Colorado’s Abbreviated Legislative Session Offers Builders a Reprieve

David McLain | Higgins, Hopkins, McLain & Roswell

Would you believe me if I told you that this year could have been worse for builders? Had COVID-19 not hit, the Colorado Legislature may have passed bills that would have had a severely negative impact on the home building industry. In response to the COVID-19 pandemic, the Legislature temporarily adjourned in mid-March, 67 days into the 120-day legislative session. After a two-month recess, the Legislature returned for approximately one month to pass critical bills including the state budget, the school finance act and what to do with the money from the federal CARES Act. Of the bills on the calendar when the Legislature temporarily adjourned, legislators focused on those that were “fast, free, and friendly,” and let the others fall by the wayside. 

Bills that died included SB 20-138, which would have extended Colorado’s statute of repose for construction defect claims from six plus two years to 10 plus two years. The bill also contained a number of accrual and tolling provisions, which would have made it harder for builders to convince tribunals that claims were untimely. This bill died on the Senate floor, for lack of support. We will see whether plaintiffs’ attorneys will revive this effort next year. 

SB 20-093, while not an outright ban on arbitration or a legislative overturning of the Vallagio decision, would have made it harder to administer and more difficult to get cases into arbitration. The bill died under the “fast, free, and friendly” test, i.e., it faced too much opposition. I expect to see this bill again next year, in some form.

HB 20-1046 would have limited retainage to 5% on certain construction contracts. The bill also included requirements on timing of payments, interest on late payments, and attorneys’ fees and costs to be awarded to those who sued for late or non-payment. The bill died in committee prior to the COVID-19 recess in the face of opposition from owners’ groups. It remains to be seen whether this bill will be rerun next year.

The Legislature did pass a number of bills that will impact the home building community. Among them, HB 20-1155 will require, once it goes into effect, home builders to offer: a solar panel system, a solar thermal system or both; prewiring or pre-plumbing for the solar systems; and a chase or conduit for future installation of such systems. The bill will further require builders to offer: an electric vehicle charging system; prewiring for the future installation for such a system; or a plug-in receptacle in a place accessible to a vehicle parking area. Finally, the bill will require builders to offer electrical heating systems.

Buckle up for next year when some or all of the unsuccessful bills from this year return, and the plaintiffs’ bar takes another crack at the home building industry.

Colorado General Assembly Sets Forth Prerequisites for an Insurance Company to Use Failure to Cooperate as a Defense to a Claim for First Party Insurance Benefits

Christine Kroupa, John Palmeri and Katelyn Werner | Insurance Coverage Law Blog

Despite first party insurance policies generally requiring cooperation from an insured in the investigation of a claim, insurers can no longer rely on the failure to cooperate as a defense in a claim for first party insurance benefits in Colorado unless certain conditions are met.

The Bill:

On July 2, 2020, Colorado Governor Jared S. Polis signed House Bill 20-1290 which addresses the ability of an insurer to use a failure to cooperate defense in an action where the insured has made a claim for benefits under an insurance policy. This bill bars an insurer from raising the failure to cooperate unless the following conditions are met:

  • The insurer submitted a written request to the insured or the insured’s representative for the information (via electronic means if consent was given by insured or insured’s representative, or via certified mail);
  • The information is not available to the insurer without the assistance of the insured;
  • The written request provides the insured 60 days to respond;
  • The written request is for information a reasonable person would determine the insurer needs to adjust the claim filed by the insured or to prevent fraud; and
  • The insurer gives the insured an opportunity to cure, which must:
    • Provide written notice to the insured of the alleged failure to cooperate, describing with particularity the alleged failure within 60 days after the alleged failure; and
    • Allow the insured 60 days after receipt of the written notice to cure the alleged failure to cooperate.

A failure to cooperate defense acts as a defense to the portion of the claim materially and substantially prejudiced to the extent the insurer could not evaluate or pay that portion of the claim.

The duty to cooperate in a policy does not relieve the insurer of its duty to investigate or to comply with Colo. Rev. Stat. § 10-3-1104, the Unfair Claim Settlement Practices Act. Any language in a first-party policy that conflicts with this section is void as against Colorado public policy.

An insurer is not liable in a civil action based on a common law bad faith claim or under statutory violation of Colo. Rev. Stat. §§ 10-3-1115 and -1116 because the insurer provides the insured with the required amount of time to: (a) respond to the insurer’s written request with 60 days and (b) to cure the alleged failure to cooperate as required by the statute.

This act takes effect on September 14, 2020, except that if a referendum petition is filed against this act or an item, section, or part of this act within such period, then the act, item, section or part will not take effect unless approved by the people at the general election in the November 2020 election. In such case, it will take effect on the date of the official declaration of the vote by the governor.

