Breach of Contract: Too Late to Sue

When defective 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.