What to Do If You’re Sued by a Homeowner in Colorado

Steps to Take If You’re Sued

1. Immediately Notify Your Commercial General Liability (CGL) Carrier

• If you are a contractor sued by a homeowner or you receive a construction defect Notice of Claim, one of the first steps should be determining which insurance policies may apply and promptly notifying the appropriate commercial general liability (CGL) carriers.
• Depending on when the work was performed and when the alleged property damage occurred, more than one policy period or insurer may potentially be implicated in a construction defect claim.
• Tender the Claim Promptly: Provide the insurer with the Notice of Claim, complaint, summons, expert reports, demand letters, and other relevant documents. Prompt notice allows the carrier to evaluate its obligations and participate in the defense.
• Understand the Duty to Defend: Depending on the allegations and policy language, a CGL carrier may have an obligation to defend a contractor, builder, or developer against covered claims involving alleged poor workmanship, property damage, construction defects, or breach of contract.
• Review Any Reservation of Rights: An insurer may agree to defend while reserving the right to later dispute coverage for particular damages, exclusions, or other issues. A Colorado construction defect attorney can help evaluate the reservation-of-rights letter and determine whether additional insurance or coverage issues need to be addressed.
• Insurance coverage can become a significant part of a construction defect lawsuit, so contractors should avoid assuming that only the most recent policy is relevant.

2. Understand Your Rights Under Colorado’s CDARA Notice-of-Claim Process

• For construction defect claims subject to Colorado’s Construction Defect Action Reform Act (CDARA), a homeowner generally must complete a statutory CDARA Notice of Claim process before proceeding with a lawsuit against a construction professional.
• Under C.R.S. § 13-20-803.5, the process gives contractors, builders, developers, and other construction professionals an opportunity to investigate alleged defects before litigation proceeds.
• Pre-Suit Notice: A claimant generally must provide written notice describing the alleged construction defects before filing suit.
• Right to Inspect: After receiving a Notice of Claim, a contractor or builder may request reasonable access to inspect the property and evaluate allegations involving poor workmanship, water intrusion, roofing defects, foundation problems, building-code issues, incomplete work, or other construction defects.
• Opportunity to Offer Repair or Payment: Following the inspection process, the construction professional may make a written offer to repair the alleged defect, pay a specified amount, or otherwise attempt to resolve the claim.
• Premature Lawsuits: If a homeowner files a construction defect lawsuit before the applicable CDARA notice process has been completed, the contractor should immediately evaluate whether the case can or should be stayed while the statutory process is completed.
• A CDARA Notice of Claim should therefore be treated seriously even though it is not itself a lawsuit.

3. Evaluate the Statute of Limitations and Statute of Repose

One of the first defenses a construction defect defense attorney should evaluate is whether the homeowner’s claims were brought within Colorado’s applicable time limits.

This issue can arise in lawsuits involving alleged defective workmanship, breach of contract, warranty claims, project delays, water intrusion, foundation defects, roofing defects, or other construction-related problems.

Two-Year Statute of Limitations

Under C.R.S. § 13-80-104, construction defect claims are generally subject to a two-year limitations period after the claimant discovers, or through reasonable diligence should have discovered, the physical manifestations of the alleged defect.

Determining when a homeowner knew or should have known of the problem can therefore become an important factual issue in a construction defect defense.

Six-Year Statute of Repose

Colorado also generally imposes a six-year statute of repose measured from substantial completion of the improvement.

If a claim arises during the fifth or sixth year after substantial completion, the statute provides an additional period in certain circumstances, which can extend the time for filing the claim.

Because accrual, substantial completion, tolling, and statutory exceptions can materially affect the analysis, a statute-of-limitations or statute-of-repose defense should be evaluated based on the particular facts of the project.

If the claim is untimely, the contractor may have a potentially dispositive defense to the homeowner’s construction defect claim.

4. Identify Responsible Subcontractors, Design Professionals, and Other Parties

A general contractor sued by a homeowner is often accused of defects involving work actually performed by subcontractors, suppliers, architects, engineers, or other project participants.

Determining who performed the allegedly defective work should therefore begin immediately.

• Allocation of Fault: In claims where comparative fault applies, Colorado law generally limits a defendant’s responsibility to the percentage of fault legally attributable to that defendant.
• Designation of Nonparties at Fault: A contractor may be able to designate subcontractors, design professionals, suppliers, or other responsible persons as nonparties at fault, allowing the fact finder to allocate an appropriate percentage of fault to them.
• Third-Party Claims: In some cases, subcontractors or other construction professionals should be brought into the lawsuit as third-party defendants.
• Indemnity and Insurance: Subcontracts should be reviewed for indemnification provisions, defense obligations, additional-insured requirements, and other contractual or insurance rights that may shift some or all of the risk associated with the construction defect lawsuit.

5. Secure and Preserve the Complete Project File

When a homeowner sues a contractor, the project documentation often becomes one of the most important parts of the defense.

Construction defect cases are frequently won or lost based on contracts, change orders, photographs, communications, payment records, and proof of who performed the disputed work.

As soon as a Notice of Claim or lawsuit is received, contractors should preserve relevant records and avoid deleting, altering, or destroying documents, photographs, electronic communications, or other potentially relevant evidence.

Important records may include:

• Prime contracts and owner-contractor agreements
• Subcontracts and purchase orders
• Plans, specifications, and drawings
• Written change orders and change-order requests
• Daily job-site reports and superintendent logs
• Emails, text messages, and other communications
• Pay applications, invoices, payment records, and retainage information
• Photographs and videos taken during construction
• Building permits and inspection records
• Certificates of occupancy
• Warranty documents
• Subcontractor certificates of insurance
• Expert, engineering, or inspection reports
• Mechanic’s lien documents or lien waivers
• Records showing unpaid balances or disputes over payment

These records can be critical in defending allegations involving poor workmanship, unfinished work, construction delays, breach of contract, warranty claims, building-code violations, or defective construction.

Do not undertake significant repair or destructive work involving the alleged defect without first considering the need to preserve evidence and document the existing condition.