Effect on Claims Handling:

Consistent with prior Colorado legal decisions, for an insurer to assert the failure to cooperate as a defense, the insurer must prove the insured failed to cooperate in some material and substantial respect and that the insurer was prejudiced. If these conditions were met, the insured forfeited his or her right to benefits under the insurance policy. This bill now requires an insurer to give written notice of a request for information, give the insured 60 days to respond, and the requested information must be information that a reasonable person would determine the insurer needs to adjust the claim or to prevent fraud. Further, the insurer must give the insured an opportunity to cure the failure to cooperate, including furnishing written notice of the failure to cooperate within 60 days of the alleged failure. These steps must be taken in advance of pleading a failure to cooperate defense in a court of law or an arbitration.

Attention must be paid to this bill as it will impact claims handling in first party insurance matters.

Colorado Legislative Update: HB 20-1155, HB 20-1290, and HB 20-1348

Jean Meyer | Colorado Construction Litigation

This year’s Colorado State Legislative session was cut short. However, in the period of time Colorado’s Legislature was in session, it passed and evaluated important legislation for Colorado homebuilders. This article highlights relevant legislation for Colorado homebuilders.

1.      HB 20-1155

This Bill creates new requirements on new homebuilders to offer renewable energy systems to the buyer of a new home. Specifically, the Bill requires homebuilders to offer each of the following:

  • A solar panel system, a solar thermal system, or both;
  • Prewiring or pre-plumbing for the above solar systems; and,
  • A chase or conduit for future installation of such systems.

The Bill further requires Colorado homebuilders to offer homebuyers one of the following:

  • An electric vehicle charging system;
  • Prewiring for the future installation for such a system; or, 
  • A plug-in receptacle in a place accessible to a vehicle parking area.

Colorado homebuilders must also offer a homebuyer an electrical heating system.

The Bill passed Colorado’s Legislature is currently awaiting signature of the Governor.

2.      HB 20-1290

This Bill sets forth additional requirements that an insurance carrier must prove in order to successfully plead a failure-to-cooperate defense in an action concerning an insurance policy providing first-party benefits or coverage. The conditions that must be present are the following.

  • The insurer submitted a written request to the insured for the requested information;
  • The information requested was necessary for litigation and was not available to the insurer without the assistance of the insured;
  • The insured was provided 60 days to respond;
  • The written request was for information a reasonable person would determine the insurer needed to adjust the claim filed by the insured or to prevent fraud; and
  • The insurer gave the insured an opportunity to cure within 60 days and provided notice to the insured within 60 days, describing, with particularity, the alleged failure to cooperate.

Additionally, the Bill does not relieve the insurer of its duty to investigate and any language in a policy that conflicts with this Bill is void.

The Bill passed the Colorado Legislature and is awaiting signature of the Governor.

3.      HB 20-1348

This Bill proposed expanding employer liability for the tortious actions of its employees. The Bill was in response to a 2017 Colorado Supreme Court decision which held that when an employer admits liability for the actions of its employee, the plaintiff cannot assert additional claims against the employer arising out of the same incident. The Bill intended to reverse the Colorado Supreme Court’s decision and allow a plaintiff, bringing a civil tort claim, to bring additional claims against an employer arising out of the same incident as the one involving an employee.

The consequence of the Bill would have been to prevent an employer from avoiding liability for negligent acts by admitting an employee was in the course and scope of employment when the tortious act was committed. 

Fortunately, for employers, the Bill failed to pass to the Colorado Legislature.

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. 

Don’t Conspire to Build a Home…Wait…What?

Ben Volpe | Colorado Construction Litigation

In 1986, the Colorado General Assembly enacted the Pro Rata Liability Act, codified at C.R.S. § 13-21-111.5, which eliminated joint and several liability for defendants in favor of pro rata liability.[1] The statute was “designed to avoid holding defendants liable for an amount of compensatory damages reflecting more than their respective degrees of fault.”[2] However, the following year, the Colorado legislature carved out an exception to preserve joint liability for persons “who consciously conspire and deliberately pursue a common plan or design to commit a tortious act.”[3] Because of this conspiracy exception, plaintiffs try to circumvent the general rule against joint and several liability by arguing that construction professionals defending construction defect cases were acting in concert, as co-conspirators. Plaintiffs argue that if they can prove that two or more construction professionals consciously conspired and deliberately pursued a common plan or design, i.e., to build a home or residential community, and such a plan results in the commission of a tort, i.e., negligence, the defendants may be held jointly and severally liable for all of the damages awarded.

Since 1986, Colorado courts have construed the “conspiracy” provision in § 13-21-111.5(4), but some have disagreed as to what constitutes a conspiracy for purposes of imposing joint liability.

