03 Nov Time Limit to File Lawsuit Critical in Construction Defect Case

A hotel owner, who was the assignee of the claims of a a general contractor (a third-party plaintiff), appealed the district court’s summary judgment for the third-party defendants in Sopris Lodging, LLC v. Schofield Excavation, Inc., — P.3d —-2016, 2016 COA 158 (Colo. App., Oct. 20, 2016).  The Court of Appeals held that: (1) the two-year limitation period for indemnity and contribution claims was not tolled, and that (2) the limitation period began to run when the hotel sent the general contractor a notice of claim.

The dispute involved the construction of a hotel.  On March 11, 2011, the hotel sent the general contractor a notice of claim of alleged construction defects at the property.  Two years later, the hotel filed a construction defects suit against the subcontractors.  But on the same date, the hotel and the general entered into an agreement to pause the statute of limitations for the claims against the general contractor.  The hotel later amended its complaint in August of 2013 to add claims against the general contractor.

In 2014, while those claims were pending, the general contractor filed third-party claims against several subcontractors . The subcontractors moved for summary judgment, arguing that the general contractor’s third-party claims were barred by the two-year statute of limitations in Colorado Statute §§ 13-80-102 and 13-80-104(1)(a).  The claims accrued on March 11, 2011, when the hotel sent the notice of claim to the general contractor and were now time-barred.

The general contractor did not dispute the accrual date, but said the statute tolled the statute of limitations for the defendant’s third-party claims until 90 days after a settlement or final judgment on the hotel’s claims against the general contractor.  The district court found the third-party claims were brought too late and were time-barred, concluding that § 13-80-104(1)(b)(II) did not apply to the general contractor’s third-party claims; they were barred by the limitations period in § 13-80-104(1)(a). The hotel and the general contractor then settled, and the general contractor assigned its third-party claims to the hotel.  Standing in the shoes of the general contractor, the hotel filed this appeal, arguing the court misapplied the statute of limitations.

Judge David Richman of the Colorado Court of Appeals explained that the statute stipulates a two-year statute of limitations for construction defect claims and that the Colorado Supreme Court held that § 13-80-104(1)(b)(II) does not bar a defendant contractor from asserting third-party claims for indemnity or contribution against subcontractors before the resolution of the underlying construction defect claims.  The statute “toll[s] the otherwise applicable statute of limitations in order to allow indemnity or contribution claims to be brought in a separate lawsuit…within ninety days after settlement of or judgment in the construction defect lawsuit.”  As a result, a defendant in a construction defect lawsuit may either: (1) bring appropriate cross-claims or third-party claims in the same lawsuit; or (2) wait to file a separate suit within the 90-day period after a settlement or judgment in the construction defect lawsuit in accordance with statute.

The hotel argued that the section tolled the statute of limitations for the third-party claims that the general contractor asserted against subcontractors, but the Court of Appeals disagreed, finding that Colorado law allows a contractor the option to bring indemnity or contribution claims against subcontractors in a separate lawsuit after the underlying claims are resolved, and tolls the statute of limitations for those claims.  However here the general contractor did not wait to file claims against the sub-contractors in a separate lawsuit, opting rather to assert third-party claims in the original case.  Therefore, Judge Richman concluded the section did not apply to the third-party claims.

Further, the Court concluded third-party claims brought in the original construction defect lawsuit are subject to the two-year statute of limitations in § 13-80-104(1)(a), and the accrual provision in § 13-80-104(1)(b)(I). A claim for relief “arises,” the Court noted, when the claimant discovers or should have discovered the physical manifestations of the defect.  Here, the general contractor received notice of the alleged defects on March 11, 2011, when the hotel sent the notice of claim.  Thus, the claims accrued, and the two-year limitations period began to run, on that date. The limitations period expired on March 11, 2013.  Since the general contractor did not file its third-party claims until 2014, they were time-barred.

The Court of Appeals also acknowledged that this analysis makes for the somewhat “anomalous” conclusion that the statute of limitations applicable to the general contractor’s third-party claims could have expired before the hotel filed the underlying construction defect claims.  But the general contractor had options, the judge said, to preserve its third-party claims against the subcontractors.  When the general contractor received the hotel’s notice of claim, it could have sent its own notices to the subcontractors, which would toll the statute of limitations during the notice of claims process; or it could have sought a tolling agreement with the subcontractors.  Also, the general contractor could have waited to file indemnity or contribution claims against the subcontractors until after the hotel’s underlying claims against it were resolved.  But the general contractor did not pursue any of these options.