Action Needed: HB24-1230 Spells Trouble for Colorado Construction Industry and its Insurers

In an apparent gift to plaintiffs’ construction defect lawyers, Representatives Parenti and Bacon introduced House Bill 24-1230 on February 12, 2024.  The bill was assigned to the House Judiciary Committee and is scheduled for hearing on March 6^th, during the afternoon session beginning at 1:30 pm.  To date, the bill does not have any senate sponsors, perhaps because the senators are more interested in serving their constituents’ needs for attainable housing than in lining the pockets of their plaintiffs’ construction defect attorney friends.

According to the bill’s summary, HB 24-1230 contains the following provisions:

Current law declares void any express waivers of or limitations on the legal rights or remedies provided by the “Construction Defect Action Reform Act” or the “Colorado Consumer Protection Act.”  Sections 1 and 4 make it a violation of the “Colorado Consumer Protection Act” to obtain or attempt to obtain a waiver or limitation that violates the aforementioned current law.

In 2007, the Colorado Legislature passed what was known as the “Homeowner Protection Act,” codified at C.R.S. § 13-20-806(7), which rendered void as against public policy “any express waiver of, or limitation on, the legal rights, remedies, or damages provided by” CDARA or the CCPA, “or on the ability to enforce such legal rights, remedies, or damages within the time provided by applicable statutes of limitation or repose. . .”  Apparently not satisfied with simply rendering overreaching language void and unenforceable, plaintiffs’ attorneys would like to use the inclusion of such language as the basis for demanding attorneys’ fees and treble damages.

Section 4 also requires a court to award to a claimant that prevails in a claim arising from alleged defects in a residential property construction, in addition to actual damages, prejudgment interest on the claim at a rate of 6% from the date the work is finished to the date it is sold to an occupant and 8% thereafter.

In 2008, the Colorado Supreme Court ruled, in Goodyear Tire & Rubber Co. v. Holmes, 193 P.3d 821 (Colo. 2008), that unless an owner is suing for past repair costs, and instead is suing for the cost of repairs to be performed in the future, the owner has not lost the time value of money, has not been wronged by having its money wrongfully withheld and, as a result, is not entitled to prejudgment interest pursuant to C.R.S. § 5-12-102(1)(b).  To award a plaintiff prejudgment interest in such a case does not serve any legitimate purpose as it has not been damaged by losing out on the interest.  Such an award does nothing but further drive up demands and settlements in construction defect cases.  If you want to create an environment in which builders are willing to build homes, overruling the Supreme Court to award phantom damages is not going to do it.

Current law requires that a lawsuit against an architect, a contractor, a builder or builder vendor, an engineer, or an inspector performing or furnishing the design, planning, supervision, inspection, construction, or observation of construction of an improvement to real property must be brought within 6 years after the claim arises.  Section 2 increases the amount of time in which a lawsuit may be brought from 6 to 10 years.  Current law also provides that a claim of relief arises when a defect’s physical manifestation was discovered or should have been discovered.  Section 2 also changes the time when a claim of relief arises to include both the discovery of the physical manifestation and the cause of the defect.

 In an apparent attempt to stunt housing construction in Colorado and drive up costs, and to benefit the plaintiffs’ bar, Representatives Parenti and Bacon seek to extend Colorado’s statute of repose for construction defect actions from 6+2 years to 10+2 years.  Also, HB24-1230 would change the date on which claims begin to accrue from when an owner discovered, or in the exercise of reasonable diligence should have discovered, the manifestation of a defect to when an owner discovered both the manifestation of the defect and its cause.  This change in and of itself would make it virtually impossible to ever prove that a claim is stale pursuant to the statute of repose.  As with 2020’s version of this bill, 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 in Colorado 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.

 Section 3 voids a provision in a real estate contract that prohibits group lawsuits against a construction professional.  Section 5 of the bill prohibits governing documents of a common interest community from setting different or additional requirements than those in current law for a construction defect action.

One of the reasons that you will not find many new condominiums or townhomes in Colorado is that it is easy for plaintiffs’ attorneys to aggregate claims through Colorado’s Common Interest Ownership Act’s associational standing rules so that they can represent numerous homeowners at once and claim larger costs of repair.  To temper this trend in single-family homes, builders will often include language in purchase and sale agreements or in HOA organic documents to prevent the aggregation of claims and force each homeowner to bring his or her own claims, individually.  This makes it less enticing to a plaintiffs’ attorney, who would much rather aggregate claims and sue using the economies of scale.  In another nod to those plaintiffs’ attorneys, Representatives Parenti and Bacon have included these sections which would ensure that plaintiffs’ attorneys can aggregate claims, regardless of the bargain struck by the builder and homeowner at the time of sale.

I do not know if Representatives Parenti and Bacon actually want to see this bill pass, and become single-handedly responsible for the ensuing tsunami of homebuilders and insurance carriers fleeing the state, and for the increase in housing costs sure to follow or if this is a bargaining chip to be used by them to prevent reasonable changes to the law which might actually help create an environment where builders are willing to build condominiums and townhomes and insurance carriers are willing to insure them.  Either way, it is a step in the wrong direction and an overt benefit to one class of people, not homeowners, but attorneys who make their money by suing Colorado’s homebuilding industry.

Teddy Roosevelt once said: “It is not the critic who counts; not the man who points out . . . where the doer of deeds could have done them better.”  Unfortunately, Representatives Parenti and Bacon do not agree.  According to their bill, it is the critic who needs to be rewarded, handsomely, for telling Colorado’s hard working homebuilding industry how it could have done better.  According to Representatives Parenti and Bacon it is only the critic that counts, not those in the arena, and not those scrambling to afford housing in Colorado.

Please consider reaching out to your State Representative or Senator to ask them to oppose HB24-1230.