Construction defect claims may be barred at different times for different contractors

By Chad McShane

A recent Colorado Court of Appeals decision has changed, in part, the law relating to the cut-off date for filing claims against construction professionals.  For several decades Colorado law has imposed a “statute of repose” or a cut-off date after which no defect claims may be asserted against construction professionals (architects, engineers, contractors, etc.).  Generally speaking claims arising from construction defects were time barred if they were discovered and caused harm more than 6 years from substantial completion of the improvement.  “Substantial completion” has not been well-defined and depends in part on the type of construction involved.  In residential construction, for example, Colorado courts have concluded that receipt of a certificate of occupancy for the residence established the date of substantial completion and starts the six-year clock for statute of repose purposes.  The start date triggering the statue of repose, however, was recently revised by the Colorado Court of Appeals’ September 2016 decision in Sierra Pacific Industries, Inc. v. Bradbury.  The resulting application of the statute of repose after Sierra Pacific is good news for some constructional professionals but not so for others.

Sierra Pacific involved residential construction, specifically the work of a sub-subcontractor who was hired to install windows in condo units.  The supplier of the windows was Sierra Pacific Industries who was a subcontractor to the general contractor.  Window installation was finished in 2002 and related repair work completed in 2004.  A certificate of occupancy for the entire condo complex was not issued until 2011.  The owner of the condominiums filed a lawsuit against the general contractor in 2011 alleging defective construction as a result of water infiltration involving the windows.  As a result of the owner’s lawsuit, the general contractor also filed suit against the window supplier (subcontractor).  The lawsuits between owner, general contractor and window supplier were settled in 2014.  The window manufacturer, after settling with the owner and general contractor, filed a lawsuit in 2014 against the window installer.

The window installer argued that the window supplier’s claims were barred by the statute of repose because substantial completion of the window installation occurred more than 10 years prior to the lawsuit being filed against the installer.  The Court of Appeals in Sierra Pacific concluded that “substantial completion” by a subcontractor occurs when the subcontractor has finished working on the improvement at issue in the case (here, window installation).  Accordingly the six-year statute of repose barred the window supplier’s claims against the window installer because the last possible date of installation or repair by the window installer was in 2004 (and the lawsuit was not filed until 2014), barring the windows supplier’s claims.

Sierra Pacific may be good news for construction professionals involved in the early phases of a project; for example, excavators, civil/concrete contractors, and framers.  The Court of Appeals decision, however, is not favorable to constructional professionals involved through the end of the project; for example, developers, general contractors, landscapers and painters.  While construction professionals involved through completion of a project will still receive the protection of the six-year statute of repose, Sierra Pacific may prevent end-of-project construction professionals from passing responsibility or liability to an earlier construction professional that was actually responsible for causing the defect.  For example, a general contractor who completed a project in 2010 is sued in 2015 by an owner alleging improper reinforcement of concrete foundations (with the foundation work completed by a subcontractor in 2008).  In this instance, the owner’s claims against the general contractor are within the statute of repose and not barred.  Because, however, the concrete work was completed more than six years before the owner’s suit was filed, the general contractor will likely be time-barred from pursuing claims against the subcontractor who was responsible for the improper concrete work.

Sierra Pacific affects the risk-shifting that has traditionally occurred between construction professionals by contract, insurance or otherwise.  There are now additional circumstances for construction professionals to consider, particularly those professional who are involved near the end of, or through the completion of, a project.  The Construction practice group at RWO can assist construction professionals with minimizing the additional risk associated with this changing legal landscape.

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