Colorado Capitol Report

In this Capitol Report:

• CACI Board of Directors Votes to Support Construction Litigation Reform Bills
• Labor and Employment Council Endorses Regulatory Reform Bill, SB-186
• Governmental Affairs Council Votes to Support SB-191, Interest Rate on Judgements
• CACI’s Legislative Agenda

CACI Board of Directors Votes to Support Construction Litigation Reform Bills

Yesterday, the CACI Board of Directors voted to support five bills intended to reform the state’s construction litigation laws to enable builders to begin again building more condominiums and town homes that are governed by homeowners associations (HOAs).

For several years, the Colorado General Assembly has vigorously debated the issue of construction litigation reform.  CACI’s general policy has been to support business efforts to reform the state statutes dealing with the issue.  Progress has been stalemated, however, because the two camps have had opposing views.

Republicans, the business community and the Metro Denver Mayors’ Caucus have generally sought to lessen the liability of builders facing class-action lawsuits from HOAs by various legislative proposals such as sending disputes to binding arbitration.

Meanwhile, Democrats have mainly sought to protect the right of owners of condominiums and townhouses to sue builders for alleged construction defects.  Two major players in this camp are the Colorado Trial Lawyers Association and homeowners associations.

Under the umbrella of bipartisanship spearheaded by the leadership of the House and the Senate, there is at least a glimmer of hope this session that progress will be made.  House Speaker Crisanta Duran (R-Denver) and Senate President Kevin Grantham (R-Canon City) have been meeting for months to work out a bipartisan agreement on this issue.  In particular, both are co-sponsoring one of the bills, SB-45.

At CACI’s January 26^th Colorado Business Day Luncheon, Speaker Duran said the SB-45 is a “good starting point” to address the issue of high liability-insurance premiums for condominium developers.  She said she wants to do more to “empower consumers and homeowners” before they become involved in a lawsuit against a builder for alleged defects.  She wants to involve the “stakeholders” in the discussion.  The Speaker also said she is not sure that mandatory arbitration would lower the cost of insurance for builders.

Here are the five bills–and there is a chance that several more may be introduced:

SB-155

SB-155, “Statutory Definition of Construction Defect,” is sponsored by two Republicans, Senator Jack Tate (Centennial) and Representative Lori Saine (Dacono).  Here’s the introduced bill’s description:

The bill separately defines and clarifies the term ‘construction defect’ in the ‘Construction Defect Action Reform Act’.

The bill was assigned to the Senate Business, Labor and Technology Committee, but it has not yet been calendared for a hearing.  The bill’s Fiscal Note summarizes the bill this way:

Summary of Legislation

The bill defines the term “construction defect” to mean a defect in the design or construction of any improvement to real property that causes damages to or the loss of use of personal property, or causes personal injury.

SB-156

SB-156, “Homeowners’ Association Construction Defect Lawsuit Approval Timelines,” is sponsored in the Senate by Republican Senator Owen Hill (Colorado Springs).  The two House sponsors are Republican Representatives Cole Wist and Lori Saine.

Here’s the introduced bill’s description:

The bill states that when the governing documents of a common interest community require mediation or arbitration of a construction defect claim and the requirement is later amended or removed, mediation or arbitration is still required for a construction defect claim. These provisions are in section 3 of the bill. Section 3 also specifies that the mediation or arbitration must take place in the judicial district in which the community is located and that the arbitrator must:

• Be a neutral third party;
• Make certain disclosures before being selected; and
• Be selected as specified in the common interest community’s governing documents or, if not so specified, in accordance with applicable state or federal laws governing mediation or arbitration.

Section 1 of the bill specifies that, in the arbitration of a construction defect action, the arbitrator is required to follow the substantive law of Colorado with regard to any applicable claim or defense and any remedy granted, and a failure to do so is grounds for a district court to vacate or refuse to confirm the arbitrator’s award.

