HB 10-1394 – A Bill for an Act Concerning Professional Liability Insurance Policies Issued to Construction Professionals

Yesterday, Representative Joe Rice introduced into the Colorado House of Representatives House Bill 10-1394, “A Bill for an Act Concerning Professional Liability Insurance Policies Issued to Construction Professionals.” The bill, also sponsored by Senator Mark Scheffel, was assigned to the House Business Affairs and Labor Committee, which happens to be chaired by Representative Rice. 

The summary of HB 10-1394 reads as follows:

In General Security Indemnity Company of Arizona v. Mountain States Mutual Casualty Company, 205 P.3d 529 (Colo. App. 2009), the court excluded claims for certain construction defects claims and imposed no obligation to defend in a contractor’s professional liability insurance policy. Section 1 of the bill imposes the following rules of contract construction to guide a court in such cases:

• A court should presume that: Compliance with a construction professional’s objective, reasonable expectations is intended; the entire policy is to be effective and read as a whole; a just and reasonable result is intended; ambiguity in a policy is to be construed in favor of coverage; a result that renders a part of coverage illusory is not intended; and the work of a construction professional that results in property damage is an accident unless the property damage is intended and expected by the insured.
• When weighing conflicting provisions, the court should construe the contract to favor coverage.
• The insurer bears the burden of proving that a policy provision limits or bars coverage.

Section 2 prohibits a professional liability insurer from excluding or limiting coverage of acts arising before the policy was issued unless the insured knows of defects that have a likelihood to subject the insurer to damages and fails to disclose this to the insurer. A policy that conflicts with section 2 is unenforceable.

By reviewing the text of the bill, it appears that Section 1 is clearly intented to amerliorate the effects of the General Securty decision and its progeny, including Greystone and Boulder Plaza, on insurance coverage for construction defect claims in Colorado.  Section 2 makes void as against public policy any “super Montrose” type exclusions on construction professionals’ CGL policies.

To follow HB 10-1394, you can visit the Colorado General Assembly’s website.  To stay abreast of legislative changes in Colorado which will impact the litigation of construction claims, please contact David M. McLain by e-mail at mclain@hhmrlaw.com or by telephone at (303) 987-9813.  Otherwise, you can visit our website and sign up for our legislative monitoring e-mails.