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Written By: Anne K. McMichael, Esq.

Zupkus & Angell, P.C.

Denver, CO

For 12 years, the Construction Defect Action Reform Act (C.R.S. § 13-20-801, et. Seq.) or “CDARA”, has governed how construction defect litigation and arbitration actions are conducted in Colorado.  While portions of this act are reasonably straightforward, several of the sections are subject to ongoing debate as to how these concepts should be applied to achieve fair and unbiased results.  The purpose of this article is to provide a summary of how CDARA is applied to construction defect claims.

What is the Construction Defect Action Reform Act?

In 2001, after significant lobbying by Colorado’s insurance and construction industry, the Colorado General Assembly passed CDARA in an attempt to regulate all claims and litigation in which a party is claiming construction defects.  Amended in 2003, CDARA was created with the intention of curbing frivolous lawsuits involving the construction industry and limiting the liability of all construction professionals.

Colorado’s CDARA governs all actions (including arbitration) brought against a “construction professional” that asserts a claim “caused by a defect in the design or construction of an improvement to real property.”  A “construction professional” is defined as “an architect, contractor, subcontractor, developer, builder, builder vendor, engineer, or inspector performing or furnishing the design, supervision, inspection, construction, or observation of the construction of any improvement to real property”.  As evidenced by this definition, CDARA is applicable to almost everyone involved in the construction process.

The Notice of Claim Process

In accordance with CDARA, any party claiming construction or design defects must provide a pre-litigation Notice of Claim Process (“NOC”). The purpose of the NOC is to provide the construction professional with a notice, 75 days prior to filing litigation (or 90 days prior in the case of commercial property), describing the construction and/or design defects.  30 days after receiving the NOC, the construction professional must be allowed to physically inspect the claimed defects.  After the conclusion of the 30-day inspection period, the construction professional is provided an additional 30 day (or 45 days in the case of commercial property) to tender an offer to settle the claim through corrective work or payment.  This optional offer must be accepted by the party claiming the construction and/or design defects within 15 days.  If settlement is not achieved, the claiming party may initiate litigation against the construction professional.

Should a party claiming construction and/or design defects fail to comply with CDARA’s NOC process, the case will be stayed until this process is completed.  If a construction professional fails to: (1) provide an offer, (2) fulfill any settlement agreement, or (3) the claiming party rejects a settlement offer that is below the cost to correct the alleged defects, CDARA denies the construction professional from several of the liability protections afforded under the law.

The purpose of the NOC process is to provide an opportunity to settle or mediate a construction defect claim in a prompt and cost-effective manner, avoiding litigation.  The NOC process also allows the investigation and evaluation of the alleged defects (usually through the involvement of an expert).  This investigation provides all parties involved with a better understanding of the alleged defects in order to determine a reasonable settlement.

Limiting Damages Related to Construction Defects

Under CDARA, a party claiming damages related to construction and/or design defects may not recover more than “actual damages” unless there is a violation of the Colorado Consumer Protection Act.  “Actual damages” is defined as “the lesser of the: (1) fair market value of the real property without the alleged construction defect; (2) replacement cost of the real property; or (3) reasonable cost to repair the alleged construction defect, together with ‘relocation costs.’”  CDARA also requires that the party claiming construction defects file an initial list of alleged defects in any arbitration or litigation.  This list may be amended if additional defects are discovered. CDARA also limits the type of negligence claims that may be asserted by a party.  Finally, CDARA allows parties making construction defect claims additional time to file an action under the relevant statute of limitations to recover damages if the NOC process was completed.

Conclusion

While this summary may depict CDARA as fairly uncomplicated, this body of law and how to interpret and apply it to construction defect cases is a constant source of debate amongst construction defect litigators.  Colorado’s construction defect law is continually evolving to address the interests of the homeowners, builders, designers and manufacturers alike.  This ever-changing legislation serves as an indicator to construction litigators in Colorado that this body of law will not become static anytime in the near future.

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