Creighton Dixon | Snell & Wilmer
The Arizona Court of Appeals recently published a decision examining the Registrar of Contractor’s (“ROC”) handling of a homeowner’s claim involving the Residential Contractors’ Recovery Fund (the “Fund”). The decision, Gordon v. Arizona Registrar of Contractors, 247 Ariz. 146 (App. 2019), is a helpful reminder that while the ROC and the Fund can be useful to resolve certain disputes, they are not the right solution for every problem.
Though the Homeowner and ROC were the named parties, the dispute with the ROC was rooted in the Homeowner’s relationship with InHouse Home Warranty (“InHouse”). InHouse sold home warranty policies, and it was licensed by the ROC, as well as Arizona’s Department of Insurance. InHouse’s contractor’s license specifically covered air system repair, and InHouse would otherwise coordinate with independent contractors to fix other work.
The Homeowner bought a home warranty policy from InHouse. Under the policy, InHouse was obligated to cover repairs on a variety of household systems. Eventually, InHouse stopped answering the Homeowner’s calls for service, and the Homeowner in turn filed a complaint with the ROC. The Homeowner’s complaint alleged that InHouse worked outside the scope of its contractor’s license, aided and abetted an unlicensed contractor, operated as an insurance company without a license, and failed to respond to new requests for service. Notably, the Homeowner did not include any complaints about the actual workmanship. After InHouse failed to respond, the ROC issued a default decision and order revoking InHouse’s contractor’s license.
This is when the dispute began between the Homeowner and the ROC. After succeeding against InHouse, Homeowner sought to recover from the Fund. For those unfamiliar with the Fund, the Fund is described by the ROC’s website as “a form of financial protection provided by licensed Arizona residential contractors to residential homeowners.” Essentially, it provides money that can be used to complete or repair work, provided the residential homeowner meets the legislative requirements.
However, in this case, the ROC found that the Homeowner could not recover from the Fund because the “home warranty policy” was not a construction contract. The Homeowner appealed the decision first to the Superior Court, and then to the Arizona Court of Appeals. Both courts affirmed the ROC’s decision. The Court of Appeals determined there were three independent reasons to deny the request to recover from the Fund: (1) as the ROC had noted, the “home warranty policy” was not a construction contract; (2) the Homeowner was not a “person injured” as required by the relevant statute because the issues in his complaint (e.g. unnecessary labor and high cost) were not related to the type of damage the Fund is meant to address (e.g. incomplete work); and, (3) the Homeowner did not “suffer damage compensable by the Fund.”
This case is a helpful reminder that the Fund cannot solve every problem parties may face against a contractor. Here, there were at least two reasons the square problems of the Homeowner did not fit into the round solutions the Fund was intended to address. First, the “home warranty policy” was essentially insurance, not a construction contract. Parties should consider this distinction (and the specific contours of their own disputes), as not every “contract” meets the statutory requirements to recover from the Fund. Second, the problems the Homeowner had with InHouse did not meet the requirements to recover from the Fund. In Gordon, there were no workmanship issues to address. Other bars to consider include the statutory prohibition preventing commercial property owners from recovering from the Fund. See A.R.S. § 32-1132.01(A) (“An award from the residential contractors’ recovery fund is limited to residential real properties. The Fund may not issue an award covering damages to commercial property.”). Overall, Gordon is a timely reminder that the ends you are looking for (e.g. money, directive to complete the work), do have an important role in determining your means. Take the time to consider if the Fund can award the remedy you want.