The Scope of CDARA Potential Time and Place Limitations, 0321 COBJ, Vol. 50, No. 3 Pg. 30
| Author | BY RONALD M. SANDGRUND AND LESLIE A. TUFT |
| Position | Vol. 50, 3 [Page 30] |
CONSTRUCTION LAW
BY RONALD M. SANDGRUND AND LESLIE A. TUFT
This article examines whether Colorado's Construction Defect Action Reform Act applies to all construction defect claims or whether it contains inherent time and place limitations.
Colorado's Construction Defect Action Reform Act (CDARA)[1] expressly applies to defined legal actions, claims, potentially liable parties, and activities. While it does not include explicit time or place limitations, certain circumstances give rise to the question whether such limitations are inherent in the statutory scheme. For example, does CDARA apply to construction defects observed early in the construction process, before the work-in-progress becomes a substantially completed real property improvement? And does CDARA apply to construction defects located on one property that cause damage or injury on another property? This article explores these two questions, which continue to bedevil lawyers and their clients.
The Scope Problem
Because CDARA's scope is currently debatable, practitioners face uncertainty when analyzing and pursuing certain claims.
For example, consider a multistory residential structure whose owner notices a potential construction defect during its early construction. The subcontractor denies the work is defective, arguing that the plans are not clear. The architect responds that the plans are clear and, even if they are not, industry custom and practice informed the subcontractor how to build the disputed detail. Is the owner required to initiate CDARA's 75-day notice of claim process (NCP)2 before beginning repairs or otherwise face waiving its right to recover the cost to repair the defect? If the disputed work must be corrected before other significant work commences, must that other work be delayed at significant cost while the NCP proceeds? What if the subcontract provides its own notice and repair process and time line? While the owner hashes out these issues with its lawyers, interest accrues on the owner's construction loan and winter fast approaches, threatening the construction's tight time line. Now consider a grass fire caused by a construction defect in an outbuilding that spreads to a neighbor's house, or an underground waterline leak beneath a home that migrates below a neighbor's house. Each of these defects causes serious damage to the neighboring property, but not to the property where the defect is located. Must the injured neighbors initiate CDARA's 75 -day NCP to preserve their legal rights? If so, how do they learn the names of the potentially responsible parties on whom to serve their notice of claim and describe in reasonable detail the nature of the construction defect as CDARA requires? Can the injured claimants force the other house's owner to allow the potentially responsible parties access to the owner's property to inspect the alleged defects as CDARA requires? If the grass fire or water leak occurs on defectively constructed property worth $250,000, but destroys a neighbor's property worth $750,000, could the destroyed property owner's actual damages be capped at the fair market value of the defective property as CDARA seems to provide? What rational connection exists between that damages cap and the resulting harm?
Actions, Claims, Persons, and Activities Subject to CDARA
CDARA defines an "action" as "a civil action or an arbitration proceeding for damages, indemnity, or contribution brought against a construction professional to assert a claim ... for damages or loss to, or the loss of use of, real or personal property or personal injury caused by a defect in the. design or construction of an improvement to real property"[3] It defines a "claimant" as "a person . . . who asserts a claim against a construction professional that alleges a defect in the construction of an improvement to real property"[4] And a "construction professional" is
an architect, contractor, subcontractor, developer, builder, builder vendor, engineer, or inspector performing or furnishing the design, supervision, inspection, construction, or observation of the construction of any improvement to real property. If the improvement to real property is to a commercial property, the term "construction professional" shall also include any prior owner of the commercial property, other than the claimant, at the time the work was performed.5
Finally, CDARA's legislative declaration states that it applies to "actions claiming damages, indemnity, or contribution in connection with alleged construction defects”[6]
Thus, at first blush, it appears that CDARA applies to any claim against a construction professional seeking damages in connection with, or caused by, a real property improvement construction defect. However, this conclusion runs up against other parts of CDARA that suggest reasonable limitations on such a broad reading. While Colorado's appellate courts have not yet defined the contours of CDARA's scope, its district courts have reached divergent conclusions.
Must the Construction Defect Exist in a Substantially Completed Real Property Improvement for CDARA to Apply?
The question of substantial completion has significant implications. Halting a construction project midstream for a minimum of 75 to 907 days to satisfy CDARA's NCP each time a dispute regarding defective construction work arises may cause enormous delays, interest charges, consequential losses, and other problems. CDARA's "actual damages" limitation precludes many common law damages recoveries, which likely include consequential damages for delays, loan interest, and other resultant losses.8 Thus, stalling construction for 75 to 90 days each time a defect dispute arises during construction could cause a significant imbalance between a claimant's actual financial losses and a construction professional's potential liability. Substantially and timely completing the construction work greatly minimizes the specter of delay damages, liquidated damages, accruing loan interest, and other consequential damages compounded during one or more NCPs and restores some of the balance.
To date, Colorado district court decisions seem to recognize this potential imbalance, but they have struggled to reconcile those portions of CDARA's apparently plain statutory language that render it applicable to work-in-progress claims with this perceived unfairness in potential remedies. Nevertheless, in holding that the real property improvement statute of limitations may bar a personal injury claim even before the claimant suffers the injury, the Colorado Supreme Court has noted that "a harsh or unfair result will not render a literal interpretation absurd."9
Conflicting District Court Rulings
Two district courts have held that CDARA's NCP applies to claims against a construction professional arising during the course of construction, while a third district court reached the opposite conclusion. In Thone v. Favela, the plaintiff-homeowner acted as his own general contractor.10During the course of construction, he sued a subcontractor, among others, for alleged construction defects. The district court stayed the claims against the subcontractor because the plaintiff did not complete the NCP before filing suit. The court rejected arguments that CDARA's NCP only applies to substantially completed work and complying with the NCP mid-construction would be impractical. The court also found that purported conflicts between the NCP and the parties' contract did not change the result.
In RJB Development, Inc. v. Saylor, the plaintiff-homeowners fired their contractor before the contractor's work was complete and hired a new contractor to correct alleged substandard work.11 The district court held that CDARA'S NCP applied to claims arising from substandard work, but not to claims for overpayment, as the latter did not arise from alleged defective construction.12 The court also held, however, that the NCP's timetable may be equitably shortened where "urgent" action is necessary to prevent further damage.13 The court reserved the right upon presentation of evidence at a bench trial to fashion other equitable remedies for defective work repaired before the NCP was completed, including pursuant to damages mitigation and evidentiary spoliation doctrines.14
In contrast, in Harvey v. Fletcher, the district court refused to stay a construction defect lawsuit for failure to complete CDARA's NCP, holding that it "does not apply to projects where construction has not reached substantial completion at the time deficiencies are discovered."15 The court stated that because the defendants had "abandoned the Project here long before substantial completion, CDARA does not apply... "16
Analyzing CDARA
Various CDARA provisions offer some direction regarding whether CDARA applies to certain work-in-progress claims.
The "ordinary warranty service" carve-out. Some construction professionals argue that CRS § 13-20-807's exception from the NCP for "ordinary warranty service" means CDARA does not apply to typical on-site construction contract disputes. Section 807 provides that CDARA is "not intended to abrogate or limit the provisions of any express warranty or the obligations of the provider of such warranty," and it "shall not be deemed to require a claimant who is the beneficiary of an express warranty to comply with the notice provisions of section 13-20-803.5 to request ordinary warranty service in accordance with the terms of such warranty."17 A "warranty" is a contractual promise.18"Ordinary" means "of a kind to be expected in the normal order of events."19Thus, "ordinary...
To continue reading
Request your trial