By Mary Sue Greenleaf and John Mill
On Monday, January 27, Democratic Senator Robert Rodriguez introduced Senate Bill 20-138, A Bill for an Act Concerning Increased Consumer Protection for Homeowners Seeking Relief for Construction Defects. If passed, the bill could dramatically change the landscape of construction defect litigation in Colorado by extending the time within which claimants are permitted to file claims.
Colorado law currently provides that all actions against any construction professional (which includes a broad range of parties such as builder-vendor developers, contractors, architects, engineers, and inspectors), shall be brought within two years after the claim arises, and not thereafter, (the “statute of limitations”), “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” (the “statute of repose”). Colo. Rev. Stat. § 13-80-104(1)(a).
These time periods have been in effect since amendments to the statute were made by the legislature in 1986. The current statutory text also provides claimants added protection in the event that the physical manifestation of a construction defect arises near the end of the six-year period, by allowing claimants two years from the date the cause of action arises within which to file claims if the claims accrue during the fifth or sixth year of that limitations period. Colo. Rev. Stat. § 13-80-104(2). This effectively gives homeowners up to eight years after substantial completion of a project to timely commence a construction defect claim.
Senate Bill 20-138 proposes a series of amendments to Colo. Rev. Stat. § 13-80-104 and these time periods, increasing the statute of repose for construction defects from six years to 10 years and permitting tolling of the statute of repose and limitations period not previously available to claimants. Although the title of the bill suggests it applies only to claims by homeowners, Colo. Rev. Stat. § 13-80-104 applies to all construction defect claims, including claims relating to single-family homes, condominiums, apartments, and commercial projects.
The substance of the bill proposes the following three key changes to the current statutory scheme:
- Extending the time for filing construction defect claims from six years to 10 years (and in some circumstances up to 12 years) after substantial completion of the improvements;
- Extending the accrual date for construction defect claims until both the cause of the defect and the manifestation of damage are known or should be known to the claimant, effectively tolling the period between discovery of the physical manifestation of the defect and the investigation and discovery of the cause; and
- Providing that the statute of repose and statute of limitations for construction defect claims are subject to both statutory and equitable tolling.
First, the extension of the statute of repose period to 10 years (and in some circumstances, up to 12 years) after substantial completion of a project would subject construction professionals to prolonged exposure to liability for errors and omissions in their work long after completion of the project.
Second, under the current version of the CDARA, construction defect claims are considered to accrue at the time the physical manifestation of the defect is known or should reasonably be known, regardless of whether the defect has resulted in an actual injury or the cause of the defect is known.
This interpretation of the statute has been upheld by numerous appellate courts since it was enacted. See Smith v. Executive Custom Homes, Inc., 230 P.3d 1186, 1189 and n.3 (Colo. 2010) (“claims under the CDARA…begin to accrue when the homeowner first discovers or should have discovered the defect”); Highline Village Associates v. Hersh Companies, Inc., 996 P.2d 250, 253 (Colo. App. 1999), affirmed in part and reversed in part on other grounds, 30 P.3d 221 (Colo. 2001) (noting that a construction defect claim “arises for purposes of its limitation period when the defect becomes manifest, even though the cause of that defect is not then known”); United Fire Group ex rel. Metamorphosis Salon v. Powers Electric, Inc., 240 P.3d 569, 571 – 572 (Colo. App. 2010) (concluding that date that fire occurred was date that claim accrued under CDARA and “that it was not necessary to know that the defect caused the fire for the fire to be the defect’s physical manifestation”).
The proposed amendments to Colo. Rev. Stat. § 13-80-104(1)(b)(I) would extend the time period within which a homeowner or other claimant could commence a construction defect claim by pushing back the accrual date that starts the running of the two-year limitations period to a time when both the physical manifestation of a defect and the cause of that defect are known to the claimant. While this would not affect the statute of repose, this change in the accrual date would allow claimants to delay investigation of the source or cause of construction defects, even after the manifestation of such defects has become apparent.
The third key element to Senate Bill 20-138 is the addition of a provision that would subject the statute of limitations and statute of repose periods to statutory and equitable tolling.
As it currently stands in Colorado, equitable tolling is unavailable for construction defect claims, as the Colorado Supreme Court expressly held that the legislature accounted for the extra time needed to complete repairs by setting out a statutory tolling period in the CDARA itself. See Smith v. Executive Custom Homes, Inc., 230 P.3d 1186, 1192 (Colo. 2010). This amendment would override binding Colorado Supreme Court precedent holding that equitable tolling, aside from that expressly provided for in the statutory tolling provisions of CDARA itself, see Colo. Rev. Stat. § 13-20-805, does not apply to construction defect claims.
This would effectively open construction professionals up to extended exposure to liability for errors and omissions in the design and construction of a property for potentially limitless periods of time after completion and occupancy of the improvements. Undoubtedly, it would create an opportunity for the resurgence of the repair doctrine that could operate as a disincentive to the prompt prosecution and resolution of construction defect claims even after the defect and its cause are known, as it would effectively render the tolling provisions afforded for the CDARA’s notice-of-claim process unnecessary.
If enacted, Senate Bill 20-138 would substantially increase the time construction professionals could be sued for alleged construction defects, which could increase the costs of construction and impede new development. In 2017, the Colorado legislature passed and the Governor signed House Bill 17-1279, requiring that HOA boards make certain disclosures and receive informed consent from members prior to commencing a construction defect action. House Bill 17-1279 was viewed by some as helping to address concerns about exposure to construction defect claims in Colorado. Senate Bill 20-138, if passed, would go in the opposite direction.
The bill was assigned to the Senate Judiciary Committee. No hearings on the bill have been scheduled as of the date of this advisory.
If you have any questions about this advisory, please contact any of the attorneys in Sherman & Howard’s Construction Industry Practice Group.
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