Julia Cardi