On May 19, 2016, the Arizona Court of Appeals held that the City of Phoenix is subject to Arizona's statute of repose (A.R.S. § 12-552(A)), and dismissed its claims for contractual defense and indemnity from developers and contractors as time-barred (City of Phoenix v. Glenayre Electronics, Inc., (Ariz. App. 2016)).

For a discussion of Arizona's statute of repose, see Construction Laws and Customs: Arizona: Litigation Concerns.

In 2013, Carlos Tarazon filed a lawsuit alleging that he had developed mesothelioma as a result of exposure to asbestos while performing pipe installation and repair work for the City and other developers between 1968 and 1993. Tarazon died in 2014 and the complaint was amended to include a wrongful death claim, further alleging that the City was aware of the inherent danger of asbestos exposure and failed to adequately protect Tarazon from those risks.

The City immediately filed a third-party complaint seeking indemnification from developers and contractors allegedly responsible for planning, designing and constructing the projects on which Tarazon had worked. The City alleged the contractors and developers were solely responsible for the selection, installation and disposal of all asbestos-laden products used in the projects, and were required to indemnify the City against Tarazon's claims because of indemnification provisions in the contractors' contracts and the developers' permits.

The Appellees asserted that the City's claims were time-barred by the statute of repose codified in A.R.S. Section 12-552(A). The City relied on A.R.S. Section 12-510 and argued that as a governmental entity it was exempt from the statute of repose.

The trial court dismissed the City's third-party complaint and awarded attorneys' fees under A.R.S. Section 12-341.01(A) to the parties who had properly requested them.

The appeals court affirmed the trial court's decision to dismiss the City's third-party complaint and award attorneys' fees. The court interpreted the Legislature's intent in enacting A.R.S. Section 12-552(A) to decline to exempt governmental entities from the statute of repose.

The court acknowledged that A.R.S. Section 12-510 provides that limitations of actions do not apply to the State or its political subdivisions. However, the court reasoned that since the legislature enacted the statute of repose nearly ninety years after it enacted A.R.S. Section 12-510, it knew of the existing law but chose not to exempt governmental entities from it.

The court then referred to the plain language of A.R.S. Section 12-552(A), holding that the legislature unambiguously stated the statute applies "notwithstanding any other statute," and directed all actions based in contract to be subject to the statute of repose.

As a secondary issue, the court rejected the City's argument that the developers' permits were not contracts for purposes of the statute of repose. It found that both the City and the developers had the expectation that the terms and conditions of the permits were "as-is," and it was not required that the terms of the permits be negotiated for them to create a contractual relationship.

This decision is important because it protects persons who contract with government entities from being subjected to an undefined period of liability exposure. As an issue of first impression in Arizona, it has equally important implications for local municipalities who are now on notice that the statute of repose applies to their contract claims.

Since a statute of repose, unlike a statute of limitation, may not be tolled by fraud, discovery of injury or damage, or some other event, it is imperative that Arizona counsel advise their clients to conduct thorough inspections and bring any contract-based claims within eight years after substantial completion unless the claim falls within the exception under A.R.S. 12-552(B). When drafting indemnification provisions, counsel should also be familiar with local laws impacting indemnity obligations in construction contracts.

For a discussion of indemnification obligations, see Practice Note, Indemnification Provisions in Construction Contracts: Drafting Strategies.