Defective construction defect case!

An October 20, 2016 decision of the Colorado Court of Appeals promises serious consequences to members of the construction industry as well as their liability insurance carriers. Unless changed by the ongoing further proceedings, the decision in that case will mean that parties actually responsible for construction defects, such as subcontractors, may escape liability entirely. The name of the case is Sopris Lodging, LLC vs. Schofield Excavating, Inc. It will referred to below as the Sopris case.

Here is the situation. In typical construction arrangements general contractors are liable to owners for all defective construction on their projects. However, general contractors have opportunities to go against their subcontractors who are responsible for the defects. For example, if an owner sues a contractor for defective roofing, the contractor would be responsible to the owner, but would have occasion to recover whatever contractor has paid in damages to the owner from the roofing subcontractor whose work was deficient. That makes perfect sense.

It’s not that simple under the recent Colorado Court of Appeals Sopris decision. Colorado, like all other states, has what are known as “statutes of limitations.” They provide that legal actions may not be maintained if they are not commenced within a certain number of years. The purpose of those statutes is to prevent the assertion of stale claims when memories have faded and witnesses and exhibits may have been lost. In Colorado, the statute of limitations on most claims against construction industry members is two years. That two-year period starts to run from the time that defects are discovered or should have been discovered.

Colorado also has a “statute of repose” applicable to claims against construction industry members. Those statutes of repose bar all claims, regardless of when they are discovered, if suit is not brought within six years of substantial completion of construction (or up to eight years if the defects are discovered in the fifth or sixth years).

All that seems simple. But what if an owner’s suit against its general contractor is brought on the very last day before the expiration of the two-year statute of limitations or later? In that event, the contractor may not have the two years under the limitations statute to sue its subcontractor(s). To rectify that situation, Colorado legislature provided that such contractor suits against their subcontractors could be brought within 90 days following the settlement of or a judgment in the owner’s case against the contractor. That too, seems simple enough.

However, in the Sopris case the court ruled that because the contractor had asserted its claims against its subcontractors in the owner’s case against it (rather than waiting until settlement or judgment), the two-year statute of limitations applied. The contractor’s claims against its responsible subcontractors would therefore be time barred. And in that case the court ruled that they were.

That decision created a catch-22 situation for the contractor. If it had waited until there was a settlement or judgment in the owner’s case against it, it could have brought suit against its subcontractors within 90 days following that settlement or judgment. However, if that settlement or judgment occurred more than six years after substantial completion of construction (and that time lapse may have occurred), the statute of repose would have prevented the contractor’s claims against its subcontractor.

Fortunately, there is a Colorado Supreme Court. Efforts are now underway to have the decision reconsidered. It is expected that construction industry members, whose rights may very well be adversely affected if the decision is not reversed, and their industry organizations may and should cooperate in efforts to have the October 20 decision overturned.

Full disclosure: I am an attorney in the case.