An Oct. 20 decision of the Colorado Court of Appeals promises serious consequences to the local construction industry as well as its liability carriers. Unless changed by ongoing further proceedings, the decision will mean that parties who are actually responsible for construction defects, such as subcontractors, may escape liability entirely.

Albert B. Wolf

Here’s 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 subcontractors responsible for the defects. For example, if an owner sues a contractor for defective roofing, the contractor is responsible to the owner but would have occasion to recover damages from the roofing subcontractor whose work was deficient. And that makes perfect sense.

But it’s not that simple under a recent Colorado Court of Appeals decision. Colorado, like all other states, has statutes of limitations. They dictate that legal action must be undertaken within a certain number of years. The statutes are intended 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 is two years. That period begins from the time that defects are discovered or should have been discovered.

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

All of that seems simple enough. But what if an owner’s suit against the general contractor is brought on the very last day before expiration of the two-year period or later? In that event, the contractor may not have the two years prescribed under the limitations statute to sue its subcontractor(s). 

To rectify that, the Colorado Legislature provided that contractor suits against subcontractors can be brought within 90 days following settlement of or judgment in the owner’s case against the contractor. That, too, seems simple enough. However, in an Oct. 20 Colorado Court of Appeals 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 timing would therefore bar contractor’s claims against its responsible subcontractors. The court ruled that it did.

The decision created a catch-22 for the contractor. If it had waited for a settlement or judgment in the owner’s case against it, it could have brought suit against its subcontractors within 90 days after the 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 sub.

Fortunately, Colorado has a Supreme Court. Efforts are underway to have the decision by the Court of Appeals reconsidered. It’s expected that construction industry firms whose rights may well be adversely affected if the decision is not reversed and their industry organizations will cooperate in efforts to have the decision overturned.

Full disclosure: I am an attorney in the case.