Business/Economy, Peter Blake

Blake: Foundation eroding between developers, insurance companies

Strangely silent through the seven-hour committee debate on the construction-defects bill was the insurance industry.

Why? Wouldn’t its lobbyists be at least as interested in reviving Colorado’s virtually defunct condominium construction business as everyone else? Numerous local government officials, chamber of commerce types and home builders testified for the bill, just as trial lawyers, home owner associations and their allies testified against it.

But the insurance executives sat silently in the back of the room at the statehouse. Robert Ferm, dean of the insurance lobbyists, explained why in an interview last week: The bill would do little or nothing to solve the problem.

Senate Bill 177 represents little more than “baby steps” toward a solution, he said. “If a bill like this were to pass, it would produce an expectation overnight of a new and magic insurance market in Colorado. We didn’t want to give that impression.”

The measure passed the Senate’s Business, Labor and Technology Committee 6-2, with Cheri Jahn, D-Wheat Ridge, joining the Republican majority. Floor debate is scheduled this week. Passage by the full GOP-controlled Senate is likely, but its prospects in the House aren’t good. Speaker Dickey Lee Hullinghorst, D-Boulder, may send it to State Affairs, her “kill” committee, so that few Democrats will have to go on record against what may be a popular, albeit ineffective, bill.

S.B. 177 would require that a majority of all the homeowners in a condo complex sign onto a class action lawsuit charging construction defects rather than just the HOA board itself. It would also require that the action be settled by mediation or binding arbitration instead of in a court trial. It has bipartisan sponsorship: Sen. Jessie Ulibarri, D-Commerce City, and GOP Majority Leader Mark Scheffel, R-Parker.

It’s the latest in a series of bills pushed by the homebuilders. A similar one was introduced last year but was killed in the finals days by a Senate committee, which last year was controlled by the Democrats.

Ferm maintained that if the legislature wants to make more insurance available for condos under $500,000, it is going to have to address a bill that was enacted five years ago: House Bill 10-1394. S.B. 177 doesn’t touch those issues, he said.

The earlier bill declares that the legislature “favors a broad interpretation of an insurer’s duty to defend the insured” under liability policies. It says that a court shall “presume” that the work of a builder that results in property damage is an “accident” unless the damage is intended and expected by the builder.

Upon a finding of “ambiguity” in a policy, says the bill, a court may consider a builder’s “reasonable expectations” in the interpretation of his insurance policy.

HB 1394 passed both chambers almost unanimously, even though it went through the odd process of being completely rewritten in the Senate on a third-reading amendment.

Pushing judges to favor builders in the interpretation of an insurance policy did more harm than good when it came to the “availability and affordability” of insurance to contractors, said Ferm. “It made policies almost like a surety [bond] instead of a professional liability.”

Said another statehouse lobbyist formerly involved in construction issues: The bill in effect told judges, “When in doubt here’s how to instruct the insurance companies.”

It’s easy to blame trial lawyers for the lack of condo construction, and no doubt they play a role. They’re good at what they do, and if pressed they could turn up an “expert witness” who could find mold on a desert palm tree.

During the committee hearing Chris Waggett of D4 Urban Development was asked why he didn’t build condos. “Because of the certainty of a lawsuit which will be brought against a developer and a builder,” he said. “I’ve got better things to do than be sued.”

Insurance companies are another easy target in the blame game, since they are quicker to take in money than they are to part with it. When you buy insurance you are betting against yourself and you “win” only when you lose. Nobody ever buys insurance to enjoy that new-policy smell. There’s nothing to see, touch, hear, taste or smell.

But the builders are as much to blame as anyone. Like the teachers’ union protects the weakest member, so does the Colorado Association of Home Builders try to protect the weakest contractor. Through the years it has tried to use the legislature to give it an edge in what it sees as its constant war with lawyers and insurance companies.

For instance, the cover of the home builders’ magazine, The Forum, used an odd image to celebrate the passage in 2003 of a bill making it harder to sue for construction defects. The cover featured a cartoon caped crusader, fist in the air, standing over a fallen dark knight who represents — what? The trial lawyers? The insurance companies?

Using the legislature to try and gain an edge over competition and to fight the people you have to work with is an all to common but ineffective way to go about business. It’s the main reason home builders can’t afford to buy the insurance they need to build reasonably priced condominiums.

But so far, no bill has been introduced this session to deal with H.B. 10-1394, and none is expected.

Each new piece of legislation produces unforeseen consequences which leads to more legislation that may only make things worse. The construction industry should try to make it easier instead of harder to work with the providers of the insurance coverage they need.

Longtime Rocky Mountain News political columnist Peter Blake now writes twice a month for Contact him at You may re-publish his work at no charge and without further permission; please give full credit to Peter Blake and


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