Chapter 14 - § 14.9 • DEFENSES COMMONLY RAISED IN RESPONSE TO CLAIMS ARISING FROM THE CONSTRUCTION AND SALE OF A HOME

• Jurisdiction: Colorado

§ 14.9 • DEFENSES COMMONLY RAISED IN RESPONSE TO CLAIMS ARISING FROM THE CONSTRUCTION AND SALE OF A HOME

Certain affirmative defenses are commonly raised in suits against developers, builders, contractors, and vendors, including statutes of limitations and repose, comparative negligence, non-party liability, contractual limitations on remedies and damages, and mandatory arbitration. In light of a 2004 Colorado Supreme Court case holding that certain affirmative defenses are preempted by Colorado's Landowner Liability Act,¹⁹⁰¹ it is an open question whether some or all common law defenses to construction defect claims remain viable after passage of Colorado's Construction Defect Action Reform Act.¹⁹⁰²

§ 14.9.1-Statutes of Limitations and Repose

Colorado has a special statute of limitations and repose for claims arising from construction of improvements to real property, C.R.S. § 13-80-104, which contains some of the shortest limitations and repose periods in the United States. This statute has been amended several times in response to various court decisions.¹⁹⁰³ A construction professional's assertion of a statute of limitations defense may also implicate other potentially applicable statutes of limitations.

Colorado's real property improvement statute of limitations and repose provides, in its entirety,

(1)(a) Notwithstanding any statutory provision to the contrary, all actions against any architect, contractor, builder or builder vendor, engineer, or inspector performing or furnishing the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property shall be brought within the time provided in section 13-80-102 after the claim for relief arises, and not thereafter, but in no case shall such an action be brought more than six years after the substantial completion of the improvement to the real property, except as provided in subsection (2) of this section.

(b)(I) Except as otherwise provided in subparagraph (II) of this paragraph (b), a claim for relief arises under this section at the time the claimant or the claimant's predecessor in interest 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.

(II) Notwithstanding the provisions of paragraph (a) of this subsection (1), all claims, including, but not limited to indemnity or contribution, by a claimant against a person who is or may be liable to the claimant for all or part of the claimant's liability to a third person:

(A) Arise at the time the third person's claim against the claimant is settled or at the time final judgment is entered on the third person's claim against the claimant, whichever comes first; and

(B) Shall be brought within ninety days after the claims arise, and not thereafter.

(c) Such actions shall include any and all actions in tort, contract, indemnity, or contribution, or other actions for the recovery of damages for:

(I) Any deficiency in the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property; or

(II) Injury to real or personal property caused by any such deficiency; or

(III) Injury to or wrongful death of a person caused by any such deficiency.

(2) In case any such cause of action arises during the fifth or sixth year after substantial completion of the improvement to real property, said action shall be brought within two years after the date upon which said cause of action arises.

(3) The limitations provided by this section shall not be asserted as a defense by any person in actual possession or control, as owner or tenant or in any other capacity, of such an improvement at the time any deficiency in such an improvement constitutes the proximate cause of the injury or damage for which it is proposed to bring an action.¹⁹⁰⁴

As discussed more fully below, C.R.S. § 13-80-104 applies to claims involving: (1) certain persons involved in constructing improvements to real property, and (2) certain construction activities.¹⁹⁰⁵

Applying Colorado's statutes of limitations and repose to construction defect claims is a difficult and exacting task requiring a clear determination of the following: (1) who is being sued and who is suing; (2) the nature of the claim(s) asserted; (3) the triggering event for the limitations period for each claim; (4) the specific defect that is the subject of each claim; (5) the proper characterization of the defendant's activities and the relationship of those activities to the creation of the defect; (6) the cause of the defect; (7) whether an earlier-occurring manifested defect had the same cause as the defect that is the subject of the lawsuit; (8) whether facts are present implicating tolling or estoppel doctrines, including CDARA's and any applicable local ordinance's notice of claim and common interest community pre-suit approval tolling provisions; (9) if so, the effect of such tolling or estoppel, and whether applying the particular doctrine to the facts is an issue of law or an issue of fact; and (10) whether the specific statute of limitations or repose applicable to the claim(s) is constitutional. The Colorado Supreme Court has limited application of common law "tolling" principles where CDARA's statutory tolling provisions apply.¹⁹⁰⁶ The contours of this limitation remain to be explored, including whether certain statute of limitations estoppel defenses survive CDARA. For an expanded discussion of this issue, see "Smith v. Executive Custom Homes and the Repair Doctrine" in § 14.9.1.f.

