AIA Says Colo. Bill Provides Relief from Construction Defect Lawsuits

April 22, 2002

A bill making its way through the Colorado House would limit the damages available for civil actions arising out of construction defects and should be enacted as quickly as possible, according to the Alliance of American Insurers.

An amended version of the bill (HB 1398) passed in committee earlier this month. It would require a claimant to file a list of construction defects, limit civil damages, prohibit non-economic damages except for bodily injury or wrongful death and prevent suits for negligence where a building violation has been alleged unless the claimant can show actual loss or damages. Claimants would be entitled to reasonable costs of repairs and temporary housing, the reduction of market value, reasonable value of loss, reasonable attorney fees, additional costs incurred including expert fees and interest as permitted by law.

The introduced version of the bill applied to residential construction defect claims. However, the amended version eliminates the word “residential,” extending the bill to all construction defect claims.

“This is a good bill because it is aimed at reducing the costs of construction defect litigation, which may help provide some relief to insurers and construction professionals in Colorado,” Sarah White, a policy manager in the Alliance’s property/casualty department.

Colorado is one of several states tackling the problem construction defect lawsuits are causing, she noted. “Washington Gov. Gary Locke (D) recently signed into law SB 6049, which establishes an alternative dispute resolution procedure, giving aggrieved parties other options besides litigation in these situations.”

Construction defect lawsuits are a growing problem for contractors in many western states. Because of the increased amount of expensive litigation, insurers have either stopped writing policies to cover contractors, or have been forced to price the policies at rates up to 10 times higher than prior coverage.

“The issue of construction defect lawsuits is of major concern to our industry,” White remarked. “Courts have been struggling with the definition of what constitutes a construction defect and whether or not they fall within the coverage of commercial general liability (CGL) policies. We believe CGL policies weren’t intended as warranties.

“Many lawyers see this as another class-action shopping spree, and they are suing every contractor and subcontractor they can find, trying to get insurers to foot the bill. I’ve seen reports of one case that involved 20 contractors and 50 lawyers that ran for 22 weeks. The courts have been inundated by these lawsuits.”

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