Category Archives: colorado court decision


Colorado Court Strikes Mechanics Lien with an Overstated Amount


 

Colorado, like many states, allows mechanics liens to be placed on property where a prime contractor, subcontractor, supplier, and laborer performed work. In Colorado, as in all states, mechanics liens are filed on construction projects. But the mechanics lien laws are a double edged sword, and the lienor must be sure that he is properly liening the construction project.  A recent decision by the Colorado Court of Appeals in Byerly v. Bank of Colorado puts lienors on notice that improperly filed liens will be declared invalid.

The case is unique because it relates to a contract between a developer and a contractor where the fee was not just monetary: the developer was to give the contractor 5 acres of land as compensation in addition to certain monthly monetary compensation.  However, the contract states that the contractor would only receive the land as compensation if the developer was released from the construction loan the bank had issued.  This arrangement appeared to make the payment of the land contingent on certain circumstances: the release of the construction loan by the bank.

Instead, the developer was unable to sell the lots it was developing, and then failed to pay the contractor’s fees. The contractor filed a Colorado mechanics liens in the amount of the unpaid monthly fees and for the value of the land it was supposed to receive under the contract. When the bank foreclosed, it attempted to get rid of the contractor mechanics lien by arguing that the amount of the lien was excessive and that a contractor cannot file a lien for an amount over and above the contract price.
The Colorado Court of Appeals held that the maximum amount for which a prime contractor can file a lien is the contract price.  The Court also found that the “conditions precedent” had not been established in order to file a lien for the value of the land, so the filing of a mechanics lien was not valid to the extent that these amounts were included therein.

Note that the court indicated that its holding does not necessarily apply to all circumstances. If the contract has not been recorded as required by statute, then subcontractors, suppliers, and laborers may file a mechanic’s lien for the full value of the services and labor provided, regardless of the contract price.

Construction Defect Insurance Coverage Decided by Colorado Court

Construction defect coverage is an often litigated issue.  With contractor after contractor being sued for defective work, owners are constantly looking to the contractor’s insurance carrier to repair the defective work. Generally, the defective is work is not covered unless is results in other issues known as “third party damage,” such as leaking,

On April 12, 2012, the Colorado Court of Appeals issued its decision on TCD, Inc. v. American Family Mutual Insurance Co., 2012 WL 1231964 (Colo.App. 2012). The TCD opinion was not novel, and generally upheld the long standing notion that general liability policies do not cover construction defects.

In TCD, the developer asserted a counterclaim against the general contractor.  TCD claimed that the general contractor’s roofing subcontractor improperly installed the roof, and that the roof was so defective that TCD was unable to obtain a certificate of occupancy for the property. The claims included negligence and breach of contract.

The insurance company declined to provide coverage for the defective work, and the court of appeals was called upon to determine whether coverage was required in this matter. The court ruled that without a claim for property damage, the insurance carrier’s duty to defend the lawsuit was not triggered.  Claims for poor workmanship, standing alone, do not allege an “accident” that constitute covered “occurrences,” regardless how the underlying claim for relief is plead.

Nearly all States have this rule, and continue to enforce it, if somewhat unevenly.  If there is a claim for property damage, then a carrier will have the duty to defend: at least until they are able to have that claim dismissed for one reason or another.