Victory for Homebuilders and General Contractors Opens Door for Recovery Claims Against Subcontractors

March 2, 2017Alerts Construction Law Alert

Homebuilders and general contractors won a major victory this week when the Colorado Supreme Court effectively changed the rules for litigation of construction defect cases.

The court’s decision in In Re Goodman v. Heritage Builders makes it much easier for builders to file third-party claims against subcontractors by relieving them of strict time limits.

The decision is a game-changer because it overturns a long line of rulings from Colorado’s intermediate appeals court that had subjected builders to a two-year statute of limitations and a six-year statute of repose.

The justices concluded that those time limits should not apply to third-party claims because Colorado statutory law also includes a specific provision that grants builders a window of 90 days to file third-party claims after a settlement or judgment is entered.

As a result, the court held that a claim against a subcontractor should be deemed timely so long as it is filed “during the construction defect litigation or within ninety days following the date of judgment or settlement.”

In practice, construction defect litigation is always complex and the critical evidence to support a third-party claim against a subcontractor is sometimes difficult to compile quickly. Based upon the prior rulings from Colorado’s intermediate appeals court, a builder/GC would often face statute of repose issues on its claims against its subcontractors.

The ruling is truly beneficial to the homebuilders as it allows 90 days from settlement or judgment to assert claims against its subcontractors.

It also frees the builder to pursue the smartest litigation strategy at every step, without worrying about forfeiting potential – and usually valuable – subcontractor recovery claims.

For lawyers, the ruling is significant because it overturns the 2008 decision by the Colorado Court of Appeals in Thermo Development, Inc. v. Central Masonry Corp., and all of the cases that adopted its holdings on time limits.