Hammering builders versus nailing down property rights

Filed under: Focus |

The passage of Colorado House Bill 1161 mandated that homebuilders be allowed an opportunity to rectify construction defects before a homeowner or commercial property owner could file a lawsuit. Proponents of the bill said state legislators initiated HB 1161because of rapidly rising liability insurance costs and increasing construction lawsuits.

Gov. Bill Owens signed HB 1161 on April 25, 2003, and two days later Denver lawyers Scott Sullen and Cass McKenzie filed an initiative that counteracts the legislation. Amendment 34, which is slated for the November ballot, prohibits restrictions on any property owner’s right to file a lawsuit for the recovery of damages.

The naysayers claim that liability insurance costs will skyrocket, if Amendment 34 passes this fall.

Brad Ausmus is the general manager of Symphony Homes and Saddle Tree Homes, and he said his liability insurance rates have increased by 34 percent with a $100,000 deductible, in spite of HB 1161. “We pass on those price increases to the consumer,” Ausmus said. “Before HB 1161, insurance companies settled because they feared treble damages (which triple the costs of the jury’s award).”

Under current Colorado law, homeowner damages can be tripled only up to $250,000 – any amount above the $250,000 is actual damages, said Steve Durham, a political consultant and the owner of Colorado Winning Edge Inc. As an example of what happens if there are no limits on litigation, Durham cited a lawsuit that was filed in Denver in 2002, prior to HB 1161.

“Rider Homes is one of the oldest and most respected homebuilders in Denver,” he said. “The builder lost a case on a foundation problem concerning a home valued at $300,000. They offered to buy back the house at above market value – they offered everything to try and settle the case. The plaintiff wouldn’t settle for anything reasonable, and the judgment came in at $1.6 million.

No business or industry can survive if this is the norm, if cases are settled five to six times above the value of the home.

“Our evidence shows that, when the consumer gives notice to a homebuilder concerning a construction defect, roughly 90 percent of the time litigation is avoided.” However, he said Sullen and McKenzie paid $125,000 each to purchase the required signatures necessary for a ballot initiative that would amend the constitution and override HB 1161. “If this happens, common sense will cease to prevail, and greed will prevail,” Durham said.

Small builders will not prevail, Ausmus said. They will be forced by high insurance rates to retire their hard hats. Builders of multi-family-attached housing projects, such as condominiums, will be most affected because of class action suits, he said. “Those are usually the working man’s first home, and no one will be able to afford to buy.”

Durham said the average multi-family attached housing per-unit liability insurance cost is $10,000, but in Denver the average cost per condominium unit is 7 to 8 percent higher.

No matter how small or large, whether residential or commercial, Denver attorney Kevin Bridston said that he believes a number of carriers will stop providing basic liability coverage. Bridston is a Denver attorney with Holland & Hart, specializing in construction litigation.

Bridston, who typically represents builders and developers, said Amendment 34 prompts discretionary litigation. Even though anyone can be named in a lawsuit, HB 1161 has curbed the outrageous. But, he said that Amendment 34 opens the door a little wider for the inclusion of project managers, real estate agents, former homeowners, engineers, materials providers, engineers and even adjacent homeowners in a construction lawsuit.

“Commercial lawsuits have invited a lot of excessive claims and exaggerated problems when the real issues were simply about punch-list items,” Bridston said. “The overall goal of any lawsuit is to make sure there is fair compensation. Amendment 34 puts a hammer on the builders and creates uncertainty.”

Addressing those uncertainties locally is the Colorado Springs Home Builders Association. Kevin Walker is the vice-president of Nor’wood and president-elect of the 800-member Springs builders association. He said the association is working toward an economy that encourages people to buy houses, and he and Renee Zentz, the executive director of the association, are afraid the economy will plummet if the initiative passes. “We protect the industry, but this is about the bigger picture,” Zentz said.

Durham said Amendment 34 invites a big-picture disaster when it singles out, through the constitution, a certain industry. “How would you like your business – whether you are a car dealer, a dentist, a retail store owner or an insurance agent – to be the only business with a constitutional amendment that allows unlimited damages in a lawsuit”?

“It’s a bunch of lies,” said Clay Vigoda, Denver political consultant and the campaign manager for “Yes on Amendment 34.” Vigoda argues that property owners are the ones being singled out. “HB 1161 gives homebuilders and developers a set of rights that no other group has,” he said. “The legislation shames the way we deal with property rights and homes. We’ll give you the fair market value or whatever the lesser number, which means we can total homes much like we can total automobiles.”

Vigoda said that Amendment 34 reinstates Section 6 of the constitution, which he said was “ripped out” by HB 1161. “The only thing the amendment will change is that everyone will be treated the same under the law,” he said. “If you harm the other person, you need to make them whole. HB 1161 prevents property owners from being fully compensated.”

Vigoda’s family owns commercial buildings in the Denver area, and he said limiting damages is unfair in many cases. “In Denver two years ago, prior to HB 1161, a blizzard collapsed a 20,000 square-foot commercial building roof,” he said. “If the destruction had taken place after HB 1161 the builder would have been immune to any of the damages caused by the collapse.

“The builder might have fixed the roof, but he would not have been responsible for the damage to inventory, the clean up or lost revenues.

“And if the owner files a claim under his business insurance, the premiums go through the roof or the carrier cuts off the coverage completely.”

Vigoda said homebuilders and developers are using liability insurance costs as scare tactics. “After HB 1161 passed, two of the largest carriers left the state, and rates have continued to rise,” he said. “In June, Richmond Homes, one of the largest home builders in the state, filed an $18-million claim in construction defects with their insurance company. They are now suing the same insurance company for $50million-plus in treble damages. They want $32 million more, and then they will go to a self-insured program.

“It’s ludicrous to believe insurance rates are going to come down or not go up.”

Vigoda said homebuilders are outspending the Amendment 34 campaign to put forth the idea that HB 1161 is tort reform. He said it’s “tort destruction.”

“People should be treated fairly and others should be held accountable,” Vigoda said. “It’s a classic situation of heads we win, tails we tie.

Special rights are wrong, especially when it comes down to money.”

- Marylou.Doehrman@csbj.com