14.9.1.a-Construction Professionals Subject to C.R.S. § 13-80-104

C.R.S. § 13-80-104 applies to "all actions against any architect, contractor, builder or builder vendor, engineer, or inspector performing or furnishing the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property."¹⁹⁰⁷ It does not apply to a non-commercial (including, but perhaps not limited to, residential) real property seller or common interest community declarant unless that person also performs the listed construction-related activities.¹⁹⁰⁸

In an unpublished opinion, the Colorado Court of Appeals held that C.R.S. § 13-80-104 applied to claims against a developer even though the statute does not include the term "developer" in the list of persons to whom the statute applies because it "supervised and/or approved" the work of the contractors and design professionals constructing the improvement.¹⁹⁰⁹ A Colorado district court held that C.R.S. § 13-80-104 did not apply to breach of contract claims against a landlord arising from a lease agreement where the lease required the construction of certain improvements, which the tenant alleged to be defective. The court found the statute inapplicable because the lease limited the landlord's construction responsibilities to selecting a qualified general contractor and furnishing materials, directional signage, and food service.¹⁹¹⁰

14.9.1.b-Scope of C.R.S. § 13-80-104

C.R.S. § 13-80-104 provides statutes of limitations and repose for all actions in tort, contract, indemnity, contribution, or "other actions for the recovery of damages" for any "deficiency in the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property," when such a deficiency causes (1) injury to real or personal property; or (2) injury to or wrongful death of a person.¹⁹¹¹

Applicable Claims and Activities

C.R.S. § 13-80-104 applies only to claims arising from real property improvements. "[T]he attachment of personal property to realty, regardless of whether such attachment results in the creation of a fixture," is an improvement subject to the statute.¹⁹¹² In short, C.R.S. § 13-80-104 applies to claims arising from the process of building a structure,¹⁹¹³ although significant repairs to a structure may constitute an improvement to real property, depending on the facts, as discussed more fully below.

An activity involves construction of an improvement to real property if it is essential and integral to the function of the construction project.¹⁹¹⁴ One quality of an improvement to real property is "permanence," even if the constructed portion can be removed.¹⁹¹⁵ An "improvement" within the meaning of C.R.S. § 13-80-104 can be "a discrete component of a larger undertaking," such as the construction of one building in a multi-building condominium project.¹⁹¹⁶ Another important factor in determining whether an activity constitutes an improvement to real property is the owner's intent.¹⁹¹⁷ The Colorado Court of Appeals has applied C.R.S. § 13-80-104 to claims regarding concrete poured to form part of a parking garage,¹⁹¹⁸ and lot grading.¹⁹¹⁹ The U.S. District Court for the District of Colorado has held that, under Colorado law, a defective header cap welded to a pipe system in a meat packing plant is an improvement to real property because the cap and pipe system "are integral components of the refrigeration system which is itself an essential part of the overall structure of the plant," and that, without that system, "the plant could not serve the purpose for which it was designed."¹⁹²⁰

Repainting the surface of an existing building, including preparing the surface to receive the paint, such as by sanding and caulking, may also fall within C.R.S. § 13-80-104's ambit, depending on the facts.¹⁹²¹ However, an action for breach of a warranty to repair or replace deficient work is not subject to the statute.¹⁹²² And, where a party did not seek recovery for a construction defect, but instead sought recovery for breach of a contractual duty under an indemnity agreement, the three-year breach of contract limitations period, rather than C.R.S. § 13-80-104, applied.¹⁹²³

C.R.S. § 13-80-104 focuses on persons whose activities relate to the construction or...