UTAH CONSTRUCTION CLAIMS RESOURCES
- 1 Construction Claims
- 2 Construction Damages.
- 3 Coverage Trigger of Coverage
Limitations & Repose Periods
Utah has a statute of limitations applying specifically to actions related to improvements in real property. There is also a provision granting a period of repose for builders. These statutes were amended in 2004 and 2008 and the former statute may still apply depending upon when the cause of action accrued. Utah Code Ann. § 78B-2-225 (2008) (Note, however, that some construction activities may not involve improvements in real property but, rather, services (e.g. a soils report or design consultation). Also, merely providing materials would not likely be construed as completing an improvement in real property. In such cases, a four-year statute of limitations would likely control as applies to actions upon “an open account for work, labor or services rendered, or materials furnished; provided that action . . . may be commenced . . . within four years after the last charge is made or the last payment is received.”);
The most recent version of the statute applies to causes of action that accrue after May 3, 2003. Utah Code Ann. § 78B-2-225 (2008). Under this statute, an action based in contract or warranty must be brought within six years of the date of completion of the improvement or abandonment of construction. See Utah Code Ann. § 78B-2-225(1)(c) (2008) (explaining that “‘[c]ompletion of improvement’ means the date of substantial completion of an improvement to real property as established by the earliest of: (i) a Certificate of Substantial Completion; (ii) a Certificate of Occupancy issued by a governing agency; or (iii) the date of first use or possession of the improvement.”); Utah Code Ann. § 78B-2-225(1)(d) (2008) (defining “[i]mprovement” as “any building, structure, infrastructure, road, utility, or other similar man-made change, addition, modification, or alteration to real property.”). However, the statute allows parties to change this period through an express provision in a contract or warranty;
All other actions must be commenced within two years after the cause of action is discovered or should have been discovered. However, if the cause of action is discovered before the improvement is completed, the action must be brought within two years of the time the improvement is completed or abandoned. Notwithstanding this rule, an action may not be commenced against a provider more than 9 years after completion of the improvement or abandonment of construction. In the event the cause of action is discovered or discoverable in the eighth or ninth year of the nine-year period, the injured person has two additional years from that date to commence an action. See Utah Code Ann. § 78B-2-225(4) (2008); Utah Code Ann. § 78B-2-225(1)(f) (2008) (defining “[p]rovider” as “any person contributing to, providing, or performing studies, plans, specifications, drawings, designs, value engineering, cost or quantity estimates, surveys, staking, construction, and the review, observation, administration, management supervision, inspections, and tests of construction for or in relation to an improvement.”);
The prior version applies to causes of action that accrued before May 3, 2003. Under this version, an action based in contract or warranty must be brought within six years of the date of completion of the improvement or abandonment of construction. The former statute (Utah Code Ann. § 78-12-25.5(1)(b) (2004)) defined “[c]ompletion of improvement” like the current statute (Utah Code Ann. § 78B-2-225(1)(b)(2008));
All other actions must be commenced within two years after the breach of duty should have been discovered. However, if the breach is discovered before the improvement is completed, the action must be brought within two years of the time the improvement is completed or abandoned;
The earlier statute, Utah Code Ann. § 78-12-25.5, also provides a 12-year period of repose. However, the earlier statute allows an additional two years in the event the breach is discovered or discoverable in the eleventh through twelfth year of the 12-year period;
A cause of action accrues upon the happening of the last event necessary to give rise to a cause of action. Brigham Young Univ. v. Paulsen Constr. Co., 744 P.2d 1370, 1373 (Utah 1987).
In construction contract cases, as opposed to negligence or other types of cases, an owner’s claim of defective construction against a general contractor is generally considered to accrue on the date that construction is completed. Id.
Generally, “mere ignorance of the existence of a cause of action does not prevent the running of the statute of limitations.” Id. at 1374 (quoting Becton Dickinson & Co. v. Reese, 668 P.2d 1254, 1257 (Utah 1983)). However, the legislature has adopted a discovery rule in certain circumstances as discussed below.
