{"id":895793,"date":"2019-04-25T10:52:12","date_gmt":"2019-04-25T16:52:12","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=895793"},"modified":"2019-04-25T10:52:18","modified_gmt":"2019-04-25T16:52:18","slug":"arizona-legislation-revisions-shape-construction-defect-claims","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/arizona-legislation-revisions-shape-construction-defect-claims\/","title":{"rendered":"Arizona Legislature Makes Significant Revisions to Shape of Construction Defect Claims"},"content":{"rendered":"\n

John Gregory | Jones, Skelton & Hochuli<\/a> | April 18, 2019<\/p>\n\n\n\n

On April 10, 2019, Governor Doug Ducey signed SB 1271 into law. The product of over two years of lobbying and interest group meetings, this bill makes significant changes to the existing the laws relating to residential construction in myriad ways.<\/p>\n\n\n\n

REVERSING AMBERWOOD<\/em> \u2013 PROPORTIONAL LIABILITY ONLY<\/strong><\/p>\n\n\n\n

One of the main ways this bill immediately impacts the contractor-subcontractor relationship is by limiting an indemnitor\u2019s potential obligations only to the extent of its own negligence. The 2017 Arizona Court of Appeals case Amberwood Development, Inc. v. Swann\u2019s Grading, Inc.<\/em>, No. 1 CA\u2013CV 15\u20130786, 2017 WL 712269 found that a subcontractor could be responsible for indemnity broader than its own scope of work and without a finding of fault if the contract did not expressly limit its risk that narrowly. SB1271 creates a new statute, A.R.S. \u00a7 32-1159.01, to reverse that (non-binding) decision.<\/p>\n\n\n\n

Section A of the new statute voids such broad indemnification agreements in construction or architect-engineer contracts as against public policy. It voids any such provision \u201cto the extent that it purports to insure, to indemnify or to hold harmless the promisee from or against liability for loss or damage resulting from the negligence of the promisee or the promisee\u2019s indemnitees, employees, subcontractors, consultants or agents other than the promisor.\u201d Thus, a subcontractor\u2019s indemnity is now limited only to the extent of its own negligent workmanship.<\/p>\n\n\n\n

Section D of the new statute notes that the duty to defend can still apply to claims \u201carising out of or relating to\u201d the contracting party\u2019s work. Because this does not require a finding of fault to limit the duty to defend, it appears unchanged by the new statute.<\/p>\n\n\n\n

Of note to insurers is Section C, which states that an insurer is not required to indemnify an additional insured for the proportion of fault allocated to it. This does not limit the duty to defend, however, so the policy should still be the first place to look when determining any defense obligation owed to an additional insured.<\/p>\n\n\n\n

The statute\u2019s scope is limited to construction and architect-engineer contracts between private parties for residential dwellings. A.R.S. \u00a7 32-1159.01(E). These terms are given specific definitions that are broad enough to cover the work of virtually all engineers, architects, design professionals, contractors and subcontractors. A.R.S. \u00a7 32-1159.01(G). The new statute does not apply to contracts with the state or a municipality (A.R.S. \u00a7 32-1159.01(F)(1); agricultural improvement districts (\u00a7 32-1159.01(F)(2)); surety or performance bonds by its principal or indemnitors (\u00a7 32-1159.01 (F)(3)); an insurance agreement between the insurer and named insureds (\u00a7 32-1159.01(F)(4)); and public service corporation\u2019s rules, regulations or tariffs that are approved by the Corporation Commission (\u00a7 32-1159.01(F)(7)). It is likewise not intended to affect insurance policies as between a carrier and its additional insureds (\u00a7 32-1159.01 (F)(5)) or the multiple insureds of a single policy other than the proportionally limits any insured may have to the other insureds imposed by the newly instituted Sections A, B, and C. (\u00a7 32-1159.01 (F)(6)).<\/p>\n\n\n\n

REVISIONS TO THE PURCHASER DWELLING ACT<\/strong><\/p>\n\n\n\n

Attorneys\u2019 Fees Reinstituted<\/p>\n\n\n\n

The Legislature reinstated A.R.S. \u00a7 12-1364 to allow for recovery of attorneys\u2019 fees. A Court now may award reasonable attorneys\u2019 fees to the prevailing party. (\u00a7 12-1364(A)). The homeowner is deemed the prevailing party \u201cif the relief obtained by the purchaser for that contested issue, exclusive of any fees and taxable costs, is more favorable than the repairs or replacements and offers made by the seller\u2026.\u201d Id<\/em>. If it is not, the seller is considered the prevailing party.<\/p>\n\n\n\n

The new statute sets guidelines to consider when calculating whether attorneys\u2019 fees are reasonable. The Court should weigh:<\/p>\n\n\n\n

