Date: 04/01/2009
Final
BILL SUMMARY for SB09-246
SENATE COMMITTEE ON STATE, VETERANS & MILITARY AFFAIRS
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03:22 PM -- Senate Bill 09-246
Senator Morse, prime sponsor, presented Senate Bill 09-246, concerning the award of moratory interest to claimants in residential construction defect actions, and in connection therewith, enacting the "Homeowner Protection Act of 2009." He said that Senate Bill 09-246 will "level the playing field" following an October, 2008 Supreme Court ruling. He noted that the bill will direct that moratory interest be paid to persons who prevail in home defect cases. He added that previous legislation specified damages that must be paid in these cases. As a result of the Supreme Court ruling, he noted that homeowners may not receive sufficient compensation to cover the cost of repairs to their homes. He said that most home builders in the state are concerned with the satisfaction of their customers.
The following persons testified in regard to Senate Bill 09-246:
03:35 PM -- Cass McKenzie, Morrison, representing MRH, LLC., supported Senate Bill 09-246, and commented on the adoption of prior legislation relating to home defects. He said that the bill will create an incentive for home builders "to come to the table." He described damages for which a homeowner in Colorado is eligible in home defect cases, including interest and attorneys fees. He said that there is no incentive for builders to settle a home defect case early unless the homeowner is willing to accept a significant reduction in damages. He said that this reluctance to settle cases results in homeowners who cannot sell their homes. He discussed the rates at which moratory interest will be paid under Senate Bill 09-246 and said that the rates are structured to encourage settlements. He noted that the bill provides incentives for all parties to take the process seriously. He commented on the level of attorneys fees in this type of case. He said that, typically, fees are 30 percent of the net recovery, although there is significant variance by case.
03:50 PM -- Bob Moody, representing the National Association of Industrial and Office Properties, opposed Senate Bill 09-246, and commented on in-fill, mixed-use developments. He said that the bill will negatively affect the success of the FasTracks program and will increase insurance costs. He said that the bill will hurt mixed-use developments and that costs and risks should not be added to the development industry during a recessionary period. He said that the bill will be an invitation to litigation and that the interest rate in the bill will not encourage settlements.
03:58 PM -- Tim Reilly, representing the National Association of Industrial and Office Properties, commented on the awarding of prejudgement interest. He said that the bill eliminates incentives for settlement. He commented on testing of homes for defects, and testing for window leaks in particular.
04:07 PM -- Bob Murphy, Mayor, Lakewood, commented on development of a mall in his city. He opposed Senate Bill 09-246, and said that it will cause developers to avoid pursuing residential projects. He said that the bill will create disincentives for the residential component of mixed-use projects and will result in increased risks of lawsuits. He noted that many communities in the metropolitan area are planning mixed-use developments.
04:11 PM -- Ed Tauer, Mayor, Aurora, opposed Senate Bill 09-246, and expressed concern with potential unintended consequences of the legislation. He reiterated that the bill could harm development projects. Senator Morse said that the risk level for harm that would be put in place by the bill will be the same risk level that was in place in 2008 prior to the Supreme Court ruling.
04:23 PM -- Joe Blake, representing the Denver Metro Chamber of Commerce, opposed Senate Bill 09-246. He said that his organization is the economic development agency for the Denver metropolitan area and that his goal is to make Colorado a place where companies want to locate. He said that this philosophy led to the Chamber's support for the FasTracks initiative. He said that transit-oriented development is necessary for FasTracks to succeed. He reiterated that the development industry is struggling and that insurance costs are high on the industry.
04:29 PM -- Don Bain, representing the Denver Metro Chamber of Commerce, said that he acts as an arbiter of disputes between homeowners and developers. He said that the Colorado Consumer Protection Act addresses situations in which a developer acts in bad faith and said that the bill appears to be an effort to increase attorneys fees. Senator Morse said that homeowners are deprived of the economic value of their homes to the extent that it is damaged in construction and that interest on these damages should be paid.
04:39 PM -- Bill Hornaday, representing the Associated General Contractors, said that Colorado is the third most litigious state in which his company operates and that his company no longer performs residential or condominium construction in the state. He said that the bill will create a disincentive for residential construction in Colorado, and will harm employment levels in the state. He said that the risk of lawsuits in residential construction is in the range of 25 percent to 50 percent.
04:48 PM -- Don Kortz, representing Colorado Concern, opposed Senate Bill 09-246, and said that no action should be taken that will harm the development industry. He reiterated that the bill will hurt high-density residential development. He said that the bill will discourage early and responsible settlement of cases, will increase housing costs, and will discourage job growth.
04:52 PM -- Kim Koehn, representing the Downtown Denver Partnership, said that adding to the costs of developers will hurt their businesses. He commented on a high-density residential project and noted that some developers will not bid on such projects.
04:56 PM -- Megan Pfanstiel, representing the Rocky Mountain Home Association, said that Colorado has six plants that build manufactured housing and that many are not operating at full capacity.
