Construction Defect Statutes of Limitation and Repose Update Part 2, 0121 COBJ, Vol. 50, No. 1 Pg. 30

• Author: BY RONALD M. SANDGRUND AND JOSEPH F. “TRIP” NISTICO III
• Position: Vol. 50, 1 [Page 30]

50 Colo.Law. 30

Construction Defect Statutes of Limitation and Repose Update Part 2

Vol. 50, No. 1 [Page 30]

Colorado Lawyer

January, 2021

CONSTRUCTION LAW

BY RONALD M. SANDGRUND AND JOSEPH F. “TRIP” NISTICO III

This article examines significant changes in and clarifications to the law since 2005 interpreting and applying Colorado's real property improvement statutes of limitation and repose. This Part 2 discusses the application of these statutes to design flaws; negligent repairs; repair warranties; and indemnity, contribution, and other reimbursement claims. It also addresses the effect of Colorado's Construction Defect Action Reform Act, Homeowner Protection Act, and tolling and estoppel doctrines on these statutes, and constitutional concerns with applying the statutes.

This article examines significant changes in and clarifications to the law since 2005 that interpret and apply CRS § 13-80-104's real property improvement statutes of limitation (RP-SOL) and repose (RP-SOR).¹ This Part 2 discusses the application of these statutes to design flaws; indemnity, contribution, and other reimbursement claims; negligent repairs; and repair warranties. It considers the effects of Colorado's Construction Defect Action Reform Act (CDARA), the Homeowner Protection Act (HPA), and tolling and estoppel doctrines on the RP-SOL and RP-SOR. Finally, it examines lingering constitutional concerns in applying the RP-SOL and RP-SOR.²

Design Flaws

The RP-SOR begins to run upon "substantial completion of the improvement to the real property."³ While the RP-SOR applies to defectively designed improvements, no Colorado court has yet held that merely preparing a design constitutes part of the construction of an improvement to real property. Applying the RP-SOR to design professionals raises a peculiar concern because a design may not be implemented and tested until long after the design services were performed.

It would be practically impossible for a design deficiency to manifest until the defectively designed element was substantially completed and put to its intended use. Thus, a defective design may lie dormant for an extended time while the developer lines up financing, contractors, and permitting. For example, where a design professional provided no services beyond creating a proposed geotechnical, structural, or architectural design, the repose period might not begin to run until years after the design services were performed.

Accordingly, design professionals facing a claim may be expected to argue that the repose period begins to run upon completion of their plans, regardless of when the plans were put to use. On the other hand, property owners may argue that, had the legislature intended for the repose period to begin as to architects when the plans are completed for "work done or to be done," it would have specified that as the trigger, as it did in the mechanics' lien statute for triggering the lien's attachment.⁴ They may also argue that the repose period does not begin to run, at the earliest, until some tangible construction utilizing the design is substantially completed.⁵ Courts may agree with one of these positions or conclude that design activity alone does not constitute part of an improvement to real property and the RP-SOR does not apply.

Indemnity, Contribution, and Other Reimbursement Claims

The RP-SOL and RP-SOR applicable to indemnity, contribution, and similar claims provides, in pertinent part:

(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 he brought within ninety days after the claims arise, and not thereafter.[⁶

Before Colorado's legislature added this portion of the RP-SOL and RP-SOR in 2001, Colorado construed its real property improvement statute of limitations, when applicable to indemnity and contribution claims, to begin to run when the defect that gave rise to such claims first manifested.⁷ This meant that a party's indemnity claim could be time-barred even before that party was served, its primary liability was determined, or it paid any part of the loss.⁸

To eliminate the potential unfairness of this rule and to reduce the growing practice of many builders who "protectively" sue all potentially liable third-party subcontractors upon commencement of a suit against the builder, CDARA amended the RP-SOL and RP-SOR to establish a separate statute of limitations for indemnity and other reimbursement claims.⁹ This amendment 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 arises at the time of the settlement of or entry of final judgment on the claimant's liability to the other person.¹⁰ Such claims must be asserted within 90 days of the settlement or final judgment,[¹¹ or as timely asserted cross- or third-party claims within the pending lawsuit.¹²