A plaintiff will often bring a claim for negligence in a construction defect case rather than a breach of contract because insurance will generally cover negligence claims where it would not cover breach of contract. Nevertheless, many negligence claims are barred by the Economic Loss Rule as discussed below.
Right to Repair Laws and/or Pre-Suit Statutory Procedures
Indemnity and Contribution
The general rule is that indemnification agreements requiring one party to assume liability for the negligence of another are not enforceable unless they are clear and unambiguous. See, e.g., Barrus v. Wilkinson, 398 P.2d 207, 208 (1965); see also, Union Pac. RR. v. El Paso Natural Gas Co., 408 P.2d 910, 914 (Utah 1965); Freund v. Utah Power & Light Co., 793 P.2d 362, 370 (Utah 1990).
To that effect, Utah Code Ann. §13-8-1 bars the inclusion of an indemnity agreement in a construction contract that was entered into after May 5, 1997.
The exception to this rule is where the construction contract is entered into between an owner and the contractors, suppliers or construction manager unless the owner also acts as a contractor, supplier or construction manager. In such a contract, if the damages are caused in part by the owner, the fault of the owner is apportioned among the contractors, suppliers and construction manager pro rata based on the proportional share of fault of each of the parties. See Utah Code Ann. §13-8-1 (3).
While indemnity agreements in construction contracts are void, it is still advisable that contractors require subcontractors to name the contractor on the subcontractor’s insurance policy. An agreement in a construction contract to purchase insurance that covers liability stemming from the other party’s negligence has been held not to violate the statute that voids indemnification agreements. See Meadow Valley Contrs., Inc. v. Transcon. Ins. Co., 27 P.3d 594 (Utah Ct. App. 2001).
Utah courts strictly construe indemnity agreements, and judges rely on ordinary rules of contract interpretation when reviewing these clauses or agreements. There is a presumption that another party would not agree to shift financial responsibility for its own negligence onto the other party. Courts will not make any inference or implication from general language. Instead, courts look to the purpose of the agreement. The policy behind disfavoring these agreements is that an indemnified party will be less careful in their behavior towards others. See, e.g., Bishop v. Gentec, 48 P.3d 218, 224 (2002) (citing Hawkins v. Peart, 37 P.3d 1062, 1066-67 (2001)).
“An indemnity agreement may be invalidated as violative of public policy where shown to have resulted from duress, deception, a disparity of bargaining power, or negotiations conducted at less than arm’s length.” Shell Oil Co. v. Brinkerhoff-Signal Drilling Co., 658 P.2d 1187, 1189-90 (Utah 1983) (citing cases).
Under Utah Code Ann. §78B-5-820, a defendant is not entitled to contribution from any other person, except claims of contribution or indemnity arising under statute, contract, or agreement.
Certificate of Merit – ExpertsNone.
Economic Loss Rule
The Economic Loss Rule provides generally that one “may not recover economic losses under a theory of non-intentional tort” absent physical damage to other property or bodily injury. Economic losses represent lost profits, lost business opportunities, and lost wages. Under this rule, economic losses may not be recovered under a negligence claim unless there are bodily injuries or property damage. See American Towers Owners Ass’n v. CCI Mech., 930 P.2d 1182, 1189 (Utah 1996), abrogated in part by, Davencourt at Pilgrims Landing Homeowners Ass’n v. Davencourt at Pilgrims Landing, LC, 221 P.3d 234(quoting Maack v. Resource Design & Constr., Inc., 875 P.2d 570, 579-80 (Utah Ct. App. 1994) (internal citations omitted)); see also SME Indus., Inc. v. Thompson, Venutlett, Stainack & Assocs., Inc., 28 P.3d 669, 680 (Utah 2001).
In 2008 the Utah Legislature codified the Economic Loss Rule in the construction context in Utah Code § 78B-4-513.
The basis for the Economic Loss Rule arises from the intrinsic differences between tort and contract law. For example, “[c]ontract law protects expectancy interests created through agreement between the parties, while tort law protects individuals and their property from physical harm by imposing a duty to exercise reasonable care.” Maack, 875 P.2d at 580; see also Perry v. Pioneer Wholesale Supply Co., 681 P.2d 214, 217-18 n.3 (Utah 1984)(“[The] blending of tort and contract concepts has never been accepted by this Court.”).
