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Colorado Supreme Court Clarifies Time Requirements for Asserting Third-Party Claims in Construction Defect Litigation

March 2, 2017

A recent Colorado Supreme Court case has clarified the statutory tolling provision concerning third-party construction defect claims. In Goodman v. Heritage Builders, Inc., 2017 CO 13, the Court held that such claims are timely—irrespective of the general construction defect statutes of limitations and repose—so long as they are asserted within the 90-day period set forth in 13-80-104(a)(b)(II), C.R.S.

Generally speaking, construction defect claims are subject to a two-year statute of limitations, 13-80-102, and a six-year statute of repose, which can extend up to an additional two years for claims arising during the fifth or sixth years after substantial completion. 13-80-104(1)(a). Third-party construction defect claims, however, are governed by section 13-80-104(1)(b)(II), which provides:

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 90 days after the claims arise, and not thereafter.

Such third-party claims may be asserted during the principal construction defect litigation, or within the 90-day period following settlement or final judgment of such litigation. CLPF-Parkridge One, L.P. v. Harwell Investments, Inc., 105 P.3d 658, 665 (Colo. 2005).

In a series of cases, the Colorado Court of Appeals held that, while section 13-80-104(1)(b)(II) tolled the statute of limitations for construction defect claims by general contractors against subcontractors, it did not affect operation of the statute of repose. See Sierra Pac. Indus., Inc. v. Bradbury, 2016 COA 132; Shaw Const., LLC v. United Builder Servs., Inc., 2012 COA 24; Thermo Dev., Inc. v. Cent. Masonry Corp., 195 P.3d 1166 (Colo. App. 2008). In short, these cases held that a third-party construction defect claim asserted after the statute of repose period had run was barred regardless of whether the claim was asserted within the 90-day period provided by section 13-80-104(1)(b)(II). The Colorado Supreme Court disagreed.

In Goodman, the Court found that “the phrase ‘[n]otwithstanding the provisions of paragraph (a) of this subsection (1),’ plainly and unambiguously precludes the application of both the statute of limitations in section 13-80-102 and statute of repose in section 13-80-104(1)(a) to third-party claims made pursuant to section 13-80-104(1)(b)(II).” Accordingly, the Court overruled the previous Court of Appeals decisions and held that “the statute of repose is irrelevant for purposes of third-party claims brought under section 13-80-104(1)(b)(II).”

The Colorado Supreme Court’s decision in Goodman benefits general contractors by clarifying an ambiguity concerning when they must assert third-party claims against their subcontractors and suppliers and allowing such claims regardless of whether the statute of repose period expired. For subcontractors and suppliers, however, the decision provides a mixed bag. On one hand, subcontractors and suppliers cannot rely on the six- (up to eight)-year statute of repose as an absolute bar to claims against them. They may have to defend against claims first brought an undeterminable number of years after substantial completion if litigation involving the general contractor is drawn out. On the other hand, the decision may ultimately reduce the number of claims asserted against subcontractors and suppliers by removing the incentive for general contractors to prematurely file third-party claims rather than risk being barred by the statute of repose.

For more information on this or other issues concerning construction litigation, please contact the authors of this article or visit the DGS website.