In the first of two Colorado Supreme Court decisions construing this provision, the Court held that the RP-SOL amendment is not a "ripeness" provision that bars cross-claims and third-party claims for indemnity and contribution in a construction defect lawsuit before settlement or judgment.¹³ In the second decision, the Court held that the phrase "notwithstanding the provisions of § 13-80-104(1) (a)" precludes application of both the RP-SOL and RP-SOR to indemnity, contribution, and other reimbursement claims.¹⁴ Instead, such claims may be timely asserted within 90 days of settlement or a final judgment in the underlying suit.¹⁵ CRS § 13-80-104(1)(b)(II) only applies to claims made by construction professionals.¹⁶

Negligent Repairs

Negligent repairs raise unique RP-SOL and RP-SOR issues. To date, the Colorado Supreme Court has not determined when or whether the RP-SOL and RP-SOR apply to claims a rising from negligent repair of a real property improvement. CRS §13-80-104 does not mention "repair,"¹⁷ nor do the general negligence or other statutes of limitations.¹⁸ To determine whether the RP-SOL and RP-SOR apply to negligent repair claims, courts must first answer the threshold question of whether the repairs constitute the "construction of an improvement to real property" within the meaning of CRS§ 13-80-104.¹⁹ If not, claims for defective repairs will be subject to other statutes of limitations such as for negligence, contract, or warranty claims.

"Construction of an Improvement to Real Property"

In Highline Village Associates v. Hersh Companies, the Colorado Court of Appeals held—in a decision later reversed on other grounds—that some repairs constitute "the construction of an improvement" to real property subject to CRS§ 13-80-104.²⁰There, the Court found that repainting an existing structure as part of a renovation amounted to construction of an improvement to real property.

In Smith v. Executive Custom Homes, Inc., the Colorado Supreme Court indicated support for this approach in dicta.²¹ The Court noted with approval that Highline Village "defined the phrase 'construction of an improvement to real property' to mean 'where the result of the construction is a product that is essential and integral to the function of the construction project.'"²² This lends support to the conclusion that some repairs may constitute a real property improvement if the result of the repair is integral and essential to the property's use or function. Smith suggested a repair that meets this definition might "commenc[e] a new limitations period from the date the defective repair was first noticed or should have been noticed."²³

It follows that if a repair involves a component that is not "essential and integral to the function of the construction project," the RP-SOL and RP-SOR would not apply to the work because the activity would not qualify as the construction of an improvement to real property. Smith, however, declined to address whether the defendant's gutter repair constituted construction of an improvement to real property, thereby commencing a new limitations period, because neither the plaintiffs nor the lower courts raised this argument in prior proceedings.²⁴

Repair Work Distinguished

The repairs at issue in Highline Village consisted of completely repainting the exterior of two apartment complexes as part of a renovation rather than "routine" repairs or a repair attempting to rectify defective work²⁵ Highline Village also held that CRS § 13-80-104 applied to a claim against the defendant for breach of a separate "warranty of repair" arising from the defendant's later, eventually abandoned, efforts to remedy the prematurely peeling paint²⁶ The Court of Appeals tolled the RP-SOL for claims concerning these later defective repairs, under the common law repair doctrine (discussed below), through the date the defendant a band one its repair efforts.²⁷

On appeal, the Colorado Supreme Court affirmed Highline Village in part and reversed it in part, holding that CRS§ 13-80-101(1)(a), not CRS § 13-80-104, governs a breach of a warranty to repair claim.²⁸ Because CRS § 13-80-101(1) (a) begins to run upon discovery of the breach of warranty, the Supreme Court noted that the Court of Appeals' resort to the repair doctrine was unnecessary to render the claim timely.²⁹ The Supreme Court overturned Highline Village's second holding—that the attempt to repair the defective renovation work tolled the...