Bill Summary for Bill Number HB10-1394

Date: 04/07/2010

Final
BILL SUMMARY for HB10-1394

HOUSE COMMITTEE ON BUSINESS AFFAIRS AND LABOR

Votes: View-->	Action Taken:
Moved amendment L.001, (Attachment B), as amended Moved amendment L.002 (Attachment C). The motion Moved amendment L.003 (Attachment D), which amends Moved to refer House Bill 10-1394, as amended, to	Pass Without Objection Pass Without Objection Pass Without Objection PASS

10:57 AM -- House Bill 10-1394

Representative Rice, prime sponsor, presented House Bill 10-1394 concerning professional liability insurance policies issued to construction professionals. The Colorado Court of Appeals ruled in its 2009 decision (General Security Indemnity Company of Arizona v. Mountain States Mutual Casualty Company) that complaints in construction defect cases that only allege poor workmanship do not meet the definition of an occurrence that triggers a duty to defend in a commercial general liability policy (CGL). This bill defines property damage, including poor workmanship, as an occurrence that would trigger a CGL policy claim.

For the purposes of guiding pending and future actions in interpreting liability insurance policies issued to construction professionals, the bill imposes the following rules of contract construction to guide a court in such cases:

a court should presume that: compliance with a construction professional's objective, reasonable expectations are intended; the entire policy is to be effective and read as a whole; a just and reasonable result is intended; ambiguity in a policy is to be construed in favor of coverage; a result that renders a part of coverage illusory is not intended; and the work of a construction professional that results in property damage is an accident unless the property damage is intended and expected by the insured;
when weighing conflicting provisions, the court should construe the contract to favor coverage; and
the insurer bears the burden of proving that a policy provision limits or bars coverage.

The bill prohibits a professional liability insurer from excluding or limiting coverage of acts arising before the policy was issued unless the insured knows of defects that have a likelihood to subject the insurer to damages and fails to disclose this to the insurer. Finally, the bill states that an insurance policy that conflicts with this provision is unenforceable. Representative Rice distributed the following amendments:

Amendment L.001 (Attachment B);
Amendment L.002 (Attachment C); and
Amendment L.003 (Attachment D).

11:01 AM -- Scott Sullan, Attorney, and Dennis Polk, Attorney, testified in support of the bill. Mr. Sullan explained the need for the bill and talked about the court case ruling. He talked about the effects lack of insurance can have on home builders and homeowners.

11:08 AM

Mr. Polk talked about the types of clients he represents, including contractors and builders. He said the bill would eliminate costly litigation and gave an example of a case that has been in litigation for years. Mr. Polk explained that these types of cases need to go through federal district court which can take anywhere from four to six years. He showed some examples of advertisements from insurance companies.

11:16 AM -- Cathleen Heintz, representing the law firm Hall and Evans, testified against the bill. She talked about the complexity of insurance coverage in the construction industry and gave some examples of commercial general liability coverage and types of incidents it covers and the types it does not, including faulty workmanship. She said the bill takes the issue too far in the opposite direction and would cover all faulty workmanship.

11:29 AM

Representative Balmer gave some comments on the bill and asked for some suggestions from the witnesses regarding what the legislature can do to fix this issue. Ms. Heintz responded. Representative Soper asked whether contractors consider lawsuits when they begin a project. Ms. Heintz responded. Representative Middleton asked whether Ms. Heintz is supporting the bill or not. Ms. Heintz explained that she would be in favor of the bill if it were to be amended. Representative Rice asked the witness to explain specifically what they would like to see changed.

11:40 AM -- Jeff Ruebel, representing himself as a civil lawyer, testified against the bill and talked about the various clients that he represents, including claimants and the home builders. He said he opposes the bill in its current form because he wants to make sure there is not an overcorrection in the legislation. Mr. Ruebel explained that the insurance should not cover the faulty work, but should cover the damages that result from the faulty work. He said he would like to see the bill delayed so the parties can all come together and solve the problems the bill is looking to address. Representative Bradford said she senses immediacy with this issue and asked Mr. Ruebel to clarify a time frame and the issues he would like to continue to work on. He said an agreement hasn't been reached on the contractor's work and faulty work. He said another issue he had was with the reasonable expectation doctrine.

11:48 AM

Representative Rice stated that these issues should continue to be worked out, but the bill should continue to move through the process. Representative Balmer asked about the underwriting of construction defect insurance. Representative Liston commented on Amendment L.001. Representative Rice stated that all of the parties have an interest in solving this issue and getting the bill passed. Representative Balmer asked Representative Rice to explain who has worked on this bill. Representative Rice responded. Representative Balmer talked about the concerns the insurance companies have with the bill and asked whether the trial lawyers are in support. Representative Rice responded.

11:58 AM -- Dave Davia, representing the Association of General Contractors and the Colorado Association of Mechanical and Plumbing Contractors, testified in support of the bill with the amendments.

12:00 PM

Mr. Sullan and Mr. Polk returned to the table to explain the amendments.


BILL:	HB10-1394
TIME:	12:01:41 PM
MOVED:	Rice
MOTION:	Moved amendment L.001, (Attachment B), as amended by L.003 (Attachment D). The motion passed without objection.
SECONDED:	Casso
		VOTE
	Balmer
	Bradford
	Casso
	Kerr A.
	Liston
	Middleton
	Priola
	Soper
	Stephens
	Gagliardi
	Rice

Not Final YES: 0 NO: 0 EXC: 0 ABS: 0 FINAL ACTION: Pass Without Objection


BILL:	HB10-1394
TIME:	12:13:09 PM
MOVED:	Rice
MOTION:	Moved amendment L.003 (Attachment D), which amends Amendment L.001. The motion passed without objection.
SECONDED:	Casso
		VOTE
	Balmer
	Bradford
	Casso
	Kerr A.
	Liston
	Middleton
	Priola
	Soper
	Stephens
	Gagliardi
	Rice

Not Final YES: 0 NO: 0 EXC: 0 ABS: 0 FINAL ACTION: Pass Without Objection


BILL:	HB10-1394
TIME:	12:14:07 PM
MOVED:	Rice
MOTION:	Moved amendment L.002 (Attachment C). The motion passed without objection.
SECONDED:	Casso
		VOTE
	Balmer
	Bradford
	Casso
	Kerr A.
	Liston
	Middleton
	Priola
	Soper
	Stephens
	Gagliardi
	Rice

Not Final YES: 0 NO: 0 EXC: 0 ABS: 0 FINAL ACTION: Pass Without Objection

12:14 PM


BILL:	HB10-1394
TIME:	12:15:25 PM
MOVED:	Rice
MOTION:	Moved to refer House Bill 10-1394, as amended, to the Committee of the Whole. The motion passed 11-0.
SECONDED:	Casso
		VOTE
	Balmer	Yes
	Bradford	Yes
	Casso	Yes
	Kerr A.	Yes
	Liston	Yes
	Middleton	Yes
	Priola	Yes
	Soper	Yes
	Stephens	Yes
	Gagliardi	Yes
	Rice	Yes

Final YES: 11 NO: 0 EXC: 0 ABS: 0 FINAL ACTION: PASS