Civil Conspiracy

In Colorado, the elements of civil conspiracy are that: “(1) two or more persons; (2) come to a meeting of the minds; (3) on an object to be accomplished or a course of action to be followed; (4) and one or more overt unlawful acts are performed; (5) with damages as the proximate result thereof.”[4]

With respect to the fourth element, Colorado adheres to the view that “[t]he gist of [a civil conspiracy] action is not the conspiracy charged, but the tort working damage to the plaintiff.”[5] In Contract Maintenance Co. v. Local No. 105, the Colorado Supreme Court stated “the purpose of the conspiracy must involve an unlawful act or unlawful means.”[6]

In Pinon Sun Condo. Ass’n, Inc. v. Atain Specialty Ins. Co., a condominium association hired a public adjuster for the claims process and a construction company to conduct estimates and repairs after the condominiums sustained hail damage.[7] After a dispute over the amount of the claims paid, the association sued the insurers for breach of contract, among other claims.[8] The insurers counterclaimed, alleging fraud and civil conspiracy against the association, the public adjuster, and the construction company.[9] In its Order Granting in Part and Denying in Part Motions for Summary Judgment, the court granted summary judgment in favor of the association, public adjuster, and construction company on the fraud claim because the insurers failed to prove one of the elements of fraud.[10] Noting that the fourth element of a civil conspiracy requires an unlawful overt act, the court also granted summary judgment in favor of the association, public adjuster, and construction company on the civil conspiracy claim because the insurer failed to prove fraud, which was critical to showing an unlawful overt act.[11] Thus, although the association, public adjuster, and construction company acted in concert with one another, no conspiracy existed because no unlawful act or unlawful means in furtherance of a conspiracy existed.

Conspiracy in the Construction Context

However, in construction defect cases, the fourth element of civil conspiracy is not so clear.

In Resolution Trust Corp. v. Heiserman, the Colorado Supreme Court opined that “although the execution of a common plan or design may in many circumstances not result in wrongful conduct causing injury or damages,” . . . it may in some circumstances result in a tort such as negligence, causing injury or damages.[12] Thus, joint and several liability may be imposed on two or more persons pursuant to C.R.S. § 13-21-111.5(4), even when the conspiracy results in the tort of negligence.

Although the language of Heiserman appears to say that one may “conspire” to be negligent and thus be held jointly and severally liable, trial courts will not equate lawful contracting to do construction and design work with tortious conspiracy, absent some other evidence of tortious conduct. Indeed, Heiserman held that for joint and several liability to be applied, the trigger for liability had to be based on something other than a breach of contract.[13] The following cases help define the contours of this issue.

Rivergate Lofts Condo. Owners Ass’n v. Rivergate Lofts Partners, LLP: A tort must be reasonably foreseeable to result from the agreement.

On a partial summary judgment motion regarding joint and several liability in a construction defect case, La Plata County District Court Judge David Dickinson concluded the Colorado Supreme Court’s discussion in Heiserman regarding whether an agreement must include intent to commit a tort is dicta.[14] Judge Dickinson further concluded “as a result of the agreement, it must at a minimum be reasonably foreseeable that the agreement will result in the commission of tortious acts in furtherance thereof.” Id. at *7. Thus, due to a lack of evidence of agreement to violate the building code in the design-build agreement, Judge Dickinson found no conspiracy existed and granted partial summary judgment in favor of the construction company defendant. Id.

Villas at La Campanella Property Owners v. Hunnahs, LLC et al.: Benign cooperation does not establish joint liability.

In another La Plata County case, on a defendant’s motion for determination of a question of law regarding joint and several liability, Judge William Herringer determined that construction defect defendants would not be held jointly and severally liable because the plaintiff homeowners association was unable to establish facts to show the defendants agreed, in any way, to engage in tortious conduct.[15] More specifically, the judge acknowledged that the plaintiff presented factual evidence that the defendants worked together and coordinated closely on the construction project. However, the judge stated:

[That defendants worked together] is unsurprising and would be expected for a project of this nature. However, the mere fact that there were cooperative efforts and communication is insufficient for the imposition of joint liability. While the Plaintiff does not need to show that the defendants had the “specific intent” to commit a tortious act, the Plaintiff must produce some evidence of a “common plan or design” that results in the commission of a tort. Benign cooperation with a tortfeasor does not make a defendant jointly responsible for the tortfeasor’s misconductOne who innocently, and carefully, does an act which happens to further the tortious purpose of another is not acting in concert with the other.”[16]

Polmer et al. v. Hi Point Home Builders LLC et al.: Lawful contracting to build a home is not in and of itself a C.R.S. § 13-21-111.5(4) conspiracy.

