The Homeowner Protection Act of 2007 - July 2007 - Tort and Insurance Law

• Publication year: 2007
• Pages: 79
• Citation: Vol. 36 No. 7 Pg. 79

36 Colo.Law. 79 Colorado Lawyer 2007.

2007, July, Pg. 79. The Homeowner Protection Act of 2007 - July 2007 - Tort and Insurance Law

The Colorado Lawyer

July 2007

Vol. 36, No. 7 [Page 79]

Articles

Tort and Insurance Law

The Homeowner Protection Act of 2007

by Ronald M. Sandgrund, Scott F. Sullan, Jennifer A Seidman

Tort and Insurance Law articles provide information concerning current tort law issues and insurance issues addressed by practitioners representing either plaintiffs or defendants in tort cases. They also address issues of insurance coverage, regulation, and bad faith.

Article Editor:

William P. Godsman of the Law Office of William Godsman Denver - (303) 455-6900, wgodsman@qwest.net

About the Authors:

This month's article was written by Ronald M Sandgrund and Scott F. Sullan, principals, and Jennifer A. Seidman, associate, with the Denver law firm Vanatta, Sullan, Sandgrund, Sullan & Smith, P.C. The firm represents commercial and residential property owners and homeowner associations and unit owners in construction defect and insurance coverage disputes. Mr. Sullan was closely involved in drafting the Homeowner Protection Act of 2007 and testified to its purpose.

This article discusses the terms and effect of the Homeowner Protection Act of 2007, House Bill 07-1338, which clarified and amended parts of Colorado's Construction Defect Action Reform Act and applies to actions filed on or after April 20, 2007.

The Homeowner Protection Act of 2007 (HPA or Act) clarifies and amends two subsections of Colorado's Construction Defect Action Reform Act (CDARA).(fn1) The HPA's primary purpose is to render void any pre-dispute waiver of and many limitations on a residential property owner's or homeowner association's ability to recover in tort or contract the damages described by CDARA. This article discusses the events leading to the Act's passage, its scope and purpose, exceptions from its reach, its relationship to pre-existing statutory and common law, and questions relating to its application to contracts entered into before the Act's April 20, 2007 effective date.

Events Leading to Passage

In 2003, Colorado's legislature, in response to building industry concerns regarding construction defect litigation and liability insurance premiums, amended and expanded CDARA, placing limits on the kind and amount of damages recoverable in such lawsuits.(fn2) Despite these statutory limitations, many builders attempted to incorporate even broader restrictions on new home buyers' rights and remedies in their purchase contracts by inserting, on a take-it-or-leave-it basis, broad waivers, disclaimers, and liability limitations. Legislative hearings disclosed that these homebuilder contracting practices were undercutting the intent of CDARA, which, as set forth in CDARA's legislative declaration, was to preserve "adequate rights and remedies for property owners who bring and maintain [construction defect] actions."(fn3) Substantial testimony showed that these clauses were present in many home-purchase agreements, and that the vast majority of homeowners lacked the negotiating power to modify them.(fn4) The HPA's sponsors concluded that homeowners either had to adhere to such waivers, disclaimers, and liability limitations or be shut out of large segments of the new housing market.(fn5)

General Scope and Provisions

The HPA "preserve[s] Colorado residential property owners' legal rights and remedies" in any civil action or arbitration proceeding for damages caused by a defect in the design or construction of an improvement to residential real property.(fn6) The HPA provides that "any express waiver of, or limitation on, the legal rights, remedies, or damages provided by" CDARA(fn7) or Colorado's Consumer Protection Act,(fn8) "or on the ability to enforce such legal rights, remedies, or damages within the time provided by applicable statutes of limitation or repose, are void as against public policy."(fn9) Thus, among other things, the HPA prevents a construction professional from contractually limiting a homeowner or homeowner association's time to sue for a construction defect to a period shorter than that provided under the statute of limitations or repose applicable to each claim for relief asserted.(fn10) The HPA applies only to "legal rights, remedies, or damages of claimants asserting claims arising out of residential property."(fn11)