  1. The repairs, replacements or offers made by the seller, if any, before the purchaser filed the dwelling action pursuant to section 12-1363.<\/li>
  2. The purchaser\u2019s response to the seller\u2019s repairs, replacements or offers made or proposed, if any, before the purchaser filed the dwelling action pursuant to section 12-1363.<\/li>
  3. The relation between the fees incurred over the duration of the dwelling action and the value of the relief obtained with respect to the contested issue.<\/li>
  4. The amount of fees incurred in responding to any unsuccessful motions, claims and defenses during the duration of the dwelling action.<\/li><\/ol>\n\n\n\n

    Id<\/em>. A \u201ccontested issue\u201d is \u201can issue that relates to an alleged construction defect and that is contested by a purchaser following the conclusion of the repair and replacement procedures prescribed in section 12-1363.\u201d The new statute does not replace contractual fee provisions (\u00a7 12-1364(C)).<\/p>\n\n\n\n

    Subcontractor Participation in the PDA<\/p>\n\n\n\n

    The changes now require the general contractor to promptly forward any PDA notice to the subcontractors that worked on the house, and specifically allows electronic service. (\u00a7 12-1363 (A)). The subcontractor is now provided the right to inspect, test, and repair the property that was previously provided to the general contractor in the 2015 revisions (\u00a7 12-1363 (B)-(C)).<\/p>\n\n\n\n

    Homeowner Affidavits<\/p>\n\n\n\n

    A homeowner who brings a dwelling action must now submit an affidavit along with their complaint, affirming they have \u201cread the entire complaint, agree[] with all of the allegations and facts contained in the complaint and, unless authorized by statute or rule, is not receiving and has not been promised anything of value in exchange for filing the dwelling action.\u201d (\u00a7 12-1363(N)).<\/p>\n\n\n\n

    IMPACT ON THIRD-PARTY PROCEDURE<\/strong><\/p>\n\n\n\n

    Changes are also made to the procedure of bringing third-party claims. The statutes of limitation and repose (e.g. A.R.S. 12-552) are now tolled from the date that the general contractor receives the PDA notice until nine months after a civil suit or arbitration demand is served on it. (\u00a7 12-1363 (G)). Once suit is commenced, subcontractors must be joined as third-party defendants if feasible and subject to the Rules of Civil Procedure (\u00a7 12-1362(D)). The finder of fact must determine:<\/p>\n\n\n\n

    1. if a construction defect exists AND<\/li>
    2. the amount of damages caused by the defect AND<\/li>
    3. each subcontractor whose conduct \u201cwhether by action or omission, may have caused, in whole or in part, any construction defect.\u201d (\u00a7 12-1362(D)).<\/li><\/ol>\n\n\n\n

      The homeowner specifically has the burden of proof as to steps 1.a. and 1.b., but the statute is silent as to who is tasked to proving item 1.c.. The finder of fact must then allocate pro rata shares of fault to the subcontractors whose work is implicated. Id<\/em>. The general contractor has the burden of proving each subcontractor\u2019s fault in step 2. Subject to the Rules of Civil Procedure, the new bill requires Steps 1 and 2 to be bifurcated. (\u00a7 12-1362(E)).<\/p>\n\n\n\n

      STATUTE RETROACTIVITY<\/strong><\/p>\n\n\n\n

      The statute expressly applies retroactively \u201cto from and after June 30, 2019.\u201d It therefore stands to reason that these statutes apply to all construction defect claims made from June 30, 2019 onward.<\/p>\n\n\n\n

      NEXT STEPS<\/strong><\/p>\n\n\n\n

      As with any new law, the contours have not been fleshed out. Parties have yet to explore the outer confines of what is and is not enforceable about this bill and its changes to the construction statutes. Our firm will continue to monitor the litigation trends and any subsequent action by the Legislature to further revise the way defect cases are handled.<\/p>\n\n\n\n

      This alert is only a broad summary of the changes made by this new bill. Please look for more detailed analysis from us in the weeks and months ahead.<\/p>\n\n\n\n


      <\/p>\n","protected":false},"excerpt":{"rendered":"

      John Gregory | Jones, Skelton & Hochuli | April 18, 2019 On April 10, 2019, Governor Doug Ducey signed SB 1271 into law. The product of over two years of lobbying and interest group meetings, this bill makes significant changes to the existing the laws relating to residential construction in myriad ways. REVERSING AMBERWOOD \u2013 PROPORTIONAL LIABILITY… Continue reading Arizona Legislature Makes Significant Revisions to Shape of Construction Defect Claims<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[4],"tags":[9895,153,228],"class_list":["post-895793","post","type-post","status-publish","format-standard","hentry","category-construction-defects","tag-advise-consult","tag-arizona","tag-construction-defect-claims","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nArizona Legislature Makes Significant Revisions to Shape of Construction Defect Claims - 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