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Page 14 — Multifamily Properties Quarterly — May 2017
HOW WE DO IT:
P artnerships! We believe our relationships with
our staff, clients, subcontractors, vendors and the
communities in which we live and work are our
most valuable asset. A relationship becomes a
partnership when all stakeholders are focused on
creating win-win solutions resulting in successful
outcomes for everyone.
WHY WE DO IT:
E verything we do incorporates our Core Values
FIORE PRIDE:
Family - Innovation - Opportunity - Respect
Excellence - Pride - Responsibility - Integrity
Devotion - Environment
“SAFELY BUILDING A BETTER WORLD”
Together We Can Move Mountains
Fiore & Sons literally moves mountains for our
clients. In true partnership, we construct the re-
gions housing, transportation, utility and commercial
projects down to the ground and from the ground
down. We know there are a lot of companies out
there that do what we do - It’s how and why we do
it that matters.
WHAT WE DO:
Fiore and Sons is a Colorado - based third
generation family owned heavy civil contractor
providing a range of construction services including
demolition, site utilities, overlot grading, trucking and
material removal/recycling. With trusted subcon-
tractor partners we also have a proven track record
of delivering turn-key projects.
We live by these Core Values to create the best potential for success for all
of our partners (business, community and personal).
730 W. 62nd Avenue Denver CO 80216
Phone: 303.429.8893 / Fax: 303.429.3035
Legal
I t’s no secret that there is pent-
up demand for condominiums
in Colorado – and developers
are starting to venture back into
the market.There has been some
legislative reform, but uncertainty is
still the norm. Multifamily housing con-
struction has been booming across Col-
orado’s Front Range, but for-sale condo-
minium construction is at near all-time
lows, largely due to a legal framework
that makes it easy for homeowner
associations to bring expensive con-
struction defect suits against developers
and their contractors.This situation
persists despite over five years of efforts
by the Colorado Legislature as well as
metro area municipalities and hous-
ing advocates to modify those aspects
of Colorado’s legal framework that
discourage the construction of for-sale
multifamily housing.
With the 2017 legislative session near-
ing an end, however, the Colorado Gen-
eral Assembly appears poised to pass at
least one bill that may make condomin-
ium projects more attractive to devel-
opers.The leading bill, HB 1279, would
require HOAs to go through stricter
processes and follow tougher voting
requirements before bringing construc-
tion defect claims against developers,
contractors and designers.
Colorado courts also have struggled
to balance the competing interests,
and the Colorado Supreme Court has
agreed to review a Court of Appeals
decision involving the ability of devel-
opers to require arbitration of disputes
in an HOA’s governing documents.
Developers and contractors are natural
(and sometimes easy) targets for HOA
boards, who all too often view a con-
struction defect lawsuit as a no-lose
proposition.
Once filed, con-
struction defect
lawsuits can last
years, and the costs
of defending them
can be staggering
– and, in the mean-
time, unit owners are
frequently unable
to sell their units.
The current state of
uncertainty means
that developers must
find their own tools
to mitigate the risks
associated with condo projects.
However, the risks can be mitigated.
The following are a few things develop-
ers can do to reduce the likelihood of
finding themselves on the wrong end of
a construction defect lawsuit.
• Design peer review. Successful
developers are investing in having the
architectural and engineering drawings
for their project reviewed by a second
(or third) set of eyes.This process, often
called peer review, gives an indepen-
dent architect or engineer the chance
to review the plans for errors as well as
point out any room for improvement.
• Construction inspections. Another
technique that is increasing in popu-
larity is to rigorously inspect the con-
tractor’s work and create extensive
photographic and video documentation
of the construction techniques used. A
developer might, for instance, photo-
graph the waterproofing elements of
every window and door before they are
finished and covered up.These photos
could be critical evidence in a defect
lawsuit down the road.
• Keeping the buyers happy. On the
assumption that a happy buyer is less
likely to be litigious, developers also are
focusing on ways
to keep their buyers
satisfied with their
purchase. Options
can include mainte-
nance funds, aggres-
sive warranty and
repair programs, and
financial incentives
for buyers and HOAs
not to sue the devel-
oper.
Keep inmind that,
in addition to consti-
tuting modern best
practices, many of
these same strategies will be required
by the insurance carriers underwriting
the project.
OCIPs are Key
Speaking of insurance, perhaps the
most important component of any
defect mitigation strategy is the use
of an owner-controlled insurance pro-
gram, sometimes called a “wrap.”
Traditionally, developers have relied
on the general contractor and the
dozens of project subcontractors to
purchase their own liability insurance.
The result can be a maze of insurance
policies with varying limits, coverages
and exclusions.Worse, when there is
a claim, each carrier is incentivized to
point the finger at other parties. Under
an OCIP, by contrast, the developer
buys a single package of liability insur-
ance policies that provides coverage
to all of the parties that enroll and
performwork on the project. An OCIP
can provide significant advantages to
developers, including:
• Control. With an OCIP, the developer
gains control over what is included in
the insurance pro-
gram for the project
and howmuch
insurance is avail-
able to respond to
claims.
• Longevity. If
structured correctly,
an OCIP should pro-
vide coverage for
the entire eight-year
statute of repose,
so developers don’t
have to worry about
whether their contractor and his subs
will have insurance after the project is
complete.
• Cost savings. Rather than paying for
insurance costs that are imbedded in
contractors’ and subcontractors’ bids,
by purchasing a single policy, devel-
opers can potentially negotiate less
expensive coverage and higher limits.
Not all OCIPs are created equal, how-
ever, and it is critical to understand
what is and is not included in a par-
ticular program. Common coverage
exclusions can weaken the coverage
provided by an OCIP. It’s important to
work with a skilled risk management
team that can help you shape the right
OCIP for your project. Getting started
early is critical, and the sooner you can
assemble your risk management team,
the better.
There may not be a silver bullet for
avoiding litigation on condominium
projects, but developers who work to
mitigate risks – and maximize insur-
ance coverage – can be successful even
in the current environment. Look for
the second part of this series about
mitigating condo development risks in
the next issue of Multifamily Properties
Quarterly.▲
Jonathan G. Pray
Shareholder,
Brownstein Hyatt
Farber Schreck LLP,
Denver
Andrew L.
Meyers
Shareholder,
Brownstein Hyatt
Farber Schreck LLP,
Denver
Benjamin Geiger
Insurance adviser,
IMA Inc., Denver