By Anne Colden

Denver Post Business Writer

Jan. 14, 2001 - Contractors Fred and Cory Spengler consider themselves the victims.

"Initially, we were very upset," said Cory Spengler, who manages the books for their business. "We didn't understand why we were named, and we were told there was nothing we could do about it."
The Spenglers' insurance company dropped them and then stopped covering subcontractors doing similar work in Colorado. The Spenglers now pay 15 times more for less coverage, they said. The Spenglers are not alone in their misery. Builders and contractors across Colorado are fuming, saying the number of construction-defect suits is out of control.
Contractors named in lawsuits turn to their insurance companies, who either defend or settle if a suit becomes too costly to defend. The insurers then pass along their costs by way of higher premiums, or leave the market, making liability insurance nearly impossible to get.
Builders and contractors blame trial lawyers, and specifically those from California, who they say are willing to file speculative suits first and find defects later.
Lawyers who represent homeowners see it differently, saying shoddy work is shoddy work.
"The building industry wants to take a sledgehammer to a small problem with a small number of ill-founded suits," said Ronald Sandgrund, a partner with Vanatta Sullan Sandgrund & Sullan of Englewood.
The issue is headed for a showdown in the state legislature.
Groups such as the Colorado Association of Homebuilders, the Civil Justice League, whose goal is to enact tort reform, and insurance companies are prepared to introduce bills that would make it more difficult to sue builders.
Statistics on the numbers of lawsuits and their effects are hard to come by, but what is clear is that insurance rates are going up in response to increasing liabilities.
The homebuilders' association said it is compiling results of a survey of its 1,200 members. So far, members have reported anywhere from a small percentage to 100 percent increases in insurance premiums, said William Mutch, the group's governmental affairs director. "And that's for less coverage than they used to have."
Jack Dorwart, manager of Holladay Group of Lakewood, which builds about 40 homes a year, was sued for a project in Jefferson County. Now he's paying $80,000 a year to Lloyd's of London for a policy that doesn't cover expansive-soil claims, one of the most common construction-defect claims in Colorado.
Farmers Insurance, one the state's biggest commercial insurers, has increased rates by 17 percent to 50 percent or more for subcontractors in the past few years in response to an increasing number of suits, said Mike Benschneider, Farmers' governmental affairs representative.
A subcontractor in the framing business with a decent loss history could have seen his liability policy go from $30,000 to $64,000 a year when his policy was renewed, Benschneider said "I think there's an impending availability crisis in insurance for contractors," he said. "I know people like to say the sky is falling, but in this case, it's getting close."
Farmers is involved in 72 construction-defect lawsuits now, compared with virtually none a few years ago, Benschneider said.
Attorney Ed Godin of Godin & Baity of Denver, who has represented builders for nearly two decades, said the number of construction-defect suits has gone up dramatically in the past several years. "I tell builder clients, especially those who build multifamily dwellings, that they have to anticipate they will be involved in litigation."
His firm currently represents 20 builders in new multifamily construction lawsuits, compared with three or four such suits a couple years ago. In the past, the suits would be for acknowledged problems, typically foundation problems or real damage.
Now, Godin said, the suits are more often for code violations - or because paint isn't holding up or nails are over-driven.
In those cases, defense attorneys spend the first year after the suit is filed trying to get plaintiffs' attorneys to tell them what the problems are, Godin said.
Attorneys in Colorado are allowed to file complaints that outline alleged claims but are given until 120 days before trial to produce an experts' report.
But it's not in the plaintiffs' attorneys best interest to operate that way, said Douglas Benson, a partner at Burdman & Benson, one of the firms identified as an instigator in bringing these cases to Colorado.
"They say we try to hide the ball until 120 days before trial," Benson said. "We disclose the expert reports immediately. My job is to educate the adjuster on the validity of the problems. It's counterproductive for us to hide them."
None of the 26 cases his firm has brought have yet gone to trial. Some have been settled virtually on the courthouse steps, he said.
Burdman & Benson, which has had a Colorado office since 1997, filed the Kentucky Ridge case in July 1999; it's pending in Arapahoe County District Court. It named Raintree Construction Co., the general contractor, as well as John Does 1-100, which included subcontractors, suppliers of goods or anyone else involved in building the project, which is how the Spenglers were brought in.
Homebuilders' groups now want legislation that would require a "certified list of defects" within 90 days after a lawsuit is filed.
Such a provision would "raise a special hurdle on homeowners that other plaintiffs don't face," said Scott Sullan, another partner with Vanatta Sullan Sandgrund & Sullan. "It's difficult enough for homeowners to bring these claims. (Builders) would like to prevent the homeowners from being able to sue them at all."
Not so, say builders and their attorneys.
"We're not trying to protect bad builders," said Mutch, "but to pinpoint the responsible party."
Another piece of legislation that may be proposed would specify that treble damages - allowed under the Colorado Consumer Protection Act - don't apply in construction cases unless the builder was "first given the opportunity to repair the defect, or buy back the home and refused to do so," according to a draft of a bill.
That measure would "make it easier to sue the bad apples, and will give responsible builders an opportunity to fix the problem," said Richard Westfall, a Denver attorney and general counsel to the Civil Justice League.
But, Sullan said, a revision of the Consumer Protection Act two years ago exempted builders from treble damages unless it can be proved their conduct was fraudulent, intentional, willful or knowing. Any further dilution of the law in the builders' favor would be ridiculous, he said.
"We're impacting people's bottom lines," Benson said. "Not that many lawyers were able to take cases on contingency where associations didn't have to pay a lawyer's bill every month.
"I'd be glad to show you our projects and you can judge if we're evil demons or providing a valuable service for homeowners who are being taken advantage of." Godin said it's the insurance implications that worry him the most.
"If we can't get something done that the insurance industry will respond to, this whole thing will grind to a halt. If they don't believe (contractors and subcontractors) are an insurable risk, we have a problem."
Said Farmers' Benschneider: "Companies will be watching this legislative session carefully to see if we can get a fix."