Chapter 2 - § 2.2 • STATUTES, ORDINANCES, AND REGULATIONS

• Jurisdiction: Colorado

§ 2.2 • STATUTES, ORDINANCES, AND REGULATIONS

A number of state laws and local ordinances may apply to or influence the construction methods and disclosures required in new home construction. Colorado requires builders and developers to disclose a lot's soil conditions to prospective new home purchasers. If expansive soils are present, developers and builders must also disclose engineering recommendations regarding home construction, maintenance, and landscaping. Other state laws and local ordinances regulate development and construction in geologic hazard areas. Local building codes mandate minimum construction standards. Deceptive trade practice legislation prohibits sharp sales practices when marketing a home.¹¹ However, Colorado's Construction Defect Action Reform Act and the Homeowner Protection Act of 2007 have, by far, the greatest effect on residential construction disputes. Several Colorado home-rule cities have adopted their own ordinances governing construction defect claim procedures, but the validity of such ordinances is hotly disputed given Colorado's pre-existing, comprehensive statutory scheme. For further discussion of these ordinances, see § 2.2.6, "Construction Defect Municipal Ordinances."

§ 2.2.1—Colorado's Construction Defect Action Reform Act (CDARA)

Beginning in 2001, Colorado began adopting legislation regulating construction defect litigation in the form of the Construction Defect Action Reform Act (CDARA I).¹² The General Assembly significantly amended CDARA in 2003 (CDARA II),¹³ in 2007 with the Homeowner Protection Act (HPA),¹⁴ in 2010 with the Construction Professional Liability Insurance Act,¹⁵ and again in 2017 (CDARA III).¹⁶ Much of this legislation constitutes rough compromises between builder and homeowner interests, and includes last-minute amendments to proposed house and senate bills intended to supplant or supplement years of developed common law. Few appellate decisions interpret these laws, and they continue to raise many unanswered questions. Some home-rule cities have adopted local ordinances that may, if not preempted by state laws like CDARA, overlap and conflict with CDARA, especially its notice of claim process. See "Preemption Issues" in § 2.2.6.

For an extensive discussion of CDARA I, see Sandgrund, Sullan & Achenbach, "The Construction Defect Action Reform Act."¹⁷ Summaries of CDARA I and CDARA II follow immediately below. For a discussion of the HPA, see § 2.2.3, "Colorado's Homeowner Protection Act of 2007 (HPA)." At least 30 states have adopted construction defect "reform" measures similar to CDARA, and these states' developing case law may provide guidance when interpreting Colorado law.¹⁸

The Construction Defect Action Reform Act of 2001 (CDARA I)

In response to concerns over a spate of complicated multi-party lawsuits involving purely "technical," de minimus deviations from building codes without any resulting injury, builders, insurers, and homeowners negotiated and drafted the Construction Defect Action Reform Act (CDARA I). CDARA I applies to actions filed on or after August 8, 2001. CDARA I's purpose is "streamlining construction defect litigation" and limiting "shot gun" lawsuits.¹⁹

List of Defects, C.R.S. § 13-20-803

CDARA I requires claimants to file an initial list of construction defects within 60 days of bringing suit (longer, if the court allows).²⁰ A case cannot be set for trial until the claimant has filed and served the list.²¹ Third-party claimants must file a similar list.²² The list should contain a general, not detailed, summary of the alleged problems based on any information available before discovery begins, and may be amended to identify other defects as they become known.²³ This mandatory disclosure applies to both residential and commercial construction, and is not intended to be a trap for the dismissal of a valid lawsuit. There does not appear to be any impediment to satisfying the defect list requirement by describing adequately the defects within a pleading, such as a complaint, cross-claim, or third-party complaint, without filing a separate defect list.²⁴