Section 4 of the bill requires that, before a construction defect claim is filed on behalf of the association:

• The parties must submit the matter to mediation before a neutral third party; and
• The board must give advance notice to all unit owners, together with a disclosure of the projected costs, duration, and financial impact of the construction defect claim, and must obtain the written consent of the owners of units to which at least a majority of the votes in the association are allocated.

Section 5 of the bill adds to the disclosures required prior to the purchase and sale of property in a common interest community a notice that the community’s governing documents may require binding arbitration of certain disputes.

The bill’s Fiscal Note provides this analysis of the bill:

Summary of Legislation

The bill requires that a homeowners’ association (HOA) use mediation or arbitration before a lawsuit can be filed in disputes involving construction defects against a development party. If an HOA had governing documents that required mediation or arbitration at the time of construction, the HOA must adhere to that original policy in construction defect cases.

The parties involved in a dispute must mutually agree upon a mediation or arbitration service provider, with preference given to a provider specified in the HOA governing documents. The mediation or arbitration must take place at a mutually agreeable location in the judicial district in which the HOA is located. The mediator or arbitrator must:

1. be a neutral third party;
2. make certain disclosures before being selected; and
3. be qualified in accordance with applicable state or federal laws governing mediation and arbitration.

If no mediation or arbitration service provider is outlined in the HOA governing documents, and the parties are unable to agree upon a provider, the parties may petition the district court in the HOA’s jurisdiction to appoint the provider. In the arbitration of a construction defect action, the arbitrator is required to follow the substantive state law with regard to any claim, defense, or remedy granted, and a failure to do so is grounds for a district court to vacate or refuse to confirm the arbitrator’s award.

In addition to submitting to mediation or arbitration before filing a lawsuit, the HOA’s executive board must send an advance notice to all unit owners that includes a general description of the claim, the relief sought, and a good-faith estimate of the benefits and risks involved in a format outlined in the bill. The HOA’s executive board must obtain signed, written consent from a majority of the unit owners acknowledging that the owner has received the notice required under the bill and approves of the board’s proposed action.

Prior to the purchase and sale of property in an HOA, the bill requires that a disclosure notice inform the purchaser that he or she is required to become a member of the HOA, and that the community bylaws may require that certain disputes be resolved by mandatory binding arbitration.

The bill also adds notice requirements for lawsuits initiated by HOAs in matters other than construction defect claims. Specifically, the HOA must provide notice to unit owners at least 30 days prior to commencement of the legal action.

SB-156 is scheduled for a hearing by the Senate Business, Labor and Technology Committee when it convenes at 2 p.m. for a session this coming Monday, February 27^th, in Room 271 at the State Capitol.

SB-157

SB-157, “Construction Defect Actions Notice Vote Approval,” is sponsored in the Senate by Senator Angela Williams (D-Denver) and in the House by Representative Jovan Melton (D-Aurora).

Here’s the legislature’s summary of the introduced bill:

The bill requires that, before the executive board of a unit owners’ association (HOA) in a common interest community brings suit against a developer or builder on behalf of unit owners, the board must:

• Notify all unit owners; and
• Except when the HOA contracted with the developer or builder for the work complained of or the amount in controversy is less than $100,000, obtain the approval of a majority of the unit owners after giving them detailed disclosures about the lawsuit and its potential costs and benefits.

The bill also limits the amount and type of contact that a developer or builder that is potentially subject to a lawsuit may have with individual unit owners while the HOA is seeking their approval for the lawsuit.

Introduced a week ago today, the bill was assigned to the Senate Business Labor and Technology Committee, which has not yet scheduled a hearing for the bill.  A Fiscal Note has not yet been issued for the bill.

SB-45

SB-45, “Construction Defect Claim Allocation of Defense Costs,” stands out among the other bills in that is has bipartisan, leadership sponsorship in both chambers.  In the Senate, the bill is sponsored by Senate President Grantham and Senator Angela Williams (D-Denver).  In the House, the sponsors are Speaker Duran and Senate Assistant Minority Leader Cole Wist (R-Centennial).  Because of the sponsors, statehouse participants give the bill the best chance of being passed by the legislature and sent to Governor John Hickenlooper (D) for his signature.