In Maack v. Resource Design & Constr., Inc., 87 P.2d 570 (Utah Ct. App. 1994) the Utah Court of Appeals reasoned:
- A duty to use ordinary care and skill is not imposed in the abstract. It results from a conclusion that an interest entitled to protection will be damaged if such care is not exercised. Traditionally, interests which have been deemed entitled to protection in negligence have been related to safety or freedom from physical harm. Thus, where personal injury is threatened, a duty in negligence has been readily found. Property interests also have generally been found to merit protection from physical harm.
In other words, tort law is concerned with an interest in freedom from physical harm or harm to one’s property. Where purely economic losses are alleged, however, the standard of care must be defined by reference to that which the parties have agreed upon. That is the role of contract law. Maack, 875 P.2d at 580 (quoting Crowder v. Vandendeale, 564 S.W.2d 879, 882 (Mo. 1978) (en banc)); See Gen. Pub. Util. v. Glass Kitchens of Lancaster, Inc., 542 A.2d 567, 570 (Pa. Super. Ct. 1988) (“To allow a cause of action for negligent cause of purely economic loss would be to open the door to every person or business to bring a cause of action. Such an outstanding burden is clearly inappropriate and a danger to our economic system.”).
This rule was applied in American Towers Owners Ass’n v. CCI Mechanical, Inc., 930 P.2d 1182 (Utah 1996), where a condominium association sued the defendants who designed, developed and constructed the condominium complex. See American Towers, 930 P.2d at 1190-91 (stating that “[o]therwise, the extension of tort law would result in liability in an indeterminate amount for an indeterminate time to an indeterminate class”) (internal quotations and citations omitted); Gen. Pub. Util. v. Glass Kitchens of Lancaster, Inc., 542 A.2d 567, 570 (Pa. Super. Ct. 1988) (“To allow a cause of action for negligent cause of purely economic loss would be to open the door to every person or business to bring a cause of action. Such an outstanding burden is clearly inappropriate and a danger to our economic system.”). The association alleged that defendants negligently failed to design, construct, supervise and inspect the construction of the property. Thus, the association alleged that it incurred substantial reparation costs, diminution of the value of the property and other damages. The trial court granted the defendant’s motion for summary judgment on the basis that the claim failed as a matter of law because “the alleged damages are for economic loss, not for injury to persons or other property.” See American Towers, 930 P.2d at 1188.
On appeal the Utah Supreme Court affirmed. In doing so, the court explained the above principles of law and held:
- The Association contends that the complex’s plumbing and mechanical systems do not meet their expectations, resulting in a diminution in value of their purchase measured by the cost of repair. This deterioration of the complex does not qualify for the “damage to other property” exception to the economic loss doctrine. This interpretation is consistent with the court of appeals’ decisions applying the economic loss rule . . . where the plaintiffs claimed that construction defects caused water leakage into other parts of their homes.
- American Towers, 930 P.2d at 1191.
See American Towers, 930 P.2d at 1188, 1190-91 (stating that “[o]therwise, the extension of tort law would result in liability in an indeterminate amount for an indeterminate time to an indeterminate class”) (internal quotations and citations omitted); Gen. Pub. Util. v. Glass Kitchens of Lancaster, Inc., 542 A.2d 567, 570 (Pa. Super. Ct. 1988) (“To allow a cause of action for negligent cause of purely economic loss would be to open the door to every person or business to bring a cause of action. Such an outstanding burden is clearly inappropriate and a danger to our economic system.”).
Despite the long-standing rule that one cannot recover economic losses absent bodily injury or damage to other property, there is an exception where there is an independent duty, such as the duty a real estate broker owes to the public to be honest, ethical, and competent. “When an independent duty exists, the economic loss rule does not bar a tort claim because the claim is based on a recognized independent duty of care and thus does not fall within the scope of the rule.” Hermansen v. Tasulis, 48 P.3d 235, 240 (Utah 2002) (internal citations omitted). Under Hermansen v. Tasulis, the plaintiff was able to make a claim against the seller’s real estate broker where the plaintiff alleged the broker knew about the property’s unstable soil conditions. Id.
