The 2024 Colorado Legislative Session Promises to be a Busy One for the Construction Industry and its Insurers

January 10^th marked the first day of the 2024 Colorado legislative session.  After the pomp and circumstance of opening day, a total of eighty-six bills were introduced.  Among them, two impact the construction and insurance industries.  First, House Bill 24-1008 would make general contractors and their subcontractors, which are direct employers of an employee, jointly and severally liable for all debts owed based on wage claims or investigations.  Essentially, if HB 24-1008 were to become law, general contractors would become the guarantors of wage payments to their subcontractors’ employees.  The second bill, House Bill 24-1083, would require the Colorado Division of Insurance to conduct a study of construction liability insurance for construction professionals in Colorado and would require that, 14 days prior to closing the sale of a new residence, the seller provide the purchaser and the county clerk and recorder’s office certain information regarding the insurance coverage for the home.  In a year when the legislature should be focusing on construction defect reform and affordable housing for Coloradoans, these first two bills will likely drive up the cost of new construction.

House Bill 20-1008, sponsored by Representatives Duran and Froelich, Brown, deGruy Kennedy, Epps, Garcia, Hamrick, Hernandez, Lieder, Lindstedt, Mabrey, Mauro, Ricks, Rutinel, Story, Velasco, and Vigil and Senators Danielson and Jaquez Lewis, Exum, Gonzales, Kolker, Marchman, and Sullivan, has been assigned to the House Committee on Business Affairs & Labor but has not yet been scheduled for a hearing.  The bill summary states:

For wage claims brought by individuals working in the construction industry, the bill:

• Requires that a subcontractor that receives a written demand for payment forward a copy of the written demand for payment to the general contractor within 3 business days after receipt;
• Specifies that a general contractor and a subcontractor that is a direct employer of an employee are jointly and severally liable for all debts owed based on a wage claim or investigation that are incurred by the subcontractor acting under, by, or for the general contractor; and
• Allows a general contractor to require the following information from each subcontractor acting under, by, or for the general contractor:
  • Pay data;
  • Contact information; and
  • An affidavit attesting to whether the subcontractor has participated in a civil or administrative proceeding within the last 5 years and, if so, the outcome of the proceeding.

It will be interesting to see what the construction industry’s reaction to this bill would be should it become law.  To protect themselves from becoming financially liable to subcontractors’ employees for their wage theft claims, general contractors would have to consider only hiring subcontractors that could provide surety/payment bonds or obtain subguard insurance for their projects.  Obviously, if subcontractors have to provide payment bonds on their projects, the cost of those bonds will be added to the subcontractors’ bids and will drive up the cost of construction.  Additionally, general contractors may shy away from smaller subcontractors which do not have the bonding capacity to obtain payment bonds.  If general contractors resort to the use of subguard insurance, or subcontractor default insurance, the cost of that insurance will also be added to the cost of construction, making homes even less affordable than they are now.

House Bill 20-1083, sponsored by Representatives Willford and Brown and Senator Cutter, has been assigned to the House Committee on Business Affairs & Labor but has not yet been scheduled for a hearing.  The bill summary states:

The bill requires the division of insurance (division) to conduct or cause to be conducted a study of construction liability insurance for construction professionals in Colorado.  The study must identify the following:

• All insurers offering construction liability policies in Colorado (policies);
• The rates charged by insurers for policies and the basis for the rates, including data for the past 5 years, if available;
• Risk factors, classifications, and coverage descriptions insurers use to set policy rates;
• A comparison of the policy rates insurers charge with rates charged by other states in the region to cover similar residential projects;
• Policy coverage terms; and
• Common limitations or exclusions from policy coverage.

The bill requires that, at least 14 days prior to closing the sale of a new residence, the seller of the residence provide the purchaser and the county clerk and recorder’s office for the county where the new residence is located with information regarding the insurance coverage for the property subject to the sale, including:

• Identification of each policy and the coverage provider that may provide coverage for a construction professional’s work on the residence;
• The amount of the policy limits for each policy identified;
• The policy period for each policy identified, including whether the policy provides coverage on a claims-made basis or occurrence basis; and
• Identification of relevant exclusions from coverage.

I cannot help but think that plaintiffs’ construction defect attorneys wrote this bill to help them in identifying the most heavily insured projects.  In that there is no perfect construction and if a plaintiffs’ attorney is willing to spend enough money in destructive testing for construction defects, they can easily identify those projects with the most insurance, thereby getting the higher ROI on their investments.  Buried in the bill is language stating that if the builder did not obtain insurance providing coverage for property damage resulting from construction defects, the court shall award reasonable attorneys fees and costs, multiplied by three, to the purchaser.  Also note that the county clerk and recorders would be required to make the information required by the new law available for public inspection.  The fact that all insurance information for residential construction is to be publicly available, and the bill provides for treble attorneys’ fees and costs, further heightens my suspicion as to the origin of the bill.  If the legislature is trying to make homes more affordable, this bill, and the litigation it will spur, is antithetical to that goal.

While the actual construction defect legislation has not yet been introduced, there will be no shortage of fireworks at the Colorado legislature this year as the states legislators attempt to walk a tightrope, with the stated goal of providing affordable housing, while they are being pulled off course by plaintiffs’ employment and construction defect lawyers.  Stay tuned, the session promises to be an exciting one.