As introduced, SB-45 is summarized in the following way on the legislature’s Web site:

In a construction defect action in which more than one insurer has a duty to defend a party, the bill requires the court to apportion the costs of defense, including reasonable attorney fees, among all insurers with a duty to defend. An initial order apportioning costs must be made within 90 days after an insurer files its claim for contribution, and the court must make a final apportionment of costs after entry of a final judgment resolving all of the underlying claims against the insured. An insurer seeking contribution may also make a claim against an insured or additional insured who chose not to procure liability insurance for a period of time relevant to the underlying action. A claim for contribution may be assigned and does not affect any insurer’s duty to defend.

The bill was heard by the Senate Business, Labor and Technology Committee on February 8^th.  After being amended on an unanimous vote, the Committee passed the bill on a six-to-one vote and sent it to the Senate Appropriations Committee.  Only Democrat Senator Cheri Jahn (Wheat Ridge) voted against the bill.

The bill’s Fiscal Note states that the cost to the Colorado Judicial Department, if the bill becomes law, will be just over $300,000 in fiscal year 2017-2018, which begins this July 1^st, and just over $255,000 in the following year.  Here’s the fiscal note’s analysis of the bill:

Summary of Legislation

In civil suits brought to court as a result of an alleged construction defect, this bill allows an insurance company to request that the court apportion the defense costs (e.g., attorney fees) equitably among all liability insurers who have a duty to defend against the claim. The bill requires that the district court set the contribution claim within 90 days after the filing of the action, and promptly resolve the case. The district court is required to enter such orders as are necessary to hold an expedited evidentiary hearing. Following a final judgment resolving all claims, any insurer may apply to the district court for a final apportionment of the defense costs, and the district court must equitably allocate defense costs among the insurers.

HB-1169

HB-1169, “Construction Defect Litigation Builder’s Right To Repair,” is sponsored by Representative Tim Leonard (R-Evergreen) and Senator Jack Tate (R-Centennial).

Here’s the summary of the introduced bill:

The bill clarifies that a construction professional has the right to receive notice from a prospective claimant concerning an alleged construction defect; to inspect the property; and then to elect to either repair the defect or tender an offer of settlement before the claimant can file a lawsuit seeking damages.

The bill’s Fiscal Note provides this analysis:

Summary of Legislation

Under current law, before a claimant can bring suit against a builder for alleged construction defects, the claimant must notify the builder of the intent to bring suit, and allow the builder and his or her sub contractors reasonable access to the property to inspect the claimed defect. Following this inspection, the builder may offer to settle the claim with a monetary offer, or agree to remedy the claimed defect. A written offer to remedy the defect must include details concerning the defect found as a result of the inspection, a description of the additional work necessary to remedy the defect, and a timetable for completion.

This bill requires that a builder’s written notice also include an offer of monetary compensation for lodging and storage if the claimant will be required to vacate the property during the remedy. If the construction professional does not give notice of an election to repair, or if the claimant rejects either a monetary settlement or an offer to repair, the claimant may commence an action in the courts.

The bill has been assigned to the House State, Veterans and Military Affairs Committee instead of to the House Business Affairs and Labor Committee.  The first Committee is known under the Gold Dome as the Speaker’s “kill committee.”

The bill is up for a hearing when the Committee convenes at 1:30 p.m. on Wednesday, March 1^st, in Room A in the Legislative Services Building.

More Information

For more information on the five bills, contact Loren Furman, CACI Senior Vice President, State and Federal Relations, at 303.866.9642.

Labor and Employment Council Endorses Regulatory Reform Bill, SB-186

The Labor and Employment Council met Wednesday and voted to support SB-186, “Reduce Regulatory Burden Rules On Businesses,” sponsored by Senator Jack Tate (R-Centennial).

