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ARIZONA STATE SENATE
Fifty-Fourth Legislature, First Regular Session
purchaser dwelling actions; notice; complaints
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 outlines procedures for allocating liability amongst parties to a dwelling action.
Background
The purchaser of a single or multifamily residential unit may file a dwelling 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 who is 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 include 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
Right to Repair
1. 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.
2. Stipulates that the seller's construction professional does not need to repair or replace all of the alleged defects.
3. Prevents the purchaser from filing a dwelling action until the seller's construction professional has completed intended repairs and replacements.
4. 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.
5. Requires the construction professional's insurer to work cooperatively and in good faith within specified time frames.
6. Requires a seller who receives notice from a purchaser regarding an alleged defect to forward a copy of the notice, by certified mail, to the last known address of each construction professional who the seller reasonably believes is responsible for an alleged defect that is specified in the notice.
7. Provides the seller's construction professional with the same ability to inspect the dwelling as the seller after receiving notice of an alleged defect.
8. Requires the response a seller provides a purchaser after receipt of notice of alleged defects to include repairs or replacements that a seller's construction professional intends to make, if applicable.
9. Requires a purchaser's request to have a different construction professional repair or replace the alleged defects to be made by affidavit, under penalty of perjury, that the purchaser, and not the purchaser's attorney, does not consent to have the subcontractor that was involved in the construction or design of the dwelling perform the repairs.
10. States that a contractor or subcontractor that was not involved in the construction or design of the dwelling and that performs any repair or replacement of the alleged defect is liable only to the seller or purchaser who contracted for the contractor's or subcontractor's services for the contractor's or subcontractor's scope of work.
11. Prohibits the repairing contractor or subcontractor who was not involved in the construction or design for the dwelling to be named in an amended notice or in the corresponding dwelling action.
12. Tolls the statute of limitations and statute of repose that apply to the seller's claim for indemnity or contribution against any construction professional from the date the seller receives notice from the purchaser until one year after the purchaser's service of the civil complaint or arbitration demand on the seller.
13. Stipulates that a construction professional's repair or replacement efforts are admissible in evidence but are not considered settlement communications.
14. Provides a construction professional with reasonable time to perform inspections identified in an amended notice of alleged defects or during a dwelling action.
15. Requires a purchaser who files a contested dwelling action to file an affidavit with the purchaser's complaint, under penalty of perjury, that the purchaser:
a) has read the entire complaint;
b) agrees with all allegations and facts contained in the complaint; and
c) is not receiving and has not been promised anything of value in exchange for filing the dwelling action, unless authorized by statute.
Bifurcation of Dwelling Action Proceedings
16. Requires, for each construction defect found to exist, a trier of fact in a dwelling action to first determine and identify each party defendant or third-party defendant whose conduct caused the construction defect, in whole or in part, whether by action or omission.
17. Requires the trier of fact, if it determines that a third-party defendant caused a construction defect, in whole or in part, to then determine the relative degree of fault of any party or of any nonparty, provided the third-party defendant gave notice before the proceeding, in accordance with court rule, that a nonparty was wholly or partially at fault.
18. Requires the determination of whether a construction defect exists and which party defendant or third-party defendant caused the defect to be bifurcated from and take place in a separate phase of the trial or alternative dispute resolution process from the phase of the proceeding determining relative degree of fault of the parties.
19. Requires bifurcation unless a court finds there is good cause that it is not appropriate.
20. Contains legislative findings and a legislative intent statement as to the issue of bifurcation.
Indemnity Agreements in Dwelling Contracts
21. Voids, as against public policy, specified agreements in a dwelling construction contract or architect-engineer professional service contract, that purport to insure, indemnify or hold harmless, the promisee from or against liability for loss or damage, resulting from the negligence of the promisee or the promisee's indemnitees, employees, subcontractors, consultants or agents, other than the promisor.
22. Allows a contractor who is responsible for the performance of a construction contract to fully indemnify a person whose account the construction contract is not being performed and who, as an accommodation, enters into an agreement with the contractor that allows the contractor to enter on or adjacent to its property to perform the construction contract for others.
23. Specifies that any additional insured endorsement as part of an agreement or collateral to a dwelling construction contract does not obligate the insurer to indemnify the additional insured for the percentage of fault that is allocated to the additional insured; however, an insurer's duty to defend based on the endorsement is not limited.
24. Applies the indemnity agreement restrictions to all construction contracts and architect-engineer professional service contracts involving a dwelling between private parties, except:
a) an agreement that the state or a political subdivision is a party, including intergovernmental agreements;
b) an agreement by an agricultural improvement district;
c) an agreement for indemnification of a surety on a payment or performance bond by its principal or indemnitors;
d) an agreement between an insurer under an insurance policy or contract and its named insureds;
e) an agreement between an insurer under an insurance policy or contract and its additional insureds, subject to the outlined limitations;
f) an agreement between an insured and its insureds under a single insurance policy or contract for a defined project or workplace, with exceptions; and
g) a public service corporation's rules, regulations or tariffs that are approved by the Arizona Corporation Commission.
25. Defines architect-engineer professional service contract, construction contract and dwelling.
Miscellaneous
26. Delays the repeal, from July 1, 2019, to October 1, 2020, of the Construction Liability Apportionment Study Committee, retroactive to July 1, 2019.
27. Makes technical and conforming changes.
28. Becomes effective on the general effective date.
Prepared by Senate Research
February 19, 2019
JA/kja