04:59 PM -- Kurt Steenhoek, representing the Denver Plumber's Union, opposed Senate Bill 09-246, and said that some builders will not bid on residential work. He reiterated that the bill may cause insurance costs to rise.
05:03 PM -- Jeff Ruebel, representing the Colorado Defense Lawyers Association, opposed Senate Bill 09-246. He reiterated that the bill may result in higher insurance costs, and said that the bill will create a new class of damages. He said that there is a question regarding coverage of the risk of home defects under insurance policies.
05:08 PM -- Brian Mulzahn, representing the Colorado Civil Justice League, spoke of the impact of Senate Bill 09-246 on general and professional liability policies. He commented on the notice of claim process under prior legislation, and said that the bill will negatively impact design professionals.
05:15 PM -- Sunny Banka, representing the Colorado Association of Realtors, opposed Senate Bill 09-246. She said that homeowners in the state currently have the ability to recover damages. She commented on a case relating to defects in a common area. She said that the bill will hurt continued sustainable development, and she reiterated that the bill will increase home prices.
05:19 PM -- Jim Mulligan, representing the Colorado Competitive Council, opposed Senate Bill 09-246. He stated that developers of mixed-use projects will cease this type of development in the state if Senate Bill 09-246 becomes law. He reiterated that Senate Bill 09-246 will create a new class of damages.
05:26 PM -- Mark Hamouz, representing the National Federation of Independent Businesses, opposed Senate Bill 09-246. He said that the bill will add time and costs to curing construction defect claims. He said that the bill will hurt the construction industry, and reiterated that the economy has hurt the construction industry. He added that the bill will create uncertainty.
05:29 PM -- Dave Davia, representing the Colorado Association of Mechanical and Plumbing Subcontractors, commented on his organization. He noted that housing starts have declined in Colorado. He reiterated that Senate Bill 09-246 may hurt the construction industry, and said that the bill will diminish affordable housing in the state.
05:35 PM -- Gary Frisch, representing the Professional Independent Insurance Agents of Colorado, said that the bill may result in higher insurance costs or reduced coverage for home builders. He commented on insurance policies that may be offered to home builders under Senate Bill 09-246.
05:34 PM -- Sami Boles, representing the Professional Independent Insurance Agents of Colorado, opposed Senate Bill 09-246.
05:43 PM -- Mark Goldberg, representing Goldberg Property Associates, reiterated that mixed-use developments are increasing in the state. He commented on warranties available to home purchasers. He said that the bill primarily addresses attorney fees.
05:48 PM -- Scott Hente, representing the Colorado Association of Home Builders, commented on liability insurance rates for home builders. He noted that several newspapers have published editorials opposing Senate Bill 09-246, and stated his opposition to the bill.
05:52 PM -- Dennis Polk, representing Holley, Albertson, and Polk, commented on the differences between moratory and statutory interest. He discussed the affect of inflation on costs of repairing home defects. He noted that home defect plaintiffs are able to recover for annoyance, inconvenience, and loss of use of their property.
06:02 PM -- Brad Ramming, Denver, representing himself, said that construction defect cases rarely go to trial and are most often settled. He said that there is no impediment to the settlement of cases that would require the introduction of Senate Bill 09-246.
06:07 PM -- Ivan Sarkissian, Englewood, representing himself, opposed Senate Bill 09-246, and said that more is to be gained by having the parties work together instead of pursuing a court case. He said that the bill will make cases more difficult to resolve.
06:11 PM -- David Keller, Keller Homes, Inc., said that the vast majority of home builders do a good job in taking care of homeowners. He noted that his family has built more than 3,300 homes in Colorado Springs, and said that the bill will only benefit trial attorneys. He reiterated that the bill will raise insurance costs. He suggested that the General Assembly consider new professional licensure requirements instead of the bill. He commented on insurance costs for his business.
06:17 PM -- Dick Hepworth, representing the Colorado Engineering Council, opposed the bill.
06:18 PM -- Alan Lishow, representing the Colorado Association of Geotechnical Engineers, commented on services provided by engineers and opposed Senate Bill 09-246. He reiterated that insurance costs are increasing, and said that the bill will push professional engineers out of the residential construction market.
06:22 PM -- Dick Hepworth returned to the table and said that the bill addresses large projects. He commented further on home defect claims.
06:23 PM -- Brad Shefrin, representing Wayne's Electric, commented on interest costs that may be potentially paid under Senate Bill 09-246. He noted that there is the potential for the payment of up to eight years of interest for construction defects in Colorado. He said that the bill may lead to "double recoveries" in home defect cases, and he said that frivolous claims for home defects have been filed.
06:27 PM
Recess.
06:41 PM
The committee meeting reconvened.
06:41 PM -- David Firmin, representing Hindman Sanchez, said that his law firm represents homeowners' associations. He said that these associations do not have the resources to cover construction defects and that the bill will encourage faster settlements of construction defect cases.
