Breach of Contract: Too Late to Sue
The Arizona Court of Appeals affirms the statutory clock for contract-based claims
construction by a subcontractor results in a lawsuit against the general
contractor, indemnity provisions in the contract normally allow the general to
sue the subcontractor. However, as one general contractor learned the hard way,
indemnity based in contract has time limits, and a general who fails to meet key
deadlines may forfeit its right to indemnification.
Evans Withycombe was the
general contractor in the construction of a Scottsdale home that was finished in
January 1992. Eight years later, in August 2000, the owners of the home sued
Evans Withycombe for defective construction. Two years after that (August 2002),
and just before settling with the homeowners, Evans Withycombe filed a
third-party complaint against the subcontractors that worked on the home for
breach of contract, breach of warranty, negligence, and indemnification.
One of the subs, Western
Innovations, responded with a motion for summary judgment, based on
A.R.S. § 12-552, which bars contract-based claims filed more than nine years
after substantial completion of a construction project. (By statute, the limit
is eight years, but if an injury or latent defect is discovered during the
eighth year, the statute extends the deadline for an additional year.) Evans
Withycombe’s claim came approximately ten years after the certificate of
occupancy was issued.
The trial court granted
Western’s motion and dismissed Evans Withycombe’s third-party complaint in its
entirety. Evans Withycombe appealed, arguing in part that its claims for
negligence and indemnity were not based in contract.
The Arizona Court of
Appeals upheld most, but not all, of the trial court’s dismissal of Evans
Withycombe’s complaint. The judges affirmed that A.R.S. § 12-552 clearly
provides that a breach of warranty claim is based in contract and barred Evans
Withycombe’s ten-year-old claim. The court also noted that, if Evans Withycombe
had filed its third-party claim against the subcontractors in a timely fashion,
its claim would have survived the statutory time limit. (The original lawsuit
was filed in August 2000, giving the general contractor a five-month window, to
January 2001, during which it could sue its subs in a contract action.)
In one bit of good news
for Evans Withycombe, the court ruled that, while A.R.S. § 12-552 barred it from
making a claim based in contract, the statute did not bar the company’s common
law indemnity claim against its subcontractors. As a consequence, while
upholding most provisions of the trial court’s dismissal of Evans Withycombe’s
suit, the Court of Appeals reversed the trial court’s dismissal of the company’s
common law indemnity claim.
For general contractors,
the point of this ruling is a simple one: If an owner sues you, and you believe
the true culprit is a subcontractor, be sure that you file your legal action
against the subcontractor before the statutory clock stops ticking.