The bill is scheduled for a hearing on Monday, February 27^th, when the Senate Business, Labor and Technology Committee convenes at 2 p.m. in Room 271.

Here’s the legislature’s description of the introduced version of SB-186

The ‘State Administrative Procedure Act’ (APA) currently defines a small business as a business with fewer than 500 employees. The bill redefines ‘small business’, for purposes of the APA, to mean a business entity, including its affiliates, that:

• Is independently owned and operated and employs fewer than 500 employees; or
• Has gross annual sales of less than $6 million.

Prior to adopting rules, an agency is required to prepare a regulatory flexibility analysis in which the agency considers using regulatory methods that will accomplish the objectives of applicable statutes while minimizing the adverse impact on small businesses. For purposes of the regulatory flexibility analysis, the bill defines ‘small business’ as a business that is independently owned and operated and employs 100 or fewer employees.

When preparing the regulatory flexibility analysis, the agency shall consider methods to reduce the impact on small businesses, such as:

• Establishing less stringent compliance or reporting requirements;
• Establishing less stringent schedules or deadlines for compliance or reporting;
• Consolidating or simplifying compliance or reporting requirements;
• Establishing different performance standards; and
• Exemptions for small businesses.

The agency shall also:

• Determine the necessity for the proposed rules;
• Identify the fiscal impact of the rules;
• Identify and analyze the least costly alternatives to the rules and adopt the least costly alternatives unless the agency provides written justification for adopting a more costly regulatory approach; and
• Analyze whether small businesses should be exempted from the rules or whether less burdensome rules should be applied to small businesses and adopt exemptions or less burdensome rules, unless the agency provides written justification for a more burdensome regulatory approach.

The agency shall file the regulatory flexibility analysis with the secretary of state for publication in the Colorado register at the same time that it files its notice of proposed rule-making and the draft of proposed rules.

The existing provision in the APA on forming representative groups to give input on proposed rules is amended to require any state agency (agency) proposing rules that are likely to have an impact on small businesses to expand outreach to and actively solicit representatives of small businesses to participate in the representative group and in the rule-making hearing for the rules. The agency must make good faith efforts to expand outreach and notification to small businesses that lack a trade association or lobbyist to represent the types of small businesses impacted by the proposed rules.

The executive director of the department of regulatory agencies, or his or her designee, shall develop a one-stop location on the department’s website that provides a place for small businesses and the public to access the regulatory flexibility analyses that are prepared by state agencies.

A small business that is adversely affected or aggrieved by the failure of the agency to comply with the regulatory flexibility analysis requirements may file a request with the executive director of the department of regulatory agencies to require the agency to prepare a cost-benefit analysis of the proposed rules and to direct the agency to adjust the rule-making schedule to allow for the preparation of the cost-benefit analysis.

Meanwhile, the bill’s Fiscal Note contains this separate analysis:

Summary of Legislation

The bill makes changes to state law related to the adoption of rules by state agencies that impact small businesses.

Regulatory flexibility analyses. The bill requires that prior to the adoption of any rule, a state agency must prepare a regulatory flexibility analysis aimed at minimizing the impact of the rule on small businesses. For the purposes of the regulatory flexibility analyses, the bill defines a small business as one that is independently owned and employs 100 employees or fewer. The flexibility analysis must:

• consider less stringent compliance or reporting requirements, schedules, and deadlines; performance standards for small businesses; exemptions of small businesses from all or any of the proposed requirements; and whether less burdensome rules may applied to small businesses;
• determine the necessity of proposed rules, including a finding that rules are necessary based on state or federal law, a court ruling, public health and safety, or requests by the regulated community;
• determine the fiscal impact of the proposed rules on small businesses; and
• identify least costly alternatives to the proposed rules.

If the proposed rule is adopted, the agency must adopt the least costly alternative and any exemptions or less burdensome rules identified in the flexibility analysis, unless the agency provides written justification. The regulatory flexibility analysis must be made available five days prior to a public hearing, and must be filed with the Secretary of State’s Office (SOS) at the same time as the notice of proposed rulemaking and the proposed rules.

