Time Limits Affecting Claims Against Contractors

 

By: Dan Kloberdanz

 

There are numerous types of claims that one may make against a contractor for damages caused by defective construction or similar problems.  Most of the actions filed against licensed professionals and contractors are based upon either negligence or breach of warranty or contract, or a combination of both, depending upon the circumstances of each case.  This article will focus on the time limits under Arizona law relating to the different types of lawsuits which might be filed against contractors.

I.           Complaints Before the Registrar of Contractors.

 As a general rule, a Registrar of Contractors complaint against a licensed contractor must be filed within two (2) years from the time of the alleged violation.   The Registrar of Contractors rules and regulations provide that “All work shall be done in a workmanlike manner”, and these rules establish minimum standards for good and workmanlike construction. The contractor, like any other licensed professional, must always consider the fact that a dissatisfied customer may file a complaint with the Registrar of Contractors, in addition to bringing a civil lawsuit in court.   After that two-year period has elapsed, the claimant loses his or her right to proceed with the Registrar, and in such case, his or her remedies will be limited to those claims which may still be available in a court of law.

II.           Negligence and Breach of Warranty.  Some contracts, such as new home purchase contracts, contain express written warranties.  In Arizona, even in the absence of a specific written contractual warranty, the law will imply certain warranties on the contractor’s work, including implied warranties of good workmanship and habitability.  Additionally, the common law in this State also provides that one is responsible for its negligent acts.  Thus a contractor who performs defective work may be liable for both breach of warranty (express and/or implied) and negligence. As explained below, the statute of limitations is quite different with respect to warranties and negligence.

III.            The Statute of Limitations.  Claims for breach of an express warranty and breach of an implied warranty are generally subject to the six (6) year statute of limitations governing written contracts.  In contrast, claims based upon negligence are subject to a two (2) year period. 

IV.            The Discovery Rule.   As a very important general rule, the statute of limitations on a claim does not begin to run until the claimant knew or in the exercise of reasonable diligence “should have known” that he or she has been injured by the other party’s actions.  Therefore, because of this discovery rule, a claimant could potentially file a lawsuit under either legal theory (warranty or negligence) many years after the contractor performed the work.  As an example, in a 1991 Arizona Court of Appeals case, the court allowed a home buyer to sue a contractor for defective stucco in a house built more than twelve years prior to the lawsuit.

V.            The Statute of Repose for Breach of Implied Warranty.   In 1989, the Arizona Legislature enacted a “statute of repose” in an effort to impose a definite time limitation on breach of warranty cases.  This statute of repose essentially bars warranty actions filed more than eight (8) years from the date that the work was completed. This statute, A.R.S.§12‑552(A), provides as follows:

“[N]o action or arbitration based in contract may be instituted or maintained against a person who develops or develops and sells real property, or performs or furnishes the design, specifications, surveying, planning, supervision, testing, construction or observation of construction of an improvement to real property more than eight years after substantial completion of the improvement to real property.”

 

Another portion of the statute of repose contains a very limited grace period up to one (1) year in addition to the eight year period, which applies only in the event the injury occurred during the eighth year after substantial completion, or in the case of a latent defect, such defect was not  discovered until the eighth year after the substantial completion. The statute expressly states in no event may a claim based in contract be brought against a contractor more than nine (9) years after substantial completion, no matter when the claim occurs or is discovered.  In 1992, the year following the stucco court case, the Arizona Legislature enacted an amendment to the statute of repose to make it retroactive to the year 1989.  Therefore, the statute of repose currently applies to all construction, no matter when completed.

The eight-year statute of repose, by its own definition, applies to actions “based in contract”. Thus, the statute seems to be limited to contract (including implied warranty) actions, and not necessarily lawsuits based upon a negligence theory.

  In a 1995 Arizona Court of Appeals decision, the court held that a true negligence action between contracting parties was not "based in contract" within meaning of the eight-year statute of repose.  Fry’s Food Stores of Arizona, Inc. v. Mather and Associates, Inc., 183 Ariz. 89, 900 P.2d 1225 (App. 1995).  In the Fry’s case, the court allowed the claimant to pursue a negligence action filed within two years after a windstorm lifted a large canopy from the wall of a warehouse onto the warehouse roof, causing extensive exterior and interior damage.  The canopy had been installed fifteen years prior to the storm.  The court held that to apply the statute of repose to negligence actions would abolish such claims not only before they could be brought but before any injury had occurred.  Further, the court noted that there was no legislature history showing any intent to preempt a common law negligence action. 

Therefore, as set forth in the Fry’s case, the law in Arizona is that the statute of repose applies only to actions and arbitrations "based in contract" and does not impose a definite time limit on negligence actions, even if such negligent actions are among contracting parties.  As noted above, negligent actions are subject to a two-year statute of limitations, but this period can be tolled indefinitely by the discovery rule.

 

Summary of Arizona Limitation Periods for Possible Actions Against Contractors

2 years	12-542	Negligence; Personal injury; Wrongful death; Negligent misrepresentation; Products liability.
2 years	32-1136	Claim against residential contractors' recovery fund.
3 years	12-543	Oral contract or debt; Fraud; Mistake.
6 years	12-548	Written contract (generally includes implied warranty).
8 years	12-552	Statute of repose for implied warranty on improvement to real property (with possible additional one year period).
12 years	12-551	Statute of repose for product liability.