Colorado House Bill 10-1394 Passes Out of the House and Moves on to the Senate

On April 21st, House Bill 10-1394 passed Second Reading in the House, after being amended.  The current version of the bill, found here, had two significant amendments prior to its passage out of the House.  First, in section one of the bill, the language of section 13-20-808(3)(a)(VI) was changed to read:

THE WORK OF A CONSTRUCTION PROFESSIONAL THAT RESULTS IN PROPERTY DAMAGE, INCLUDING DAMAGE TO THE WORK ITSELF OR OTHER WORK, IS AN ACCIDENT UNLESS THE PROPERTY DAMAGE IS INTENDED AND EXPECTED BY THE INSURED, BUT NOTHING IN THIS SUBPARAGRAPH (VI) CREATES INSURANCE COVERAGE NOT INCLUDED IN THE CONTRACT OF INSURANCE.

The last sentence was added to assuage the insurance industry’s concerns that the new law would essentially convert every CGL policy into some form of a surety bond or warranty covering faulty workmanship.  The second significant amendment, in section two of the bill, changed section 10-4-110.4(2) to read:

(a) A PROVISION IN A LIABILITY INSURANCE POLICY ISSUED TO A CONSTRUCTION PROFESSIONAL EXCLUDING OR LIMITING COVERAGE FOR ONE OR MORE CLAIMS ARISING FROM BODILY INJURY, PROPERTY DAMAGE, ADVERTISING INJURY, OR PERSONAL INJURY THAT OCCURS BEFORE THE POLICY’S INCEPTION DATE AND THAT CONTINUES, WORSENS, OR PROGRESSES WHEN THE POLICY IS IN EFFECT IS VOID AND UNENFORCEABLE UNLESS THE EXCLUSION OR LIMITATION APPLIES ONLY IF THE INSURED HAD ACTUAL KNOWLEDGE OF THE INJURY OR DAMAGES BEFORE THE POLICY’S INCEPTION DATE. 

(b) AN INSURED’S KNOWLEDGE OF ORDINARY WARRANTY OR PUNCH LIST SERVICE DOES NOT CONSTITUTE ACTUAL KNOWLEDGE FOR THE PURPOSES OF PARAGRAPH (a) THIS SUBSECTION (2).

The bill, as originally introduced, made void both “Montrose” and “super-Montrose” exclusions.  Beause of pressure from the insurance industry, the bill was amended so as to make void only “super-Montrose” exclusions. 

On April 22nd, HB 10-1394 passed Third Reading in the House on a 61-0 vote.  The bill was introduced into the Senate on April 23rd and assigned to the Business, Labor and Technology Committee.  With most of the discrepancies between the stakeholders now ironed out, it is anticipated that the bill will move through the Senate quickly, receiving only minor corrective amendments.

It remains to be seen what effect HB 10-1394 will have on the cost and availability of CGL coverage for construction companies in Colorado.  The word on the street is that some carriers that relied heavily on super-Montrose exclusions, such as National Fire & Marine and Crum & Forster, have already announced that they will no longer issue CGL policies to construction companies in Colorado.

If you have any questions regarding HB 10-1394 any other bills making their way through the legislature this year, please contact me at mclain@hhmrlaw.com or by telephone at (303) 987-9813.