Assigned to COMPS & JUD AS
PASSED BY COW
Assigned to COMPS & JUD AS
PASSED BY COW
ARIZONA STATE SENATE
Fifty-Third Legislature, Second Regular Session
AMENDED
construction contracts; indemnification; liability provision
Purpose
Establishes the Construction Liability Apportionment Study Committee (CLASC). Requires a seller notified of a dwelling action to forward the notice to relevant constructional professionals.
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
1. Establishes CLASC consisting of three Senate members, one of whom serves as co-chairman, appointed by the President of the Senate (President) and three House of Representatives members, one of whom serves as co-chairman, appointed by the Speaker of the House (Speaker), with no more than two members of the same party from each legislative chamber.
2. Requires CLASC to research and make recommendations for the apportionment of liability in the construction industry, including the:
a) use of an indemnity provision in construction contracts;
b) allocation of liability based on degrees of fault;
c) assignment of financial responsibility to negligent parties;
d) opportunity to address and remedy alleged construction defects prior to litigation;
e) frequency of construction defect litigation; and
f) affordability of insurance costs associated with construction claims.
3. Allows CLASC to hold hearings, conduct fact-finding tours and take testimony from witnesses who may assist the study committee in fulfilling its responsibilities.
4. Requires hearings to be open to the public.
5. Requires the Legislature to provide staff and support services.
6. Specifies members may be reimbursed for expenses but are not eligible to receive compensation.
7. Requires CLASC to submit a report on its findings and recommendations by December 15, 2018, to the Governor, President, Speaker and Secretary of State.
8. Repeals CLASC on July 1, 2019.
9. 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 whom the seller reasonably believes is responsible for an alleged defect specified in the notice.
10. Makes technical changes.
11. 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.
Amendments Adopted by the Committee of the Whole
1. Commerce and Public Safety Committee amendment was withdrawn.
2. Adopted the Judiciary strike-everything amendment establishing CLASC.
3. Repeals statutory sections and intent language relating to indemnity provisions in construction contracts, subcontractors' right to repair and allocation of liability in dwelling actions.
Senate Action
COMPS 2/12/18 DPA 8-0-0
JUD 2/15/18 DPA/SE 7-0-0
3rd Read 3/01/18 30-0-0
Prepared by Senate Research
February 28, 2018
GH/lb