The ping-pong match better known as construction-defect resolution in Colorado shifted in favor of insurers and home builders this month, when lawmakers decided not to go forward with a bill, SB 246, that if passed would have given homeowners who sue bigger settlements when defect problems aren’t fixed.

The bill’s sponsors—State Senator John Morse and House Representative Jack Pommer — appear to have succumbed to pressure exerted by groups representing the state’s builders, contractors, and real estate agents. Several newspapers also voiced opposition to a bill that the Colorado Springs Gazette said would “make it easier for plaintiff’s attorneys to get even costlier judgments and settlements to drive up the costs of new homes."

This bill was an attempt to reverse an October 2008 Colorado Supreme Court ruling in Goodyear v. Holmes, which stated that homeowners were only entitled to interest for money they’ve spent to fix a construction defect from the point at which the defect is repaired or the property is replaced.

SB 246, on the other hand, would have allowed owners who sue contractors over failure to fix defects to receive 6% interest on collections from the time they bought the house, and 8% after the legal process begins. The sponsors, who dubbed their bill “The Homeowner Protection Act of 2009,” said their goal was rectify a claims process that “served too often as a lengthy precursor to prolonged and costly litigation, further burdening the state’s judicial resources and drawing the owner into complex proceedings involving claims by one construction professional against other construction professionals.”

Rob Nanfelt, executive vice president of the HBA of Colorado, which opposed SB 246, claims that lawmakers were acting on behalf of three prominent law firms that specialize in construction defect litigation, and whose fees suffered as a result of the Goodyear decision. Nanfelt concedes, though, that SB 246 would have impacted multifamily and mixed-use construction projects more adversely than single-family detached construction.

A day-long hearing on SB 246, which took place on April 1 before the state’s veterans and military affairs committee, involved some 45 witnesses for both sides. During that hearing, contractors threatened to stop building all mixed-use projects in the state, including those around transit centers along Denver’s light-rail line, if SB 246 became law. After the committee’s chairman tabled the bill for more hearings, Morse blinked and pulled the bill from consideration two days later.

Doug Benson, an attorney with Benson & Associates in Golden, Colo., one of the firms that specialize in construction-defect litigation, sees Morse’s retraction as a victory for insurance companies. “Ninety percent of my firm’s cases are in some kind of mediation, but now all of them will end up being filed because what incentive is there for an insurer to settle,” he asks. “If they have to pay $1 today and only $1 later, they’ll just roll the dice with a jury.” Benson is also mystified at home builders’ opposition to SB 246, given that their supplemental insurance would cover any interest indemnity.

“I don’t think the builder wants to screw homeowners, and I don’t think homeowners see [defect claims] as the lottery,” says Benson. “But by not passing SB 246, that puts an end to the way my firm at least was doing business.”

This bill was just the latest swing in a construction-defect pendulum that’s been moving back and forth between Colorado owners and contractors for the past several years. In April 2003, then Gov. Bill Owens signed HB 1161, which mandated that home builders be allowed an opportunity to fix defects before a homeowner or commercial property owner could file a lawsuit. In 2007, the passage of HB 1338 prevented buyers from being forced to sign warranties that would have deprived them of their legal rights to have defects repaired.

Nanfelt says his group will continue to push legislators to iron out what he sees as kinks in HB 1338. The HBA will also lobby the legislature for reforms that limit the testimony by engineering “experts,” who in at least one notorious case advertised his willingness to give whatever opinion a client wanted.

John Caulfield is senior editor at BUILDER magazine.

Learn more about markets featured in this article: Denver, CO, Colorado Springs, CO.