In 2009, the Utah Supreme Court held that a homeowner’s association was not owed an independent duty by the builder to conform to the building code or construct a home without negligence. However, a developer does owe an independent fiduciary duty to the association under which certain negligence claims can be brought. Davencourt at Pilgrims Landing Homeowner’s Ass’n. v. Davencourt at Pilgrims Landing, LC, 221 P.3d 234 (Utah 2009).
The Court in Davencourt held that a developer owes certain limited duties to an association and its members as follows:
Until the developer relinquishes control of the association to the members, the developer owes the following duties to the association and its members:
(1) to use reasonable care and prudence in managing and maintaining the common property;
(2) to establish a sound fiscal basis for the association by imposing and collecting assessments and establishing reserves for the maintenance and replacement of common property;
(3) to disclose the amount by which the developer is providing or subsidizing services that the association is or will be obligated to provide;
(4) to maintain records and to account for the financial affairs of the association from its inception;
(5) to comply with and enforce the terms of the governing documents, including design controls, land-use restrictions, and the payment of assessments;
(6) to disclose all material facts and circumstances affecting the condition of the property that the association is responsible for maintaining; and
(7) to disclose all material facts and circumstances affecting the financial condition of the association, including the interest of the developer and the developer's affiliates in any contract, lease, or other agreement entered into by the association.
Davencourt at Pilgrims Landing Homeowner’s Ass’n. v. Davencourt at Pilgrims Landing, LC, 221 P.3d 234, 246 (Utah 2009)
In 2010, the Utah Supreme Court held that an engineer does not owe an independent duty sounding in negligence to his client. The client is limited to his contractual remedies against the engineer. Sunridge Dev. Corp. v. RB&G Eng’g, Inc., 230 P.3d 1000, 1007, n.8 (Utah 2010).
Contractor Licensing Requirements
Utah law requires that “[a] person engaged in the construction trades licensed under this chapter [….] shall become licensed under this chapter before engaging in that trade or contracting activity in this state unless specifically exempted”. Utah Code Ann. § 58-55-301 (1)(a).
“Construction trade” is defined as any trade or occupation involving the “construction, alteration, remodeling, repairing, wrecking or demolition, addition to, or improvement of any building, highway, road, railroad, dam, bridge, structure, excavation or other project, development, or improvement to other than personal property”, and “constructing, remodeling, or repairing a manufactured home or mobile home”. Utah Code Ann. § 58-55-102 (10).
A person engaged in a construction trade need only receive a license issued by the Utah Division of Professional and Occupational Licensing (DOPL) under Utah Code § 58-55-301 et. seq. and a business license issued by a local jurisdiction where the licensee has its principal place of business. Utah Code Ann. § 58-55-301 (1)(b).
DOPL issues licenses to qualified persons in the following classifications:
A. General engineering contractor;
B. General building contractor;
C. Residential and small commercial contractor;
D. Elevator contractor;
E. Specialty contractor;
F. Master plumber;
G. Residential master plumber;
H. Journeyman plumber;
I. Apprentice plumber;
J. Residential journeyman plumber;
K. Master electrician;
L. Residential master electrician;
M. Apprentice electrician;
N. Construction trades instructor
i. General engineering classification;
ii. General building classification;
iii. Electrical classification;
iv. Plumbing classification; and
v. Mechanical classification;
O. Alarm company;
P. Alarm company agent; and
Q. Elevator mechanic. Utah Code Ann. § 58-55-301 (2).
An applicant may apply for a license in more than one of the above classification or specialty contractor subclassification. The licensee shall be granted each classification for which the licensee qualifies. A separate application and fee must be submitted for each classification. Utah Code Ann. § 58-55-301 (3)(a-c).
Each applicant shall submit an application and pay the fee to DOPL, meet the examination requirements set forth by the DOPL rules, except for apprentice plumber and apprentice electrician classifications for which no license is required. If required, the individual qualifier must pass the required examination if the applicant is a business entity. Utah Code Ann. § 58-55-302 (1)(a-c).
