Colorado Legislature Kills SB 20-138 – A Bill to Extend Colorado’s Statute of Repose

Dave McLain | Colorado Construction Litigation

As previously reported, SB 20-138, “Concerning Increased Consumer Protection for Homeowners Seeking Relief for Construction Defects,” would have extended the Colorado statute of repose applicable to construction defect claims.  Senate Bill 20-138, if enacted, would have:

  1. Extended Colorado’s statute of repose for construction defects from 6+2 years to 10+2 years;
  2. Required tolling of the statute of repose until the claimant discovers not only the physical manifestation of a construction defect, but also its cause; and
  3. Permitted statutory and equitable tolling of the statute of repose.

Now that the legislature is back in session, it will be a shortened session because of Covid-19 and, other than dealing with budget shortfalls, it seems like any bills that are not free, fast, and easy to pass will likely die in this year’s session.  Perhaps in line with this thinking, Senator Robert Rodriguez, opted to kill Senate Bill 20-138.  On second reading in the Senate on May 28th, the bill was laid over until December 31st, effectively killing the bill.  While the battle may be over for this year, rest assured it will be back in the future as plaintiffs’ attorneys seek to attach recent construction defect reforms. 

The Moving Finish Line: Statutes of Limitation and Repose Are Not Always What They Seem

Kenneth E. Rubinstein and Nathan Fennessy | Construction Executive

Having an end date for risk is important to construction professionals who need to know when they can close their books and destroy files relating to old projects. While professionals typically look to the statute of limitations and repose, these deadlines can sometimes be harder to determine than one might think. 

STATE LAWS PROHIBITING ALTERATION OF STATUTES OF LIMITATION

Many contractors seek to control the extent of their risk by negotiating the length of their liability period. In some instances, contractors may seek to shorten the statute of limitations to protect against stale claims. While in other instances, owners periodically negotiate for longer periods to ensure that they will not be time barred from pursuing valid claims. While the majority of states enforce such contractual provision, a number of states hold such clauses unenforceable. In these instances, the state’s original statute of limitations will apply regardless of what the contract says. 

QUESTIONS OF WHETHER STATUTES OF REPOSE APPLY TO ARBITRATION

As the construction industry has moved to binding arbitration to resolve disputes, many contractors may have assumed they would continue to enjoy the benefits of state statutes of repose that fix the end date for a contractor’s liabilities in those proceedings. Unfortunately, some contractors have learned the hard lesson that state statutes of repose (and statutes of limitation) do not always apply in arbitration. Indeed, only a few states – e.g. New York, Georgia and Washington – have statutes that specifically subject arbitration claims to the same time limitations for the commencement of actions as if the claim had been brought in court, and the majority of states have not yet addressed this question. 

The overwhelming majority of courts considering the issue (including courts in California, Connecticut, Idaho, Indiana, Maine, Massachusetts, Minnesota, North Carolina, Ohio and Washington) have determined that the time limitations set forth in a statute of repose or statute of limitations do not apply to arbitration. The only exception that the authors are aware is Florida where the Florida Supreme Court determined in Raymond James Financial Services, Inc. v. Phillips, 126 So. 3d 186 (Fla. 2013) that arbitration constituted a “civil action or proceeding” and therefore met the definition of “action” set forth in Florida’s statute of limitation. 

INCONSISTENT LAWS REGARDING APPLICATION OF TIME LIMITS UPON PUBLIC OWNERS

Public owners (including the federal government, as well as some cities, states and state agencies) often have an infinite time within which to bring a civil action. The basis for this immunity from statutes of limitations is the old English common law doctrine, “nullum tempus occurrit regi”– literally, no time runs against the King–which purports to exempt some public owners from statutes of limitations of general applicability unless statutes expressly provide otherwise. The federal government always has this protection. Accordingly, the statute of limitations won’t prevent the federal government from filing suit even decades after construction is complete. The picture is far less clear, however, with states and municipalities, as different states take different approaches to the issue. Some states reject the doctrine, other states allow the state alone to exercise the doctrine, while others allow the state, state agencies and even municipalities to benefit. 

Unfortunately, determining the end date for liability can be more difficult than simply reviewing the applicable statutes of limitation and repose. Contractors who perform work in more than one state, or who do both private and public work, should review the rules carefully before closing their books.