06:43 PM -- Doug McMurrain, Edwards, representing himself, said that his home is sinking and that it will have to be torn down. He said that insurance is a very small cost to developers, and that rates are going up because insurance companies have made bad investments. He said that the bill will not hurt business in the state. He said that his home problems have been ongoing for two years, and that developers settle typically just before trial.
06:50 PM -- Jan Hamann, Fort Collins, representing herself, spoke of construction defects at her townhome complex. She said that construction defects have caused a decline in her homeowners' association reserve fund. She said that the construction defects cause safety issues and are a financial strain on homeowners in her association. She said that state government should create incentives to settle home defect cases. She said that she has had trouble communicating with the builder of her complex, and that an unsatisfactory offer was made by the builder.
07:02 PM -- Lee Thormahlen, Centennial, representing himself, supported Senate Bill 09-246. He spoke of his problems with construction defects on a condominium he purchased. He commented on the types of defects affecting his property.
07:09 PM -- Tony DeLorenzo, Broomfield, representing himself, commented on construction defects on his property. He said that architects have recommended that the property be torn down. He said that he cannot sell or refinance the property. He said that the builder of his home has admitted its liability, but that since the 2008 Supreme Court ruling the builder does not need to take responsibility for the repairs.
07:13 PM -- Mark Hildebrand, Aurora, representing himself, commented on construction defects to his home. He said that he has sued the home builder and the case went to trial in 2008. He said that he cannot sell or refinance his home and that the lawsuit has taken an emotional toll on him. He said that a bad economy should not prevent a good bill from being passed. Senator Schultheis said that he is frustrated by inspectors who do not do their jobs.
07:23 PM -- Brian Way, representing the Homeowners' Association of Stone Canyon, commented on construction defects on the property of the association. He noted that repairs have depleted his association's reserve funds.
07:27 PM -- Renee Hughes, representing the Progress Park Condominiums, said that few homeowners' associations experience construction defects and the resulting litigation. She commented on the progress of a lawsuit on behalf of her association addressing construction defects. She noted that the unit prices in the complex has fallen. She said that a special assessment of $13,000 per unit will be necessary if the bill is not enacted.
07:32 PM -- Jane Edmunds, representing the Windmill Creek homeowners' association, commented on construction defects at her association's property. She said that she is involved in a construction defect lawsuit with a trial date set for November, 2009. She noted that her HOA's funds have been depleted.
07:38 PM -- Shirley McAthie, representing the Windmill Creek Homeowners' Association, supported Senate Bill 09-246. She said that insurance rates are going up for builders because of poor workmanship.
07:48 PM -- Nancy Varney, Denver, representing herself,said that builders and insurers will do business in Colorado if there is demand for homes. She said that the builders should do construction work correctly from the outset. She commented on construction defects in her home and said that she is unable to sell her property.
07:54 PM -- Alex Gury, Denver, representing himself, said that his family is in the business of real estate development. He spoke of construction defects at his association's property. He said that his condominium is now worth nothing and is unsellable. He said that even if he wins a court case relating to his condominium he will only be able to repair about 60 percent of the damage to his property after attorney's fees are paid.
08:03 PM -- Scott Sullan, Snowmass, representing himself, commented on his law practice and said that home builders have sought to limit homeowners rights in the past at the General Assembly. He said that home builders have argued that their companies will not be able to do business in the state or obtain insurance if certain legislation is adopted. He said that it is reasonable to make a homeowner whole in the case of home defects. He said that after the recent Colorado Supreme Court ruling, only the cost of repair or fair market value of a home are recoverable. He said that the ruling will cause homeowners who have construction defects to be short 40 percent of the cost of repairing their homes. Mr. Sullan said that, in many cases, costs advanced by a law firm pursuing a construction defect case exceed $1 million and he noted that "attorneys must also make a living." He said that home builders reap enormous profits by building improperly and inexpensively, and that interest should be paid on that profit in a construction defect award. He commented on industry window testing by water. He said that extrapolation of damages from one part of a building to other parts of the building is not allowed under Colorado law. He commented on the rate of the interest to be paid to homeowners who win in court. He said that builders include subcontractors who have had minimal involvement with a property in court cases. He noted that governmental inspectors cannot be sued due to governmental immunity and that builders do not rely on inspectors to prevent poor construction. He said that building inspectors emphasize life, health, and safety aspects of construction. He said that he is willing to consider a compromise on the rate of interest to be paid under the bill. He said that Colorado is not one of the "hot bed states" relative to construction defects. He said that the bill is necessary just to return homeowners to their condition prior to the Supreme Court ruling. He said that developers make money on funds that should have been used for proper construction initially.
08:57 PM
Senator Morse said that builders who are at fault will always postpone payment for construction defect costs for as long as possible.
08:59 PM
Senator Williams took the bill off of the table. The committee meeting recessed.