An applicant for an apprenticeship needs to identify the proposed supervisor of the apprenticeship. Utah Code Ann. § 58-55-302 (1)(d).
Except for a construction trades instructor, any other applicant for a contractor’s license shall produce satisfactory evidence of:
A. Financial responsibility;
B. Two years full-time paid employment in the construction industry that may be related to any of the contracting classifications; and
C. Knowledge of the principles of the conduct of business as a contractor, reasonably necessary for the protection of the public health, safety, and welfare. Utah Code Ann. § 58-55-302 (1)(e)(i-ii).
An applicant needs to complete a 20-hour course established by DOPL that covers topics including construction business practices, bookkeeping fundamentals, mechanics lien fundamentals, and other aspects of business and construction principles. Utah Code Ann. § 58-55-302 (1)(e)(iii).
Applicants for a residential electrical contractor’s license need to be a licensed master electrician. Utah Code Ann. § 58-55-302 (1)(e)(iv)(A).
Applicants for the plumbing contractor’s license or licensed master residential plumber’s license need to be a licensed master plumber. Utah Code Ann. § 58-55-302 (1)(e)(iv)(B).
Applicants for an elevator contractor’s license need to be a licensed elevator mechanic and provide satisfactory evidence of three years experience as an elevator mechanic. Utah Code Ann. § 58-55-302 (1)(e)(iv)(C).
If the applicant is an unincorporated entity, then the applicant must provide a list of the one or more individuals who have an ownership interest in the applicant as of the date of the application. Each of those that have an ownership interest must disclose the individual’s name, address, date of birth, social security number, and if that individual will engage in the construction trade. Utah Code Ann. § 58-55-302 (1)(e)(v).
After approval of the applicant for a contractor’s license by the applicable trade board and DOPL, the applicant shall file with DOPL the following items before DOPL issues a license:
A.Proof of workers’ compensation insurance which covers employees of the applicant;
B.Proof of public liability insurance in coverage amounts and form as required by rule;
C.Proof of registration with:
i. The Department of Commerce;
ii. The Division of Corporations and Commercial Code;
iii. Unemployment Insurance Division in the Department of Workforce Services;
iv. State Tax Commission; and
v. The Internal Revenue Service. Utah Code Ann. § 58-55-302 (2)(b).
Each contractor licensee shall complete six hours of approved continuing education during each two-year renewal cycle. Utah Code Ann. § 58-55-302.5 (1).
In addition, at renewal, each licensee shall provide satisfactory evidence of continuing financial responsibility, shall pay any outstanding fines imposed by DOPL, resolve any outstanding citations or disciplinary actions with DOPL, complete a new financial responsibility review, and pay in full any reimbursement amount for the Residence Lien Restriction and Lien Recovery Fund. Utah Code Ann. § 58-55-303 (2).
Only courses offered by any of the following recognized entities may be included in the program of approved continuing education courses to satisfy the continuing education requirement for a contractor licensee:
A. The Associated General Contractors of Utah;
B. Associated Builders and Contractors, Utah Chapter;
C. The Home Builders Association of Utah;
D. The National Electrical Contractors Association, Intermountain Chapter;
E. The Utah Plumbing & Heating Contractors Association;
F. The Independent Electrical Contractors of Utah;
G. The Rocky Mountain Gas Association;
H. The Utah Mechanical Contractors Association;
I. The Sheet Metal Contractors Association;
J. The Intermountain Electrical Association;
K. The Builders Bid Service of Utah; or
L. The Utah Roofing Contractors Association. Utah Code Ann. § 58-55-302.5 (2)(b).
In addition, a course approved by the first three organizations above will satisfy the continuing education requirements for a contractor licensee. Utah Code Ann. § 58-55-302.5 (2)(c).