Limits on Certain Negligence Claims, C.R.S. § 13-20-804

CDARA I prohibited a party from bringing a negligence claim arising solely from the failure to construct residential (but not commercial) property in substantial compliance with a building code or standard of care unless such failure results in (1) actual or probable damage to, or the loss of use of, property; or (2) bodily injury, death, or a risk or threat to the life, health, or safety of the occupants of the property. CDARA II expanded this limitation to include commercial property and requires actual, not merely probable, damages or loss of use.²⁵ This limitation on negligence claims, which does not apply to other tort claims (such as misrepresentation), contract or warranty claims, or claims arising from the violation of a law other than a building code, is narrowly focused on claims where the only wrong is the negligent violation of a building code with no actual loss or actual or threatened injury.²⁶ One Colorado district court held that CDARA's "actual damages" limitation did not bar a claim arising from an alleged negligent failure to build in accordance with the plans and specifications where expert testimony established that the failure impaired the structural capacity of the walls, raising a question of fact whether such defect presented a threat to the occupants' health and safety.²⁷ Another district court carefully parsed the plaintiff's claims, awarding damages only on negligence claims falling within C.R.S. § 13-20-804's exceptions, and on breach of warranty claims (which the statute also exempts from its limitations).²⁸

Practice Pointer: Expert Testimony Under CDARA
Prudent property owners should have their property damage experts causally connect any "defects" or "deficiencies" they observe to "resulting, actual damage to a part of a home" or to a "resulting, actual loss of the use of part of the home," or words to this effect.²⁹ Property owners may argue, in the alternative, that CDARA's "actual damage/loss of use" requirement is met if (1) the defect itself constitutes actual damage to or a loss of use of real property; (2) the claim relates to a failure to comply with the design professional's recommendations or plans and specifications, and not simply a failure to comply with an applicable building code or industry standard; or (3) the expert's damage opinions relate to warranty, misrepresentation, or statutory claims that are excluded from CDARA's "actual damage/loss of use" limitations. Property owners may also argue, in the alternative, that the expert's suggested repair constitutes part of an effort to "mitigate" other, qualifying property damage or loss of use of property. The efficacy of these various arguments remains to be tested in the courts. One Colorado district court held, on the facts before it, that whether actual damage existed was a jury question, and "every square inch of the home" need not be tested to support an actual damages finding.³⁰

Changes to Statutes of Limitations, C.R.S. § 13-80-104

Before CDARA I, the Colorado Court of Appeals construed the statute of limitations for indemnity and contribution claims arising from construction of real property improvements to be triggered when the defect manifests. However, this "may bar an indemnitee's cause of action even before the indemnitee's liability for compensation is finally determined and before the indemnitee makes any payment for the loss."³¹ Due, in part, to the potential unfairness of this rule, and the growing practice of many builders to "protectively" sue numerous potentially liable third-party subcontractors at the beginning of a construction defect lawsuit, CDARA I amended this aspect of the statute of limitations. The amendment, C.R.S. § 13-80-104(1)(b)(II), provides that a claim against a person who is or may be liable to the claimant for all or part of the claimant's liability to another person, including claims for indemnity or contribution, shall arise upon settlement or entry of a final judgment on the claimant's liability to the other person, and shall be brought within 90 days of such settlement or judgment.³²

Initially, the Colorado Court of Appeals interpreted this amendment narrowly, holding C.R.S. § 13-80-104(1)(b)(II) tolled the two-year statute of limitations during a construction defect lawsuit, but not the six-year statute of repose.³³ The court also held that subsection 104(1)(b)(II) applied only to claims brought in a separate lawsuit after settlement or judgment, rendering the amended statute ineffective to completely solve the unfairness problem described above.³⁴ Construction professional claimants used other means to mitigate the effects of these early cases, such as: (1) upon receipt of a notice of claim, sending their own notices of claim to each of their subcontractors, tolling the limitations period during the notice of claim process; (2) seeking tolling agreements with subcontractors; and (3) waiting to file indemnity or contribution claims until after resolution of the underlying claims against them.³⁵

Overruling the Colorado Court of Appeals decisions discussed in the paragraph above, in Goodman v. Heritage Builders, Inc., the Colorado Supreme Court held that C.R.S. § 13-80-104(1)(b)(II) renders timely third-party claims brought during construction defect litigation or within 90 days following a judgment or settlement, irrespective of both the two-year statute of limitations and six-year statute of repose.³⁶ (The Colorado Supreme Court had previously held, in a separate case, that C.R.S. § 13-80-104(1)(b)(II) is not a "ripeness" provision, and does not bar cross-claims and third-party claims for indemnity and contribution brought before settlement or judgment.³⁷ )

In Fire Insurance Exchange v. Monty's Heating & Air Conditioning, the Colorado Court of Appeals held that a...