Assigned to COMPS & JUD AS
PASSED BY COMMITTEE
Assigned to COMPS & JUD AS
PASSED BY COMMITTEE
ARIZONA STATE SENATE
Fifty-Third Legislature, Second Regular Session
AMENDED
construction contracts; indemnification; liability provision
Purpose
Limits indemnity agreements in dwelling construction contracts. Establishes a construction professional's right to repair or replace any alleged construction defects prior to commencement of a dwelling action, and specifies procedures for allocating liability amongst parties to a dwelling action.
Background
The purchaser of a single or multifamily residential unit may file an action against the seller of a dwelling for any construction defect arising out of or related to the design, construction, condition or sale of the dwelling. A construction defect is any material deficiency in the design, construction, manufacture, repair, alteration, remodeling or landscaping of a dwelling caused by: 1) a violation of construction codes; 2) the use of defective materials; or 3) failure to adhere to generally accepted workmanship standards in the community (A.R.S. § 12-1361).
Prior to filing a dwelling action, a purchaser must provide a seller with a reasonably detailed written notice specifying the basis of the action, unless the alleged defects immediately threaten the life or safety of occupants (A.R.S. § 12-1362). A seller provided notice of a dwelling action may inspect the dwelling to determine the nature of any repairs or replacements necessary to remedy the alleged construction defects. Upon receipt of a seller's written response within 60 days of a dwelling action notice, the purchaser must give the seller a reasonable opportunity to repair and replace any defects identified in the seller's response (A.R.S. § 12-1363).
Under current law, a purchaser may request that repairs or replacements be undertaken by a construction professional that was not involved in the original construction or design of the dwelling. The purchaser must consent to the new construction professional selected by the seller.
A construction professional includes any architect, contractor, subcontractor, developer, builder, builder vendor, supplier, engineer or inspector performing or furnishing the design, supervision, inspection, construction or observation of the construction of any improvement to real property (A.R.S. § 12-1361).
In construction contracts for public buildings or improvements, current law only allows a contractor, subcontractor or design professional to indemnify itself from liabilities, damages, losses, costs, attorney's fees and court costs (liabilities) resulting from the negligence, recklessness or intentional wrongful conduct of the performing subcontractor or design professional. Design professional services includes architect services, engineer services, land surveying services, geologist services and landscape architect services (A.R.S. § 34-226). Current law also voids any clause in a construction contract or subcontract that purports to indemnify, to hold harmless, or to defend the contractor of, from or against liability for loss caused by its own negligence (A.R.S. § 41-2586).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Limited Indemnification
1. Limits provisions indemnifying a contractor, subcontractor, architect or engineer (contractor) from liability in contracts for construction of a dwelling to only the extent caused by the negligence, recklessness or intentional wrongful conduct of the performing construction professional.
2. Prohibits a contractor from requiring a construction professional to defend, indemnify, insure or hold harmless the contractor, except for liabilities caused by the construction professional's own negligence, recklessness or intentional, wrongful conduct.
3. Exempts specified construction-related bonding and insurance agreements from limited indemnification.
Right to Repair or Replace (JUD S/E)
4. Establishes the right of a seller's construction professional to repair or replace alleged construction defects (alleged defects) before commencement of a dwelling action, provided the repairs or replacements have been included in the seller's response to a purchaser within 60 days of a dwelling action notice.
5. Requires a seller who receives a purchaser's notice of a dwelling action to forward a copy of the notice to the last known address of each construction professional who the seller reasonably believes is responsible for an alleged defect specified in the notice.
6. Prohibits a purchaser that has been provided the seller's notice of a construction professional's intent to repair or replace from commencing a dwelling action before the construction professional has had a commercially reasonable time frame to complete the intended repair and replacement of alleged defects.
7. Allows a construction professional to inspect the dwelling using reasonable measures to determine the nature and cause of the alleged defects.
8. Repeals the authority of a purchaser to request that a construction professional that was not involved in the construction of the dwelling, selected by the seller and consented to by the purchaser, perform repairs or replacements of alleged defects.
9. Stipulates that a construction professional's repair or replacement efforts are admissible in evidence but are not considered settlement communications.
10. Provides a construction professional with reasonable time to perform inspections identified in an amended notice of alleged defects or during a dwelling action.
11. Clarifies that construction defects identified in a notice of intent to repair or replace are alleged.
Allocation of Liability Based on Fault (JUD S/E)
12. Requires a trier of fact in any dwelling action to determine and identify each party or third‑party whose conduct has caused the construction defect in whole or in part.
13. Allocates the pro rata share of liability, among third-party defendants, based on relative degree of fault.
14. Establishes the right of contribution, held by a third-party defendant determined to have caused a construction defect, against another third-party defendant also determined to have caused the construction defect.
15. Allows a third-party defendant to enforce their right to contribution either:
a) within the dwelling action by motion following entry of verdict; or
b) by separate action filed within one year after final judgment of the dwelling action.
16. Stipulates that a release or covenant not to sue or not to enforce judgment given to a third-party defendant in good faith:
a)
discharges that third-party defendant
from all liability for contribution to any other third‑party
defendant;
b) reduces the claim against other third-party defendants by the stipulated amounts or paid consideration, whichever is greater; and
c) does not discharge any other third-party defendants from liability, unless its terms provide.
Notice of Insurance Claim (JUD S/E)
17. Requires a construction professional's insurer to treat a dwelling action notice as a notice of claim under the terms and conditions of the insurance policy.
18. Requires the construction professional's insurer to work cooperatively and in good faith within specified time frames.
Definitions
19. Applies the Arizona State Board of Technical Registration definitions for architect and engineer professional.
20. Applies the Purchaser Dwelling Act definitions for construction professional and dwelling.
21. Defines indemnitee as a person or entity that is be indemnified or protected by another person or entity in a written construction contract.
22. Defines indemnitor as the person or entity that is bound by a written construction contract to provide indemnification to another person or entity.
Miscellaneous
23. Applies the indemnity limitation prospectively to contracts executed or amended after the general effective date.
24. Contains a legislative intent clause.
25. Makes technical and conforming changes.
26. Becomes effective on the general effective date.
Amendments Adopted by the Judiciary Committee and Commerce & Public Safety Committee
1. Restricts limited indemnification to construction contracts for dwellings.
2. Expands the type of performing parties covered by limited indemnification, from contractors, subcontractors, architects and engineers to any construction professional.
Amendments Adopted by the Judiciary Committee
1. Establishes a construction professional's right to repair or replace any alleged construction defects prior to commencement of a dwelling action.
2. Specifies procedures for allocating liability amongst parties to a dwelling action.
3. Requires a construction professional's insurer to treat a dwelling action notice as a notice of claim under the terms and conditions of the insurance policy.
Senate Action
COMPS 2/12/18 DPA 8-0-0
JUD 2/15/18 DPA/SE 7-0-0
Prepared by Senate Research
February 15, 2018
GH/lb