Utah recognizes several exemptions to licensure, including:
- A.Authorized representatives of the U.S. Government or an authorized employee of the State of Utah, or its political subdivision, who are working on construction for those government entities and when acting within the scope of the person’s office or employment;
B.A person engaged in the construction or operation incidental to the construction and repair of an irrigation and drainage ditch of a regularly constituted irrigation district, reclamation district, drainage district;
C.A person engaged in the construction or repair relating to irrigation infrastructure for farming, dairying, agriculture, livestock or poultry raising, metal or coal mining, quarries, sand and gravel excavations, well drilling, hauling to and from construction sites, and lumbering;
D.Public utilities performing work incidental to their own business;
E.Sole owners of property engaged in building:
i. No more than one residential structure per year and no more than three residential structures per five years on their property for their own noncommercial, nonpublic uses; or
ii. Structures on their property for their own noncommercial nonpublic use for which are incidental to a residential structure on their property (including sheds, carports, detached garages).
F.A person engaged in the construction or renovation of a residential building for noncommercial, nonpublic use, if that person:
i. Works without compensation other than “token compensation” that is not considered salary or wages (and is minimal value when compared to the fair market value of such services, is not related to the fair market value of such services, and is incident to the providing of services including paying for meals and paying for transportation to the site); and
ii. Works under the direction of a property owner who engages in building the structure.
H.A contractor submitting a bid on a federal aid highway project, if before undertaking that construction, the contractor is licensed with DOPL;
I.A person engaged in the alteration, repair, remodeling, or addition to or improvement of a building with a contracted or agreed value of less than $3,000, including both labor and materials, and including all changes or additions to the contracted or agreed upon work, except:
i. Any plumbing, electrical, installation or repair work of a gas or combustion appliance, installation or repair of a water-based fire suppression system, installation or repair of an alarm system, installation or repair work of an HVAC system, installation or work on a radon or ground pressure relief system, needs to be completed by a licensed professional; and
ii. If the total value of the project is greater than $1,000, the person shall file with the division a one-time affirmation, subject to periodic reaffirmation as established by division rule, that the person has provided appropriate workers compensation coverage and liability insurance coverage for workers on the work.
J.A person practicing a specialty contractor classification or construction trade which the director does not classify by administrative rule as significantly impacting the public's health, safety, and welfare;
K.Owners and lessees of property and persons regularly employed for wages by owners or lessees of property or their agents for the purpose of maintaining the property, are exempt from this chapter when doing work upon the property;
L.A person engaged in “minor plumbing work” that is “incidental,” as defined by the division by rule, to the replacement or repair of a fixture or an appliance in a residential or small commercial building, or structure used for agricultural use, provided that no modification is made to existing culinary water, soil, waste, or vent piping; or a gas appliance or combustion system; and except for work done by a person as described above in category (6) (working for token compensation), installation for the first time of a fixture or an appliance is not included in this exemption;
M.A person who ordinarily would be subject to the plumber licensure requirements under this chapter when installing or repairing a water conditioner or other water treatment apparatus if the conditioner or apparatus:
i. Meets the appropriate state construction codes or local plumbing standards; and
ii. Is installed or repaired under the direction of a person authorized to do the work under an appropriate specialty contractor license;
N.A person who ordinarily would be subject to the electrician licensure requirements under this chapter when employed by:
i. Railroad corporations, telephone corporations or their corporate affiliates, elevator contractors or constructors, or street railway systems; or
ii. Public service corporations, rural electrification associations, or municipal utilities who generate, distribute, or sell electrical energy for light, heat, or power.
O.A person involved in minor electrical work incidental to a mechanical or service installation, including the outdoor installation of an above-ground, prebuilt hot tub;
P.A person who ordinarily would be subject to the electrician licensure requirements under this chapter but who during calendar years 2009, 2010, or 2011 was issued a specialty contractor license for the electrical work associated with the installation, repair, or maintenance of solar energy panels, may continue the limited electrical work for solar energy panels under a specialty contractor license;
Q.A student participating in construction trade education and training programs approved by the commission with the concurrence of the director under the condition that:
i. All work intended as a part of a finished product on which there would normally be an inspection by a building inspector is, in fact, inspected and found acceptable by a licensed building inspector; and
ii. A licensed contractor obtains the necessary building permits;
R.A delivery person when replacing any of the following existing equipment with a new gas appliance, provided there is an existing gas shutoff valve at the appliance:
i. Gas range;
ii. Gas dryer;
iii. Outdoor gas barbeque; or
iv. Outdoor gas patio heater;
S.A person performing maintenance on an elevator if the maintenance is not related to the operating integrity of the elevator; and
T.An apprentice or helper of a licensed elevator mechanic when working under the general direction of the licensed elevator mechanic. See Utah Code Ann. § 58-55-305.
