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WSHB Case Update: Colorado Supreme Court Overturns Years of Rulings Barring Third-Party Claims in Construction Defect Litigation as Untimely

March 17, 2017

In re Goodman v. Heritage Builders, No. 16SA193, 2017 CO 13, –P.3d–, 2017 WL 778227 (Colo. 2017)

Why this Case is Important

The Colorado Supreme Court in In Re Goodman v. Heritage Builders held that third-party claims in construction defect cases are timely so long as the first-party claims are not time-barred and the third-party claims are brought either during the first-party litigation or within 90 days of judgment or settlement, regardless of whether the original statute of limitations or statute of repose on the original claim has expired. In other words, general contractors now have the ability to bring third-party claims against subcontractors without worrying about the two-year statute of limitations or the six-year statute of repose, and subcontractors arguably no longer have statute of limitations or statute of repose defenses in third-party actions.

Facts

This case involved alleged construction defects against a general contractor, Heritage Builders Inc. (“Heritage”), and Heritage’s third-party claims against Studio B Architects (“Studio B”) for alleged design deficiencies. Studio B filed a motion for summary judgment, arguing that all of Heritage’s third-party claims were barred by the six-year statute of repose. The trial court determined that Heritage’s claims arose when it received notice of the alleged defects in July 2013, more than six years after substantial completion of the home, and thus any claims against third parties were barred. The Colorado Court of Appeals affirmed the trial court’s ruling.

Heritage appealed to the Colorado Supreme Court, and the Court accepted, as it raised an issue of first impression as to whether the six-year statute of repose applied to the timeliness of third-party claims in construction defect cases.

The Ruling

In general, construction defect claims in Colorado are subject to a two-year statute of limitations (based on the date of discovery) and a six-year statute of repose (based on the date of substantial completion). See C.R.S. §§ 13-80-102, 13-80-104(1)(a), respectively. However, C.R.S. § 13-80-104(1)(b)(II), which governs third-party construction defect claims, states that:

Notwithstanding the provisions of paragraph (a) of this subsection (1), all claims…by a claimant against a person who is or may be liable to the claimant for all or part of the claimant’s liability to a third person:

(A) Arise at the time the third person’s claim against the claimant is settled or at the time final judgment is entered on the third person’s claim against the claimant, whichever comes first; and

(B) Shall be brought within ninety days after the claims arise, and now thereafter.

The Colorado Supreme Court looked at the legislative intent of the 90-day limitation, and determined that it applied to third-party claims irrespective of both the statute of limitations and statue of repose. Specifically, C.R.S. § 13-80-104(1)(b)(II) begins with the statement, “[n]otwithstanding the provisions of paragraph (a) of this subsection (1).” The provisions of paragraph (a) of subsection (1) contain both the statute of limitations and the statute of repose. The Supreme Court thus concluded that to apply either the statute of limitations or the statute of repose to third-party construction defect claims would render the “notwithstanding” language superfluous, which was obviously not the intent of the legislature.

In its conclusion, the Court stated that third-party construction defect claims may be brought in either the underlying construction defect litigation before settlement/final judgment, or in a separate lawsuit brought within 90 days of a settlement or entry of judgment of the first-party claims.

Lessons to be Learned

Prior to this case, multiple Colorado court cases held that the statute of repose barred any third-party construction defect claims brought outside of the six-year statute of repose time period, and that bringing said claims within 90 days of settlement or judgment was irrelevant. The Colorado Supreme Court in Heritage specifically stated that such rulings in major cases like Shaw, Thermo, and Sierra were overruled.

The Heritage ruling has significant implications for construction defect litigation in Colorado. Previously, statute of repose deadlines were usually looming from the beginning of litigation, forcing general contractors to hastily try to identify third-party defendants and to bring actions out of fear of having such claims barred. Multiple third-party claims and parties would then be voluntarily dismissed after additional information was identified or discovered. Now, general contractors will be able to identify third-party claims and parties throughout litigation, and can use the process of discovery to bolster and validate such claims.

Most importantly, general contractors can now make third-party claims against their subcontractors regardless of when the subcontractor last worked on the project or building. Thus, in a situation where a general contractor hired multiple subcontractors to build a development, as long as the plaintiff’s claims are not barred by the statutes of limitation or repose, the general contractor will be able to bring third-party claims against the subcontractors even if the subcontractor last worked on the project more than six years ago (as long as the general contractor brings claims within 90 days of settlement or final judgment).

This obviously does not bode well for third-party subcontractors and design professionals. Now, based on the Heritage holding, subcontractors no longer have statutes of limitation or repose defenses when a general contractor sues them in a third-party action. If a plaintiff brings claims against the general contractor, and those claims are not barred by either the statutes of limitation or repose, then any third-party claims made by the general contractor against the subcontractors, either as part of the litigation against the general contractor, or within 90 days of settlement/final judgment, are automatically timely.

The full implications of this ruling will not be immediately known, and subsequent court rulings are anticipated to shed additional light on how the Heritage case will affect Colorado construction defect litigation.

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