REFERENCE TITLE: construction contracts; indemnification; liability provisions
State of Arizona
Second Regular Session
Senators Fann: Allen S, Barto, Borrelli, Bowie, Bradley, Dalessandro, Farley, Farnsworth D, Griffin, Hobbs, Kavanagh, Mendez, Meza, Miranda, Otondo, Peshlakai, Pratt, Quezada, Worsley; Representatives Campbell, Clodfelter, Cook, Epstein, Gabaldón, Gonzales, John, Payne, Townsend
amending section 32-1159, Arizona Revised Statutes; relating to contractors.
(TEXT OF BILL BEGINS ON NEXT PAGE)
Be it enacted by the Legislature of the State of Arizona:
Section 1. Section 32-1159, Arizona Revised Statutes, is amended to read:
32-1159. Indemnity agreements in construction and architect‑engineer contracts void; applicability; definitions
A. A covenant, clause or understanding in, collateral to or affecting a construction contract or architect‑engineer professional service contract that purports to indemnify, to hold harmless or to defend the promisee from or against liability for loss or damage resulting from the sole negligence of the promisee or the promisee's agents, employees or indemnitee is against the public policy of this state and is void.
A. If a contractor, a subcontractor or an architect or engineer professional provides work, services, studies, planning, surveys or other preparatory work in connection with a private building or improvement, the contracting agent may require that the construction contract or subcontract or the architect‑engineer professional service contract or subcontract require the contractor, subcontractor or architect or engineer professional to indemnify and hold harmless the agent, and its officers and employees, from liabilities, damages, losses and costs, including reasonable attorney fees and court costs, but only to the extent caused by the negligence, recklessness or intentional wrongful conduct of the contractor, subcontractor or architect or engineer professional or other person employed or used by the contractor, subcontractor or architect or engineer professional in the performance of the contract or subcontract. this section does not prohibit the requirement of insurance coverage that complies with this section, including the designation of any person as an additional insured on a general liability insurance policy or as a designated insured on an automobile liability policy provided in connection with a construction contract or subcontract or a design professional services contract or subcontract.
B. Except as provided in subsection A of this section, a construction contract or subcontract or an architect‑engineer professional service contract or subcontract entered into in connection with a private building or improvement may not require that the contractor, the subcontractor or the architect or engineer professional defend, indemnify, insure or hold harmless the contracting agent or its employees, officers, directors, agents, contractors or subcontractors from any liability, damage, loss, claim, action or proceeding, and any contract provision that is not allowed by subsection A of this section is against the public policy of this state and is void.
B. C. Notwithstanding subsection A b of this section, a contractor who is responsible for the performance of a construction contract may fully indemnify a person for whose account the construction contract is not being performed and who, as an accommodation, enters into an agreement with the contractor that permits the contractor to enter on or adjacent to its property to perform the construction contract for others.
C. D. This section applies to all construction contracts and subcontracts and architect‑engineer professional service contracts and subcontracts entered into between private parties. This section does not apply to:
1. Agreements to which this state or a political subdivision of this state is a party, including intergovernmental agreements and agreements governed by sections 34‑226 and 41‑2586.
2. Agreements entered into by agricultural improvement districts under title 48, chapter 17.
3. Agreements for indemnification of a surety on a payment or performance bond by its principal or indemnitors.
4. Agreements between an insurer under an insurance policy or contract and its named insureds.
5. Agreements between an insurer and its insureds under a single insurance policy or contract for a defined project or workplace, except that:
(a) such agreements may not require or allow one or more insureds under those agreements to indemnify, to hold harmless or to defend any other insured under those agreements beyond the limits of subsections A, B and C of this section.
(b) the insurer may not be excused from its duty under those agreements to defend, indemnify and pay on behalf of its insureds.
D. E. In For the purposes of this section:
1. "Architect‑engineer professional service contract" means a written or oral agreement relating to the survey, design, design‑build, construction administration, study, evaluation or other professional services furnished in connection with any actual or proposed construction, alteration, repair, maintenance, moving, demolition or excavation of any structure, street or roadway, appurtenance or other development or improvement to land.
2. "Architect or engineer professional" means a person who is registered as an architect or an engineer pursuant to chapter 1 of this title.
2. 3. "Construction contract" means a written or oral agreement relating to the actual or proposed construction, alteration, repair, maintenance, moving, demolition or excavation of any structure, street or roadway, appurtenance or other development or improvement to land.
Sec. 2. Applicability
Section 32-1159, Arizona Revised Statutes, as amended by this act, applies only to contracts and subcontracts that are entered into or amended on or after the effective date of this act.
Sec. 3. Legislative findings and intent
A. The legislature finds that:
1. Financial responsibility is a significant motive in preventing accidental losses and that the ideal system is one in which general contractors and subcontractors are all held financially responsible for the accidental losses they cause.
2. Construction workplace injuries and fatalities represent a disproportionately high share among the workforce and, as a result, contractual terms that shift loss in the construction industry have a much greater potential to cause significant harm.
3. In recent years, construction businesses have begun to use contract provisions to either shift the financial responsibility for their negligence to others or prevent the responsible party from being determined. The legislature also finds that this system can result in the assignment of responsibility to innocent parties while the negligent parties are often not held accountable, and that this often leads to the misallocation of valuable and limited resources and ultimately generates increased costs that add little or no value to the consumer or the end product. The misallocation contributes to both a shortage in the contractor workforce and cost‑prohibitive insurance policies, which could cause unnecessarily inflated housing prices in this state.
B. As a result of the findings listed in subsection A of this section and for additional reasons, it is the intent of the legislature to extend the provisions governing proportional liability in public contracting to private contracting. This will ensure fairness in construction contracting between general contractors and subcontractors and will create an economic climate that promotes safety in construction, fosters the availability and affordability of insurance and reduces the legal costs associated with construction claims.