An applicant for licensure as a contractor, and a licensee applying for renewal or reinstatement of a contractor's license shall demonstrate to the division and the commission the applicant's or licensee's financial responsibility before the issuance of or the renewal or reinstatement of a license by:
A. Completing and signing a questionnaire created by DOPL; or and
B. Submitting a bond in an amount and form determined by the commission with the concurrence of the director. Utah Code Ann. § 58-55-306 (1);
A licensee, including an individual who holds an ownership interest in an unincorporated entity licensee, shall maintain financial responsibility throughout the period of licensure. A licensee has the burden to demonstrate that this has been done. Utah Code Ann. § 58-55-306 (2) and (4)
Common Law & Statutory Claims
Utah Code Ann. § 78B-4-513 (1) provides that any cause of action for defective construction is limited to a breach of contract claim, based upon either a written or verbal contract, including both express and implied warranties.
An exception is for claims that include damage to other property or physical personal injury if the damage or injury is caused by the defective design or construction. Utah Code Ann. § 78B-4-513 (2).
Cost of Repair
In a construction damage case, a plaintiff the measure of damages is either (1) the cost of repair, or (2) a loss of market value measure of damages. Model Utah Jury Instructions, Second Edition, (MUJI 2d) CV2231 (“Damages for Contractor’s Defective Work”); Rex T. Fuhriman, Inc. v. Jarrell, 445 P.2d 136, 139 (Utah 1968) (citing Restat. Contracts § 346).
The “cost of repair” damages calculation is made when the repair is possible and would not be unnecessarily wasteful. MUJI 2d, CV2231; Stangl v. Todd, 554 P.2d 1316, 1320 (Utah 1976).
“Cost of repair” damages are the reasonable cost to repair the improvements to the condition that they would have been in had the defendant not breached the contract. MUJI 2d, CV2231; Rex T. Fuhriman, Inc. v. Jarrell, 445 P.2d 136, 139 (Utah 1968) (citing Restat. Contracts § 346).
Diminution in Value
In the alternative to “cost of repair” damages, a Plaintiff can receive “Loss in Market Value” damages. MUJI 2d, CV2231.
“Loss in Market Value” damages are available if repairing the improvements is not possible or if the defendant can prove that the cost to repair the improvements is unreasonably wasteful. In such cases, a Plaintiff can only recover “Loss of Market Value” damages and not “cost of repair” damages. MUJI 2d, CV2231.
A repair is considered “unreasonably wasteful” if the cost of such repair is sufficiently more than the loss in fair market value of the improvements made by the defendant’s work, such that a reasonable person would not make the repair under the circumstances. If the repair is found to be unreasonably wasteful, then the factfinder is to use the “Loss in Market Value” calculation. MUJI 2d, CV2231; Western Land Equities, Inc. v. City of Logan, 617 P.2d 388, 395 (Utah 1980) (holding that economic waste results from expenditures of construction costs without benefit to public or private property owners).
A “Loss in Market Value” damage award is equal to the difference between the fair market value that the improvements would have had absent defendant’s breach and the fair market value of the improvements as received. MUJI 2d, CV2231.
In Utah, “punitive damages may be awarded only if compensatory or general damages are awarded and it is established by clear and convincing evidence that the acts or omissions of the tortfeasor are the result of willful and malicious or intentionally fraudulent conduct, or conduct that manifests a knowing and reckless indifference toward, and a disregard of, the rights of others.” See Crookston v. Fire Ins. Exch., 817 P.2d 789, 810 (Utah 1991).
