The Colorado Court of Appeals
recently issued a decision which, although perhaps not unexpected,
potentially has significant implications to the so-called contractors’ statute
of limitations. In a nutshell, in Highline Village Associates v.
Hersh Companies, Inc., No. 98CA1886, 1999 WL 976682 (Colo. App.
1999), the Colorado Court of Appeals held that a contractor who
undertakes to repair a defect may, by doing so, toll, or extend,
the applicable statute of limitations during the period in which
repairs are performed or attempted.
Background
Colorado has a special statute of limitations that applies to architects, contractors,
builders, engineers and certain others in construction related professions,
C.R.S. § 13-80-102 (the “Contractors’ Statute of Limitations”). The
Contractors’ Statute of Limitations requires that all claims against a
builder or contractor relating to construction of improvements be brought within
two years after the claimant “discovers or in the exercise of reasonable
diligence should have discovered the physical manifestations of a defect in
the improvement which ultimately causes the injury.” The Contractors’ Statute
of Limitations further provides that no such action may be brought more than
six years after substantial completion of the improvement (unless the claim
arises in the fifth or sixth year after substantial completion, in which case
the two-year limitation applies from the time the defect manifests itself). In
other words, if the defect does not manifest itself or is not discovered for
many years, a claim based on the defect may be barred.
The Contractors’ Statute of Limitations is significantly less generous
to claimants, and more protective of builders and contractors, than are other
statutes of limitation, particularly in that it is triggered by the “physical
manifestations of a defect in the improvement” rather than actual
knowledge and understanding of the injury.
The Issue
Often, when a problem is discovered on a project, a Contractor will make efforts
to repair any defects or correct any deficiencies. A typical scenario
might be as follows: On January 1, 1998, the owner identifies a
structural defect in his newly completed building. Throughout 1998 and
into 1999 the contractor makes efforts to repair the problem, but is unable
to satisfy the owner. Thereafter, on July 1, 1999, the contractor
tells the owner that he has done all that he is going to do in terms of remedial
work and ceases further repair efforts. On February 10, 2000, the
owner files a lawsuit against the contractor. If the contractor had not
undertaken any repair efforts, the owner’s claim would be late and barred
by the Contractors’ Statute of Limitations, since it was filed more than
two years after the “physical manifestations of the defect were discovered. Does
it make a difference that the contractor made efforts to satisfy the owner
and make repairs?
The Answer, According to the Court of Appeals
The Contractors’ Statute of Limitations does not address the question
of whether the limitations period continues to run during the period of attempted
repairs. The Highline Village case resolves that issue, at least until
the Colorado Supreme Court speaks. This decision held that under such
circumstances, at least where the owner can show that he reasonably relied
upon an express or implied promise that the attempted repairs would remedy
the defect, the limitations period of the Contractors’ Statute of Limitations
will be tolled, or stop running, until the date the contractor abandons its
repair efforts. In other words, if repairs are attempted over a six-month
period and then abandoned or terminated, the Contractors’ Statute of Limitations
will be extended an equal period.
Briefly, the Highline Village case involved a painting contractor who was hired
to repaint an existing structure. The painting was completed in August
1992, but beginning in June 1994 the paint began to peel (the physical manifestation
of the defect). The owner apparently notified the contractor of the defect
and insisted that the structure be repainted. Repainting was completed
by November of 1994, but the peeling began again in March 1995. In the
Spring of 1995, the contractor refused to repaint any other surfaces where
paint was peeling. The owner commenced a lawsuit in October 1996, or
approximately two years and three months after the problem initially manifested
itself.
The trial court dismissed the owner’s claims based on the Contractors’ Statute
of Limitations. However, the Court of Appeals reversed and adopted the “Repair
Doctrine.” “[The] Repair Doctrine requires proof of a promise
that the repairs will cure the defect and that plaintiff reasonably relied
upon that promise. . . . Such a promise need not be express;
it may be one that is reasonably implied from all of the circumstances.” The
Court of Appeals noted that “such an approach makes good sense and is
consistent with public policy. So long as the . . . contractor
is undertaking repairs to remedy the defect (irrespective of any disclaimers
of liability for that defect) and those repairs appear to accomplish their
purpose, requiring the . . . owner to institute suit against the
. . . contractor while those repairs are being made would be inconsistent
with the policy that favors voluntary settlement of disputes. Indeed,
a rejection of the doctrine might well lead to wholly unnecessary litigation.”
The Court of Appeals held that if an owner “can establish that, after
there was a manifestation of a defect under the statute, [the contractor] undertook
to repair that defect; that, in doing so, [the contractor] either expressly
or impliedly promised or represented that such repairs would remedy such defect;
and that [the owner] reasonably relied upon such promise or representation
and, as a result, did not institute legal action against [the contractor],
the limitations period of the contractors’ statute will be tolled until
the date that [the contractor] abandoned its repair efforts.”
Practical Tips
Repairing real or perceived
defects should always be the first and best means of avoiding claims of defective
work. Where, however, a contractor intends to do no further remedial work
and wants the two-year Statute of Limitations to begin running, the contractor
should avoid actions that might be perceived as ongoing repairs or promises of
repairs, or promises that the repairs will remedy the defect. The contractor
must make sure that the evidence is clear at that time, preferably in the form
of a letter or some other written communication to the owner, that no further
repairs will be attempted. Owners, on the other hand, should not rely on
the absence of such written communication to protect themselves. Where
provable assurances of repair are not forthcoming from the contractor, or where
it appears that the contractor may have abandoned the repair process, owners
should assume that the statute of limitations period is running and take appropriate
action to protect themselves.
Kevin Bridston is
a partner in Holland & Hart LLP's Construction and Real
Estate Litigation Group. |