Liability and Damages Under CDARA

CDARA recognized the many types of claims potentially available to aggrieved homeowners under both statutory and common law, such as negligence, breach of express and implied warranty, misrepresentation, and violations of Colorado's Consumer Protection Act and Soils and Hazard Analyses of Residential Construction Act. However, in myriad ways, CDARA limited the assertion of some of these causes of action while also capping or eliminating damages previously recoverable at common law.(fn12) CDARA also created an approved, statutory procedure for giving notice to owners in common interest communities of a homeowner association's board's intent to bring a construction defect lawsuit.(fn13)

The HPA does not enlarge or remove any of CDARA's damages limitations or caps applicable to construction defect or consumer protection act claims, "including the limitations on treble damages and attorneys fees."(fn14) Rather, the HPA preserves existing common law and statutory causes of action against construction professionals, and continues to limit damages to those provided for in CDARA.(fn15)

CDARA provides for the recovery of "actual damages." Actual damages under CDARA are the least of the: (1) fair market value of the real property without the alleged construction defect; (2) replacement cost; or (3) reasonable cost to repair the alleged construction defect, together with "relocation costs." For residential property only, actual damages also include "other direct economic costs related to loss of use, if any, interest as provided by law, and such costs of suit and reasonable attorney fees as may be awardable pursuant to contract or applicable law."(fn16)

CDARA similarly describes and limits personal injury(fn17) and treble damage(fn18) recoveries. Colorado's appellate courts have not addressed whether exemplary damages still are recoverable against construction professionals after the 2003 amendments to CDARA, which amendments did not expressly include exemplary damages in their definition of "actual damages."(fn19)

HPA Exceptions

Concerns about the HPA's scope led to the incorporation of specific provisions relating to:

settlement agreements

certain charitable donations

express warranties

arbitration and mediation proceedings.

Although the HPA's effect on mixed-use developments was not explicitly addressed by H.B. 1138, its practical impact was the subject of a significant part of the legislative hearings. Each of these aspects of the HPA is discussed below.

The HPA excepts from its application:

[a] waiver, limitation or release contained in a written settlement of claims, and any recorded notice of such settlement, between a residential property owner and a construction professional after such a claim has accrued.(fn20)

Also exempted are claims arising from sales or donations of property or services by a statutorily compliant bona fide charitable organization.(fn21)

The HPA also does not abrogate or limit any express warranty provisions or the obligations of a warranty provider.(fn22) H.B. 1338's legislative history tracks the importance of this exception to the building industry. When a draft of H.B. 1338 first was circulated and discussed, industry representatives expressed concern that it might be misconstrued to void limitations on the scope of and remedies provided by home builder and third-party "repair or replace" express warranties. However, in its final form, the HPA specifically allows a warrantor to limit the rights, remedies, and damages available under such express warranties, as long as the express warranty provisions do not purport to waive or limit claims for relief other than for breach of the express warranty.(fn23) Thus, the nonwaiver provisions of the HPA do not apply to any limitations on breach of express warranty claims applicable and limited to the express warranty itself.(fn24)

By its terms, the HPA does not bar or dilute the effect of provisions requiring participation in arbitration or mediation.(fn25) Also, as its legislative history and incorporation within CDARA make clear, the HPA does not apply to claims that do not arise from construction defects, such as claims relating to restaurant odors or light rail noise in mixed-use developments where residential units are constructed in proximity to commercial units or railroad tracks, or other conflicting "uses" that are better dealt with by the community's use covenants or zoning laws.(fn26)

The HPA and Pre-Existing Law

The HPA was effective "upon passage" and applies to actions filed on or after April 20, 2007.(fn27) It is unclear whether the HPA's provisions preserve or restore remedies and damages purportedly voided by contractual waivers and liability limitations entered into before the HPA's effective date and raised as a defense in a lawsuit filed after that date. The U.S. and Colorado Constitutions prohibit the passage of certain kinds of retroactive, retrospective legislation.(fn28)

Courts need not address the HPA's constitutionality if they find that the contract provision at issue is void unenforceable, or inapplicable for some other reason, such as being unconscionable or violative of pubic policy under the common law....