Since its inception, HB 1394, memorialized as C.R.S. § 13-20-808, has gathered an increasing amount of attention. Part of the interest is due to the ambiguous nature of how the second part of the statute is being ruled on by trial courts. There is a dispute which has not yet been resolved by appellate courts in Colorado regarding whether the second part of the statute is retrospective or not. The following is an analysis of an order regarding summary judgment in American States Insurance Company v. J.P. Enterprises, 2010 CV215, District Court of Larimer County.
American States Insurance Company (“ASIC”) filed a motion for summary judgment against J.P. Enterprises (“JPE”) on the basis that coverage had not been triggered and therefore, ASIC did not owe a duty to defend or indemnify. In its analysis, the court decided that ASIC did have a duty to defend based on the language of C.R.S. § 13-20-808, which did allow for retrospective application.
The background facts of the case entail a complaint by the Board of County Commissioners for Larimer County (the “Board”) filed against JPE and Delta Construction (“Delta”). The Board amended its complaint twice, alleging that the Board hired, was a third party beneficiary, or was in privity with all named defendants relating to the design and construction of the buildings which collectively comprise the Larimer County Fairgrounds buildings. All of the buildings included in that collection were completed and delivered in September 2003.
The complaint alleges that the buildings contained a number of construction defects including, but not limited to: inadequate load bearing capacity; resulting damage to real property; actual loss of use of real property and risk of bodily injury and death; construction failing to meet the standard of care resulting in defective construction, which caused material physical property damage; and, failure to use reasonable care. The Board claims the buildings need to be repaired or replaced and seek remuneration and compensation for all direct and direct costs of repairing the buildings, and for the loss of use of the buildings, which are not suitable or fit for their intended purpose.
At and around the time that the alleged causes of action arose, ASIC provided a series of insurance policies to JPE which are generally described as Commercial General Liability (“CGL”) policies and umbrella policies. The CGL policies were issued from February 22, 2002 through July 18, 2005, while the umbrella policies were issued from April 21, 2004 through July 18, 2006. The CGL policies cover any “property damage” which was caused by an “occurrence” during the policy period.[1] The ASIC policies also have the typical exclusions for damage to “your product” and to “your work.”[2]
Based on the language in the CGL policies (and similar language in the umbrella policies), ASIC sought summary judgment using the argument that ASIC has no duty to defend or indemnify JPE because the underlying complaint neither alleges property damage nor an occurrence as required by the CGL and umbrella policies. In denying ASICs motion for summary judgment in part, the court found that the second amended complaint alleged both physical property damage and loss of use resulting from JPE’s negligent work. Since these are the distinct situations the CGL and umbrella policies define as property damage, the court found that the complaint implicates both the CGL and umbrella policies.
As for whether an occurrence has been triggered under the policies, ASIC argued that the General Security Indemnity Company of Arizona v. Mountain States Mutual Casualty Company, 205 P.3d 529 (Colo. App. 2009) case applies. General Security defined “occurrence” in the same manner as the policies in the present case, however, General Security held that “a claim for damages arising from poor workmanship, standing alone, does not allege an accident that constitutes a covered occurrence, regardless of the underlying legal theory pled.” Id. at 532. ASIC argued under General Security, that JPE’s poor workmanship does not rise to the definition of “occurrence” triggering the policies.
JPE, countered that, General Security was no longer good law due to the passage of HB 1394 into law as, C.R.S. § 13-20-808. According to JPE, along with overruling General Security, C.R.S. § 13-20-808 also applied to policies in effect before the statute’s effective date of May 21, 2010. JPE argued that because the policies are occurrence-based policies that continue in effect long after the policy periods cease and have not expired, then the application would not implicate retroactivity. ASIC disagreed, arguing such application would be unconstitutionally retrospective.
The court found that C.R.S. § 13-20-808 properly applies to the CGL and umbrella policies both under JPE’s argument and under a retroactive analysis. The court acknowledged that retroactive application of statutes is general disfavored, but nevertheless noted that it is permitted in certain circumstances. A two-part analysis determines whether retroactive application of a statute is appropriate.[3]
In the first step, the Court determined that the language of the statute clearly indicated the legislature’s intention for retroactive application. C.R.S. § 13-20-808 states in pertinent part, “This act applies to all insurance policies in existence or issued on or after the effective date of this act.” Section 3 of HB 10-1394 (emphasis added). The court found that the distinction between policies “in existence” and those “issued on or after the effective date,” demonstrates the legislatures intent for C.R.S. § 13-20-808 to apply to policies issued before May 21, 2010, the effective date of the statute.
Having met the first step of the analysis, the court tackled the second step. In its analysis, the court found that C.R.S. § 13-20-808 does not implicate a vested right and thus must create a new obligation, impose a new duty, or attach a new disability for it to be applied retroactively. The court found that because of General Security, insurers would not be required to defend those insureds who had been sued for damages arising solely from such insureds’ alleged poor workmanship, under an occurrence based policy. C.R.S. § 13-20-808, on the other hand, obligates insurers to defend those insured against allegations that such insured’s work caused damage to another construction professionals work. Thus, C.R.S. § 13-20-808 creates a different obligation for insurers than had existed after General Security satisfying the second step of the two part analysis.
In the end, the court found that ASIC had a duty to defend JPE, pursuant to the CGL and umbrella policies. The motion for summary judgment was denied in part on these issues and granted on separate issues, regarding Delta.
As stated above, the retroactive issue is still in dispute and will not be conclusively resolved until the appellate courts weigh in. This ruling is only one more on the side of retroactive application. Stay tuned for another case analysis, TCD, Inc. v. American Family Mutual Insurance Company which comes out on the other side, denying the retroactive application of C.R.S. § 13-20-808.
For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.
[1] Both phrases are defined in the typical language of CGL policies. Occurrence means: “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Property damage means: “(a) physical injury to tangible property, including all resulting loss of use of that property. All such loss shall be deemed to occur at the time of the physical injury that caused it; or (b) loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.”
[2] Your Product Exclusion: “Property Damage” to “your product” arising out of it or any part of it. Your Work Exclusion: “Property Damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard.”
[3] In the first step the Court must look at whether the legislature intended the statute to be applied retroactively. The second step states that a statute can be retrospective if it either: (1) impairs a vested right; or (2) creates a new obligation, imposes a new duty, or attaches a new disability. With regard to vested rights, three factors apply: (i) whether the public interest is advanced or retarded; (ii) whether the statute gives effect to or defeats the bona fide intentions or reasonable expectations of the affected individuals; and (iii) whether the statute surprises individuals who have relied on contrary law.