In Polmer v. Hi Point Home Builders, El Paso County District Court Judge William Bain also ruled on a motion to determine a question of law regarding joint and several liability in a construction defect case.[17] In this case, RMG engineers designed the grading and excavation plans for a new development, conducted soils testing, and provided the structural designs and observation and compliance services for construction of the homes.[18] Ruling against joint and several liability, Judge Bain found that the plaintiff provided insufficient evidence that RMG “conspired” with the other construction defendants to recommend a new design, or that the construction defendants conspired to market the home fraudulently or build it defectively, based merely on the fact the parties lawfully contracted with each other.[19]

Conclusion

Taken together with Heiserman, the cases are clear on this point: Parties cannot be said to conspire when they have merely engaged in lawful contracting.[20] However, each case presents “unique factual circumstances” and “detailed factual findings will be necessary” to make a determination of whether any given contractual relationship among construction professionals will rise to the level of conspiracy under C.R.S. § 13-21-111.5(4).[21]


[1] James W. Avery, The Pro Rata Liability Act and Imposition of Joint Liability Against Physicians, Colo. Law., 2/98, at 89.

[2] B.G.’s, Inc. v. Gross ex rel. Gross, 23 P.3d 691, 694 (Colo. 2001).

[3] C.R.S. § 13-21-111.5(4). This is also known as “actions in concert,” which is broader than civil conspiracy, not requiring express agreement or proof of intent to commit a tortious act. Resolution Tr. Corp. v. Heiserman, 898 P.2d 1049, 1056-57 (Colo. 1995).

[4] Loughridge v. Goodyear Tire & Rubber Co., 192 F. Supp. 2d 1175, 1186 (D. Colo. 2002).

[5] Resolution Tr. Corp. v. Heiserman, 898 P.2d 1049, 1055 (Colo. 1995) (quoting Prosser and Keeton on the Law of Torts § 46, at 324 (5th ed. 1984)).

[6] Contract Maintenance Co. v. Local No. 105, 415 P.2d 855, 857 (Colo. 1966) (en banc); see also Nelson v. Elway, 908 P.2d 102, 106 (Colo. 1995) (en banc) (An unlawful overt act is a required element of civil conspiracy.).

[7] Pinon Sun Condo. Ass’n v. Atain Specialty Ins. Co., No. 17-cv-01595, 2019 WL 4747673, at *1 (D. Colo. Sept. 27, 2019).

[8] Id. at *2.

[9] Id.

[10] Id. at *4-6.

[11] Id. at *9.

[12] Resolution Tr. Corp. v. Heiserman, 898 P.2d 1049, 1055 (Colo. 1995).

[13] Heiserman, 898 P.2d at 1055 (“We conclude that the term ‘tortious act’ appearing in section 13–21–111.5(4) includes any conduct other than breach of contract that constitutes a civil wrong and causes injury or damages.”).

[14] Rivergate Lofts Condo. Owners Ass’n v. Rivergate Lofts Partners, LLP, No. 10CV19, Order on Motion for Partial Summary Judgment of Defendants Okland and Sill, at *6 (La Plata Ct. Dist. Ct. Oct. 4, 2011).

[15] Villas at La Campanella Property Owners v. Hunnahs, LLC et al., No. 13CV30099, Order Granting Defendant ABC Welding, Inc.’s Motion for Determination of a Question of Law Regarding Joint and Several Liability, (La Plata Ct. Dist. Ct. Aug. 21, 2015).

[16] Id. at *2-3 (internal citations removed & emphasis added).

[17] Polmer et al. v. Hi Point Home Builders LLC et al., No. 2013CV30763, Order: (Proposed) Order: re: Motion for Determination of a Question of Law Regarding Joint and Several Liability, (El Paso Ct. Dist. Ct. Oct. 15, 2015).

[18] Polmer et al. v. Hi Point Home Builders LLC et al., No. 2013CV30763, First Amended Complaint at ¶¶ 16-19, (El Paso Ct. Dist. Ct. Oct. 15, 2015).

[19] Polmer et al. v. Hi Point Home Builders LLC et al., No. 2013CV30763, Order: (Proposed) Order: re: Motion for Determination of a Question of Law Regarding Joint and Several Liability, at *2 (El Paso Ct. Dist. Ct. Oct. 15, 2015).

[20] See also Logixx Automation, Inc. v. Lawrence Michels Family Trust, 56 P.3d 1224, (Colo. App. 2002) (“[W]e conclude that there can be no conspiracy by two or more parties to a contract to breach that contract.”); In re Stanley, 2011 WL 10656536 (E.D. Cal. July 1, 2011) (“[A] party to a contract cannot be bootstrapped into a conspiracy tort.”). “The claim of civil conspiracy . . . requires proof of an unlawful intent.” Nelson v. Elway, 971 P.2d 245, 250 (Colo. App. 1999). Joint and several liability cannot be imposed “for doing in a proper manner that which they had a right to do . . . .” Id.

[21] Resolution Trust Corp. v. Heiserman, 898 P.2d 1049, 1057 (Colo. 1995).