Parties’ Agreement Doesn’t Pull the Trigger on California’s Statute of Repose

William Boerler | The Subrogation Strategist

In Hensel Phelps Constr. Co. v. Superior Court, 257 Cal. Rptr. 3d 746 (Cal. Ct. App. 2020), the Court of Appeals of California, Fourth Appellate District, addressed whether a party’s contractual definition of the phrase “substantial completion” controlled the trigger date for California’s construction-related statute of repose, Cal. Civ. Code § 941(a). The Fourth District held that the agreement between the condominium owner and developer for Smart Corner Condominiums and the general contractor, Hensel Phelps Construction Co. (Hensel Phelps) – which determined the date of “substantial completion” for the construction project – did not control when the statute of repose started to run.

As set forth by the court, Hensel Phelps signed a prime contract with the owner and developer of a project that included a residential condominium tower. The prime contract required several items before the parties could consider the project substantially complete. Among the requirements was that the project be at the stage where the work was sufficiently complete to allow lawful occupancy and the architect on the project issued a certificate of substantial completion. The architect signed the certificate of substantial completion on May 24, 2007. The City of San Diego, however, continued to issue certificates of occupancy after that date.

On July 6, 2017, Smart Corner Condominium Association (Smart Corner), who was not in privity with Hensel Phelps, gave notice to Hensel Phelps of its construction defect claim, alleging numerous defects. After Hensel Phelps declined to participate in the pre-litigation dispute resolution process set forth in California’s Right to Repair Act, Cal. Civ. Code § 895 et. seq., Smart Corner filed suit against Hensel Phelps. During the litigation, Hensel Phelps filed a motion for summary judgment arguing that, as set forth in the prime contract, the statute of repose began to run on May 24, 2007, when the architect issued its certificate of substantial completion. The trial court denied Hensel Phelps’ motion. Subsequently, Hensel Phelps filed a writ of mandate, asking the appellate court to order the trial court to vacate its order.

On appeal, the court rejected Hensel Phelps’ request that the court interpret the phrase “substantial completion” using a bright line rule, as determined by the parties in their private contract. As noted by the court, the date of substantial completion is an objective fact about the state of construction of an improvement and is a statutory standard, not a contractual one. Finding that private parties cannot confer on themselves the ability to determine when the limitations period begins to run, particularly with respect to another party’s claim, the appellate court denied Hensel Phelps writ.

The Hensel Phelps decision serves as a reminder that subrogation practitioners considering filing suit in an older construction litigation case need to carefully analyze when a construction statute of repose referencing “substantial completion” starts to run. As noted in Hensel Phelps, the answer does not necessarily depend with how the building contract determines the date of “substantial completion.”

Georgia House Bill Addresses Construction Statute of Repose

Jason Gropper | Autry, Hall & Cook

On March 2, 2020, by a unanimous vote, the House passed HB 968.  This Bill seeks to clarify which civil actions are subject to Code Section 9-3-51, which is the eight-year statute of repose for deficiencies in connection with improvements to realty.  If passed by the General Assembly, it would explicitly state that the statute of repose will not apply to breach of express warranties.  If the Bill is passed, O.C.G.A § 9-3-51 would include a subsection that provides: “This Code section shall not apply to actions for breach of contract, including, but not limited to actions for breach of express contractual warranties.” 

This Bill arises from the October 2019 Court of Appeals decision in Southern States Chemical v. Tampa Tank, which we covered in a prior post.  Southern States argued the statute of repose did not apply to claims for breach of express warranty, especially to long-term warranties that extend well beyond the eight-year statute of repose.  The Court of Appeals did not agree and, instead, held that when a statute’s text is clear and unambiguous, the court will apply the plain meaning.  Therefore, the court declared that the claims of Southern State were barred under O.C.G.A § 9-3-51(a).  HB 968 seeks to negate this court ruling.  

Potential Extension of the Statutes of Limitation and Repose for Colorado Construction Defect Claims

David McLain | Colorado Construction Litigation

On January 27th, Senator Robert Rodriguez introduced SB 20-138 into the Colorado Legislature.  The bill has been assigned to the Senate Judiciary Committee and has not yet been scheduled for its first hearing in that committee.  In short, Senate Bill 20-138, if enacted, would:

1)      Extend Colorado’s statute of repose for construction defects from 6+2 years to 10+2 years;

2)      Require tolling of the statute of repose until the claimant discovers not only the physical manifestation of a construction defect, but also its cause; and

3)      Permit statutory and equitable tolling of the statute of repose.

