Responding to a Notice of Claim Pursuant to C.R.S. § 13-20-803.5

A key feature of the Construction Defect Action Reform Act (C.R.S. §§ 13-20-801, et seq.), was to establish the Notice of Claim (“NOC”) process, found in C.R.S. § 13-20-803.5. There are several deadlines and important factors for a construction professional to consider when responding to a NOC.

Before a homeowner, homeowners association, or owner of a commercial building (a “claimant”) can file a construction defect lawsuit against a construction professional, the claimant must send or deliver a written NOC to the construction professional. The statute includes within the definintion of “construction professional” an architect, contractor, subcontractor, developer, builder, builder vendor, engineer, or inspector, and in the case of commercial property, the prior owner during construction.

The statute defines a NOC as a written notice sent by a claimant to the last known address of a construction professional against whom the claimant asserts a construction defect claim. The NOC must describe in reasonable detail the general nature of the defect, a general description of the type and location of the construction that the claimant alleges to be defective, and any other damages that have been caused by the defect.

The NOC process, defined in C.R.S. § 13-20-803.5, mandates a construction professional’s right to inspect the real property, the alleged defects, and communicate a monetary settlement offer or offer to repair before the property owner may proceed with litigation.

The NOC process requires a residential claimant to send a NOC no later than 75 days before filing an action against a construction professional, and no later than 90 days before filing an action against a construction professional in a commercial project. The claimant shall provide the construction professional and its contractors reasonable access to the claimant’s property for inspections, which shall be completed within 30 days of the notice. Within another 30 days after inspections (or 45 days in the case of a commercial property) the construction professional may send to the claimant, by certified mail, return receipt requested, a monetary offer to settle or an offer to repair the claimed defect(s). Unless the claimant accepts the offer within 15 days, the offer is deemed rejected. If no offer is made, or if the offer is rejected, the property owner may then file a lawsuit.

The following discusses what steps a construction professional should follow to respond to a NOC:

1.  Notify your insurance agent and your insurance carrier representatives, and give them a copy of the NOC letter you received and other project records your insurance representatives may request. Your insurance carrier will not cover any of your legal costs until they have been notified of a potential claim. Your insurance carrier will likely send you a “reservation of rights” letter, specifying how they interpret their obligations to defend you, cover legal costs, or cover amounts paid in settlement or judgment.

2.  Review the NOC. Does it provide a sufficient description of what is alleged to be defective and the location of the condition? The NOC may not provide a description that complies with the statute. An insufficient NOC may be no NOC at all.

3.  Review your records regarding the subject construction. Identify all of the subcontractors, materialmen, and other construction professionals that worked on the project and whose work is implicated in the NOC. Forward a copy of the NOC to those subcontractors and suppliers. If you have sufficient information at this point, you should describe in a letter to the subcontractor or supplier how they may be involved, with as much detail as is available.

4.  Follow the instructions that should accompany the NOC to schedule an inspection of the subject property. The inspection must be completed within 30 days of receiving the NOC. It is helpful to have experts and the subcontractors at the inspection to evaluate the issues that the owner contends are defective or need repair.

5.  Determine how to respond. Should you make an offer to repair the condition or any part of it? Should you make a monetary offer to settle the dispute or a portion of it? The purpose of the NOC process is to resolve construction defect disputes without a lawsuit being filed. This is not always possible, and defending against the claimants allegations in litigation is sometimes the better option. You will need to decide, with the help of any experts or attorney you may have working for you, whether to address all, some, or none of the claimant’s allegations. Pursuant to the statute, an offer to repair must include a report of the scope and findings of the inspection, a description of the work necessary to remedy the claimed defect and damages described in the NOC, and a timetable for completing the repairs. Your response to the property owner must be made within 30 days after the inspection (or within 45 days for commercial property). If you intend for your insurance carrier to cover any part of the offer, make sure the carrier is fully informed before making the offer.

6.  All of the deadlines can be modified by agreement between the claimant and construction professionals.

A property owner may amend the NOC, but construction professional is entitled to another opportunity to inspect and more time to respond to the new allegations. If the property owner files a lawsuit without sending a proper NOC or before the NOC process is completed, the court may stay the action until the NOC process is completed.