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How does recent Arizona SB1271 Change Indemnification requirements on construction jobs?

ArizonaConstruction Contract

I know that ARS 32-1159 governs construction/contractor indemnification language, and that Arizona just passed a new bill about this. The bill is SB 1271. However, I'm not sure whether this affects commercial and residential construction, or just commercial jobs. I'm in charge of our contracts and need some more clarity about this. What is the status of contractor indemnification language in Arizona now?

1 reply

May 28, 2019

Great question, it definitely seems like you're pretty up-to-date on legal changes in your industry.

SB 1271 made many additions to Arizona law, including amending sections 12-1362 and 12-1363, and adding section 32-1159.01. Generally, the changes or additions to the law in SB 1271, are:

1. Placing restrictions on indemnity agreements on dwelling actions;
2. Providing a construction professional the right to repair or replace the alleged construction defects prior to the initiation of a dwelling action;
3. Establishing a procedure for allocating liability in dwelling actions by generally preferring the bifurcation of a construction defect claim;
4. Establishing specific noticing requirements for dwelling actions; and,
5. Reinstating the award of attorneys' feed in dwelling actions.

For indemnification, the changes are within the addition of ARS 32-1159.01. As you note, ARS 32-1159 governs indemnification language generally, but now the new ARS 32-1159.01 specifically applies to dwelling actions. According to Arizona statute, a "dwelling action" is: "any action involving a construction defect brought by a purchaser against the seller of a dwelling arising out of or related to the design, construction, condition or sale of the dwelling."

Accordingly, the modifications to Arizona law set forth by SB 1271, and now passed into law, specifically apply to residential construction projects.

The limitation on indemnification now required on Arizona residential construction contracts specifically limits any indemnification provision that purports to require a construction participant to be liable for more than the damages it caused. Put another way, a party is prohibited from imposing indemnification requirements on subcontractors through contract for any damages not caused directly by that contracting sub. Any clause attempting to do so is now void as a matter of law as against public policy.

Accordingly, parties in Arizona working on residential construction projects may not include indemnification agreements in their contracts that attempt to require indemnity greater than the indemnifying party's own negligent work. Note, however, that this does not appear to extend to a "duty to defend" which can still apply to claims "arising out of or relating to" a party's work, wth no finding of direct fault.

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