Dane Mueller, Esq.
Senior associate, Robinson & Henry PC, Castle Rock
Summer in Colorado is notorious for damaging storms as well as other weather catastrophes. A building’s roof is always the first section of a property to battle the severe weather, which can result in major damage, especially with hailstorms. Unfortunately, the wild storms and severe destruction of property can be accompanied by roofing fraud. Colorado’s Senate Bill 38, also known as the Consumer Protection/Residential Roofing Bill, was signed into law to protect citizens of this state from falling victim to roofing fraudsters.
Requirements. The National Insurance Crime Bureau recently ranked Colorado as the second highest state for hail damage insurance claims, only behind Texas. Accordingly, S.B. 38 requires a written and signed contract between the property owner and the roofing contractor, which must include the following:
1. The scope of the work and the materials to be provided;
2. The cost for the work and materials based on damages known at the time the contract is entered into;
3. The approximate dates of service;
4. The roofing contractor’s contact information;
5. The identification and contact information of the contractor’s surety and liability coverage insurer;
6. The contractor’s policy regarding cancellation of the contract and refund of any deposit including a rescission clause allowing the property owner to rescind the contract for roofing services and obtain a full refund of any deposit within 72 hours after entering the contract;
7. A statement that if the property owner plans to pay for the roofing services through an insurance claim, the contractor cannot pay, waive or rebate the homeowner’s insurance deductible in part or in whole;
8. A statement that the contractor shall hold in trust any payment from the property owner until the contractor has delivered the roofing materials to the jobsite or has performed a majority of the roofing work on the property; and
9. A statement that the property owner may rescind a contract for services, the payment for which will be made from the proceeds of a property insurance claim, within 72 hours after receiving notice from the insurer that the claim is denied in whole or in part.
Penalties. Contractors who do not comply with S.B. 38 likely will find it difficult to conduct business with informed consumers. An executed roofing contract that does not contain S.B. 38’s specified requirements may be found to be unenforceable by either party. Finding the contract to be unenforceable carries potentially heavy penalties for both the contractors and the property owners.
For example, one possible remedy for finding the roofing contract to be unenforceable would be quantum meruit. In essence, this means that the owner would likely still have to pay a reasonable sum of money for the services rendered by the contractor; however, the amount paid may be significantly less than the amount the contractor was expecting to receive from the job. So, generally, neither party to an unenforceable roofing contract would benefit.
Also, Colorado’s criminal statute mandates that a contractor cannot pay, waive or rebate an insurance deductible for a building owner. Under Colorado law, such interference by the contractor or other third party, with the contractual agreement between an insurer and an insured, is considered property insurance abuse or fraud, depending on the specific facts. The crime is charged as a Class 2 misdemeanor. Class 2 misdemeanors carry a potential sentence of three to 12 months imprisonment, a fine of $250 to $1,000, or a combination of imprisonment and fines.
Colorado law provides for additional civil remedies. In the event a contractor paid, waived or rebated an owner’s deductible amount, the contractor’s estimate will not be considered by the insurance company and the contractor could be liable for any damages related to that claim. Damages may consist of solely the deductible amount or the difference between appropriate roofing materials and any lesser quality materials that a contractor may have used in order to offset the cost of the deductible.
Protections. Notably, the highest number of consumer inquiries to the Better Business Bureau of the Denver-Boulder area involved choosing reputable roofing contractors. However, as a potential consumer there are many actions that can be taken to avoid falling victim to roofing fraud. Specifically, consumers can take the below precautions to minimize their risks in entering into roofing contracts.
• Request the contractor’s license number and confirm with your city/county building department that the license number was legitimately issued and is current.
• Ensure that the contractor is registered to conduct business in Colorado by visiting the Colorado Secretary of State’s business database.
• Request to view a copy of the company’s certificates of insurance.
• Contact the Colorado Roofing Association, which maintains a current list of licensed and properly insured contractors who passed a nationally recognized exam that addresses roofing work on residential and commercial properties.
• Contact the Better Business Bureau to check for complaints.
• Obtain more than one estimate.
• Review all documents provided to your insurance carrier.
•Never pay a contractor in full or execute the completion certificate until all the work is completed.
•Confirm the contract includes all the requirements established in S.B. 38.