If a small business is adversely affected by an action of an agency, or not satisfied with the flexibility analysis, the business may file a request with the Department of Regulatory Agencies (DORA) for the agency to prepare a cost-benefit analysis. The executive director of DORA must decide whether to require a cost-benefit analysis and may adjust the rulemaking schedule accordingly.

Outreach. Under current law, agencies must convene a representative stakeholder group to participate in public rulemaking hearings and submit views on the proposals. The bill requires state agencies proposing rules that likely impact small businesses to actively solicit representatives of small businesses to participate in the stakeholder groups, as well as to expand outreach and notification to small businesses that may not be represented by a trade association or lobbyist. The bill requires that DORA maintain a website that includes the regulatory flexibility analyses.

Definitions. Under the Administrative Procedures Act (APA), a small business is defined as a business with fewer than 500 employees. The bill modifies the definition in the APA to mean a business entity that is independently owned and operated, employs fewer than 500 employees, and has gross annual sales of less than $6 million. This definition does not apply to the required regulatory flexibility analyses.

Background

Rulemaking. Under current law, administrative rules are promulgated in accordance with the APA. When an agency wants to promulgate a new rule or amend an existing rule, it must first file a “Notice of Proposed Rulemaking” with the SOS, which publishes a public notice in the Colorado Register. Once the notice is filed with the SOS, the public is allowed to offer comments on the proposed rule, and may request a cost-benefit analysis. Agencies must accept and consider comments from the public before the agency can adopt, amend, or otherwise change any regulation not explicitly exempted from the APA. Following a hearing on a proposed rule, the agency has 180 days to file adopted rules with the SOS.

The bill’s Fiscal Note, however, presents a possible problem for the bill’s survival.  If it becomes law, the bill is projected to bring in about $1.22 million in revenue in the next two years beginning July 1^st while at the same time costing the State $1.35 million.  When the State’s budget is tight and the legislature is considering cuts, a fiscal note can be the “kiss of death” for a bill when it reaches an appropriations committee.

For more information on the SB-186, contact Loren Furman, CACI Senior Vice President, State and Federal Relations, at 303.866.9642.

Governmental Affairs Council Votes to Support SB-191, Interest Rate on Judgements

On Tuesday, the Governmental Affairs Council voted to support SB-191, “Market-based Interest Rates On Judgments,” which is sponsored by Senator Jack Tate (R-Centennial).

Here’s the legislative description of the introduced bill:

The current rate of postjudgment interest is 2% over the Kansas City discount rate with a floor of 8%. The bill eliminates the floor.

The current interest rate for judgments for personal injury damages caused by a tort is 9%. The bill ties this interest rate to the current rate of postjudgment interest.

The bill’s Fiscal Note presents this summary:

Summary of Legislation

Beginning on January 1, 2018, this bill eliminates the minimum post-judgment interest rate. It also requires that the interest rate on damages for personal injuries caused by tort be the same rate in statute as the post-judgment interest rate. It changes the date by which the Secretary of State is to establish the annual rate of post-judgment interest from December 21 to January 2 of each year.

Background

Post-judgment interest is a rate of interest applied between the date of a court’s award to the date payment is received. Under current law, the rate is two percent over the Kansas City discount rate, with a minimum of eight percent. The current rate for personal injury damages caused by a tort is nine percent. The Secretary of State certifies the rate of interest on appealed judgments.

The bill has been assigned to the Senate Judiciary Committee, but it has not yet been scheduled for a hearing.

For more information on SB-191, contact Loren Furman, CACI Senior Vice President, State and Federal Relations, at 303.866.9642.

CACI’s Legislative Agenda

Below is a list of bills and their status on which CACI policy Councils and the Board of Directors have taken positions.  For more information on the bills, contact Loren Furman, CACI Senior Vice President, State and Federal Relations, at 303.866.9642.