September 18, 2008

Court of Appeals Delivers A Blow To Pay And Chase In Colorado

By Tim Gordon

NOTE: BASED ON THE SUPREME COURT’S DECISION IN GOODMAN V. HERITAGE BUILDERS, INC., 2017 CO 13, THE HOLDING OF THIS CASE IS NO LONGER GOOD LAW.  SEE HERE.

Thermo Development, Inc. v. Central Masonry Corp. (Colo. App. Sept. 18, 2008)

The Colorado Court of Appeals rules that statute allowing the maintenance of an indemnification action within 90 days of settling an underlying lawsuit does not toll the six-year statute of repose.

Section 13-80-104(1)(b)(II)(B), C.R.S., provides the following 90-day tolling provision for indemnification claims related to construction:

[A]ll claims, including, but not limited to indemnity or contribution, 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]rise 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 . . . [s]hall be brought within ninety days after the claims arise, and not thereafter.

In a nutshell, this allows general contractors to defend against construction-defects claims without having to bring third-party claims against every subcontractor and supplier.  Instead, the general contractor can, within 90 days after judgment or settlement of the defects lawsuit, bring an indemnification action against the proper subcontractors.  As acknowledged by the Court of Appeals, “[t]he purpose of section 13-80-104(1)(b)(II) was to streamline construction defect litigation by . . . defer[ring] the running of the statute of limitations on indemnity and contribution claims that construction professionals who are defendants in construction defect lawsuits might have against another person.”

Despite the intent of the tolling provision, the Court of Appeals upheld a district court’s ruling that the indemnification statute does not toll the six-year statute of repose.  Under the statute of repose, in no case shall an action against any architect, contractor, builder or builder vendor, engineer, or inspector performing or furnishing the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property be brought more than six years after the substantial completion of the improvement to the real property.  Section 13-80-104(1)(a).

This decision may have a number of impacts.  First, in cases where the statute of repose may expire prior to the projected trial date, the indemnification claims will have to be brought into the main lawsuit.  Second, in cases where potential third-party defendants have not been brought into the lawsuit, either achieving a settlement or getting a trial date that is prior to the running of the statute of repose will be key to the defendant.  Given the uncertainty of how long a defects lawsuit will take to go to trial, the likely result of this decision is that parties will not gamble on being able to rely on the 90-day tolling period, and instead bring third-party claims when sued.