House Calls

Consumers should raise the roof over this legislative session.

The sad parade keeps passing through the Colorado Legislature. College administrators losing departments, towns losing road projects, cancer patients losing critical treatments. It's death by a thousand cuts.

But the sorriest sight to date were the downtrodden developers, fresh from the biggest year in the history of homebuilding, now appealing for relief from those out-of-control homeowners who keep demanding that they make good on heaving basements, slipping soils, shoddy craftsmanship, faulty wiring that's an accident waiting to happen -- and have the nerve, the nerve!, to occasionally hire attorneys to plead their case.

The developers' situation is so sad that they've shaken loose $355,000 to fund the Colorado Association of Home Builders' "Constructive Litigation Budget," which is constructing a case for HB 1161. That budget includes $48,000 for "campaign management," another $25,000 for "additional lobbying expenses," and a whopping $160,000 for targeted mailings to "4,000 influential members of ten targeted House districts" and "8,000 influential members of 5 Senate districts."

They've already made friends in those districts: Developers, real estate interests and the construction industry have contributed close to $2 million to Colorado candidates over the past six years. "They're major players in terms of industries that make donations," says Pete Maysmith, executive director of Colorado Common Cause. "They're going to come around and look for the payoff."

"This is literally the building industry saying it's Christmas, and the legislature is Santa Claus," says Scott Sullan, a lawyer specializing in construction-defect litigation.

And on Monday, the House wrapped up its first present with the speedy passage of a bill so onerous to consumers that one of its original sponsors demanded that his name be removed from what he now calls the Home Builder Indemnification Act of 2003. "There are so many problems with this bill," said Representative Mark Lawson, "I pray to God the Senate will fix it and make it better."


The developers first shared their tales of woe just two weeks ago, before the House Committee on Business Affairs & Labor.

Bruce Valentine, of McStain Enterprises, laid out the heartbreaking saga of a $700,000 payout to owners of a house in Lafayette's Indian Peaks development, just off the eighteenth fairway, which was repeatedly hit by golf balls. The owners of the home -- themselves lawyers, of course, and "three times removed" from the original builder -- had sued on 62 golf-ball-related claims.

The actual damage to the home was $68,000, but a punitive treble-damage award raised that to $203,000. Throw in attorneys' fees and interest through the appeal process, and "that's $700,000 on actual damages of $62,000," Valentine pointed out for the math-impaired. "And $638,000 goes to subsidization, feeding at the trough, because of an unintended application of CCPA."

That's the Colorado Consumer Protection Act, which, as amended in 1999, allows for treble damages only "if it is established by clear and convincing evidence that such person engaged in bad-faith conduct," meaning fraudulent, willful, knowing or intentional conduct that causes injury.

Valentine failed to mention that the golf-ball verdict predated that amendment, as well as another construction-defect compromise bill passed two years later. Since 1999, not a single jury verdict has awarded treble damages against a builder.

Daniel Bess, of Trammell Crow, shared the sad story of a small shopette that his company had constructed, which was subsequently sold to a "sophisticated buyer, a civil engineer," who sued the original builder. When "settlement discussions failed," the case went to trial -- and the jury found in favor of the plaintiff (although awarding him less than a previous settlement offer). Those jurors, Bess said, were similar to the naive homeowner who'd testified earlier as to how her dream home had become a nightmare: "They don't understand construction; they don't understand contracts."

But the jurors did understand the evidence presented at trial -- it was Sullan's case -- that a soils engineer who'd done the initial work on the project had wondered why the builder wasn't doing the recommended tests every eighteen inches of fill. It wasn't in the budget, the engineer was told. Years and a buyer later, the building was damaged as the soil settled. The jurors might not have understood construction, but they recognized the builder's failure to follow its expert's advice.

Walter "Buzz" Koelbel, of Koelbel and Company, had testified before the legislature in 1999. Now he was back again, to talk about the "devastating effects construction-defect legislation has had on our industry, as well as many long-term adverse consequences...a lot of it from treble damages." These "egregious, huge amounts have caused this crisis in the insurance industry," he said, echoing the complaints of other homebuilders, all of whom testified that insurance costs have soared -- when insurance is available at all.

Because of confidentiality issues, Koelbel said, he couldn't provide full details of the case in which Koelbel's Colonnade Construction was sued by the owners of 29 homes, who subsequently received an average settlement of $302,000 -- "80 percent of the total cost to build the home." People wondered, "Gee, Mr. Koelbel, you must have done something seriously wrong," he remembered. "But in the settlement agreement, homeowners acknowledged no structural damages whatsoever."

That's because the damage had already been done. Prior to construction, Colonnade's own soils engineer had informed the developer that because of "associated risk of unacceptable movement in finished living areas," structural floors -- rather than slabs -- were recommended for the basements. Instead, the company installed slabs (failing to follow the manufacturer's engineering recommendations, too). When homeowners found their houses settling and sued, Colonnade turned the matter over to its insurance company, which paid out more than $10 million and then sued Colonnade, claiming the builder "intended and expected" the damage to occur.

Koelbel didn't share that detail. "The bottom line is the unintended consequences of these egregious fees," he told lawmakers. "It gets down to the individual consumer. We're builders; we're in business to make a profit.... We pass on all of these costs to homeowners."

Hey, the buck has to stop somewhere.


Some of those bucks have landed in the campaign coffers of Representative Gregg Rippy, HB 1161's chief sponsor and president of a family construction firm. Like many lawmakers, Rippy has benefited from developers' contributions; unlike many lawmakers, he stands to benefit from this legislation, too.

"I think it's an excellent bill," says Rippy. "I do think it's a 'right to remedy' bill. It requires that a contractor either perform the repairs or make an offer in good faith, and for a homeowner to consider that offer in good faith. It allows for resolution short of going through a full-blown trial."

Very short. As it stands, Rippy's bill would not allow for the recovery of non-economic damages -- pain and suffering, say, after your house blows up because of faulty furnace installation. A judge, rather than a jury, would determine if a contractor acted fraudulently or in bad faith. And it would change the level of evidence needed to prove bad faith -- before those treble damages that haven't been awarded in four years kick in -- from "clear and convincing" to "beyond a reasonable doubt."

House Minority Leader Jennifer Veiga has no doubt what's going on here. "This is a bad deal for consumers," she says. "For the last six years, we've addressed concerns raised by homebuilders and have been fair, without jeopardizing the rights of consumers...but this really curtails an individual's right to go out and try to seek damages."

And not just on major construction projects, but minor ones, too. "The Consumer Protection Act gives kind of a hammer to hold people accountable," she says. "Now we no longer have the tool." Nor will municipalities or other government entities that have contracted with builders on construction projects.

The Republicans have taken a "bulldozer approach" in pushing through not just this legislation, but measures advocating automobile and health-insurance reforms, Veiga says. "From one debate to the next, people just have to be aware that their rights are being restricted here on a regular basis, and they're not getting much in return."

The common thread running through those debates is the high cost of insurance -- but no one's talking about the fact that insurance companies have taken a hit not because of the rare golf ball or McDonald's hot-coffee verdict, but because of bad investments in the stock market. And there have been no guarantees that insurance costs will go down if these measures are passed. In fact, in a newsletter to its members, the Colorado Association of Home Builders conceded that "it has been impossible to extract a definitive commitment from the insurance industry that they will come back into the market at a reasonable price if we pass our legislation."

For two decades, the legislature has passed bills responding to assorted insurance crises. Have any resulted in lower premiums?

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