Colorado’s statute of repose for construction defect claims are codified at C.R.S. § 13-80-104.  In 1986, the Colorado Legislature set the statute of repose period at 6+2 years.  For the last 34 years, Colorado’s statute of repose for owners’ claims against construction professionals has been substantially the same, to wit:

(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.

(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.

C.R.S. § 13-80-104.

The language of SB 20-138 would amend these sections to read:

(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 MUST be brought within the time provided in section 13-80-102 after the claim for relief arises, and not thereafter LATER, but in no case shall such MAY an action be brought more than six TEN years after the substantial completion of the improvement IMPROVEMENTS to the real property, except as provided in subsection (2) of this section.

(2) In case IF any such cause of action DESCRIBED IN SUBSECTION (1) OF THIS SECTION arises during the fifth NINTH or sixth TENTH year after substantial completion of the improvement IMPROVEMENTS to real property, said THE action shall MUST be brought within two years after the date upon which said THE cause of action arises.

It cannot be overstated what a devastating effect this would have on the ability of builders to provide affordable or attainable housing in Colorado.  Such a shock to the system would make insurers shy away from insuring projects more than they already do.  With the hardening of the insurance market as it is, this would certainly not help the housing crisis in Colorado.

With respect to the accrual of construction defect claims, Senate Bill 138 would change Colorado law as follows:

(b) (I) Except as otherwise provided in subparagraph (II) of this paragraph (b) SUBSECTION (1)(b)(II) OF THIS SECTION, 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 BOTH the physical manifestations AND THE CAUSE of a defect in the improvement which THAT ultimately causes the injury.

Enactment of this section would legislatively overturn a long line of Colorado Appellate Court decisions, including Highline Village Assocs. v. Hersh Cos., 996 P.2d 250, 253 (Colo. App. 1999) (holding, “under the contractors’ statute, a claim accrues when a physical manifestation of a defect appears, even though its cause is not known at that time.”); United Fire Group v. Powers Elec., Inc., 240 P.3d 569, 572 (Colo. App. 2010) (stating, “we also conclude that it was not necessary to know that the defect caused the fire for the fire to be the defect’s physical manifestation.”), and; Broomfield Senior Living Owner, LLC v. R.G. Brinkmann Co., 413 P.3d 219, 226 (Colo. App. 2017) (“Accrual under CDARA, therefore, depends on the discovery of the manifestation of the defect and not its cause.”) (emphasis in the original).

Finally, with respect to equitable tolling of the statute of repose, Senate Bill 138 inserts a section, which reads:

(3) The limitations provided by this section:

(a) ARE SUBJECT TO BOTH STATUTORY AND EQUITABLE TOLLING;

There are several statutes that may toll the statute of repose, including C.R.S. 13-80-104(3), which this bill would amend to read:

(3) The limitations provided by this section:

*          *          *

(b) Shall MAY 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 THE improvement constitutes the proximate cause of the injury or damage for which it is proposed to bring an action.

Colorado’s Common Interest Ownership Act also provides for statutory tolling for claims brought under C.R.S. § 38-33.3-311(1), which states, in pertinent part: “Any statute of limitation affecting the association’s right of action under this section is tolled until the period of declarant control terminates.”  While it is hard to conceive of a claim that would arise under this section arising out of a construction defect claim, it may be theoretically possible.

In any event, the fact that Senate Bill 138 seeks to provide for equitable tolling is a frontal assault on the Colorado Supreme Court, which previously did away with the repair doctrine, a form of equitable tolling, by stating: “”equitable tolling is not permissible where it is inconsistent with the text of the relevant statute.”  Smith v. Exec. Custom Homes, Inc., 230 P.3d 1186, 1191-1192 (Colo. 2010).  The Court concluded on this issue, stating: “equitable tolling pursuant to the repair doctrine is inconsistent with the CDARA [the Construction Defect Action Reform Act, C.R.S. § 13-20-801, et seq.] because the CDARA already provides an adequate legal remedy in the form of statutory tolling of the limitations periods under specific and defined circumstances, including during the time in which repairs are being conducted.”  Id.

It remains to be seen whether this bill gets legs at the state legislature, stay tuned in that regard.  Between this and SB 20-093, previously discussed, it appears that after quiet session in 2019, the plaintiffs’ lawyers are back at the Colorado State Capitol, with a vengeance, seeking their laundry list of legislative changes to open the tap for construction defect litigation.  Will one-way attorneys’ fees provisions and uncapping the treble damage component of the Colorado Consumer Protection Act be next?  I hope not, but this legislative session is certainly starting off with a bang.