Generally, punitive damages are only available for tort claims and not for contract claims. See e.g. MUJI 2d CV2026 (Tort Damages); Crookston v. Fire Ins. Exch., 817 P.2d 789, 810 (stating that punitive damage awards are awarded against a tortfeasor).
A Utah Case, State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003), has set the standard regarding what is a constitutional punitive damage award. in which it reversed an unusually high jury award for punitive damages. Campbell went to the U.S. Supreme Court on a writ of certiorari from the Utah Supreme Court. The Utah Supreme Court had approved a $145,000,000 punitive damages award against State Farm in a third-party bad faith failure-to-settle case.
The compensatory damages totaled $1,000,000, resulting in a 145-to-1 ratio of punitive-to-compensatory damages. The Supreme Court reversed and held that the punitive award violated the Due Process Clause of the United States Constitution. Id. at 416-417. It held that, under its earlier decision in BMW v. Gore, 517 U.S. 559 (1996), a punitive award “at or near the amount of compensatory damages” would be justified. State Farm, 538 U.S. at 429. The Court further held that the award of punitive damages must be based upon injury to the plaintiffs in the underlying case and cannot be the product of generic evidence of wrongdoing against the corporate defendant. Id. at 415. Specifically, the Court rejected the Utah Supreme Court’s acceptance of evidence of alleged wrongful acts committed in other states by State Farm which were not substantially like the harm suffered by the Campbells as a basis to support the large punitive award. Id. at 420. Thus, extraterritorial evidence of wrongdoing that is not substantially like the harm done to the specific plaintiffs cannot be considered for purposes of determining a constitutionally valid punitive award. Finally, a dissenting opinion indicated that ratios more than 9-to-1 would probably not pass the constitutional test. Id. at 438.
“In Utah, attorney fees are awardable only if authorized by statute or by contract.” Jones v. Riche, 2009 UT App 196,1, 216 P.3d 357, 358 (quoting State Bank v. Bracken, 764 P.2d 985, 988 (Utah 1988).
Thus, in construction cases, the source of attorney’s fees will almost always be based upon a contractual provision.
Joint and Several Liability (specific to construction)
The Utah Legislature rejected “joint and several liability,” except in limited circumstances, when they replaced contributory negligence with comparative negligence as outlined in Utah Code Ann. § 78B-5-818.
Cost Incurred to Access Repair Areas:
Allowed as part of the “Repair” Measure of Damages so long as the costs are not unreasonably wasteful. See MUJI 2d CV2231 (Damages for Contractor’s Defective Work)
In Utah, a party can recover consequential damages caused by a defendant’s breach in addition to the expectation damages. MUJI 2d CV2136 (“Consequential Damages”). Black v. Allstate Ins. Co., 2004 UT 66, 28, 100 P.3d 1163, 1170.
Consequential damages are defined as those losses that are reasonably within the contemplation of the parties, or that the parties could have considered them or reasonably foreseen them, at the time the contract was made. MUJI 2D, CV2136 (“Consequential Damages”); McCleve Properties, LLC v. D. Ray Hult Family Ltd. P’ship, 2013 UT App 185, 17, 307 P.3d 650, 657; Beck v. Farmers Ins. Exch., 701 P.2d 795, 801 (Utah 1985); Restatement (Second) of Contracts § 351 (1981).
A “foreseeable injury” includes an examination of the nature and language of the parties as well as the reasonable expectations of the parties. Machan v. UNUM Life Ins. Co. of Am., 2005 UT 37, 17, 116 P.3d 342, 346.
A loss may be foreseeable because it follows from the breach:
A. In the ordinary course of events, or
B. As a result of special circumstances, beyond the ordinary course of events, that the defendant had reason to know. MUJI 2d CV2236 (citing to Restatement (Second) of Contracts § 351 (1981)).
Coverage Trigger of Coverage
Definition of an Occurrence
A.Generally, Utah courts deem an “occurrence” as an “accident”, or:
the word [accident] is descriptive of means which produce effects which are not their natural and probable consequences.... An effect which is the natural and probable consequence of an act or course of action is not an accident, nor is it produced by accidental means. It is either the result of actual design, or it falls under the maxim that every man must be held to intend the natural and probable consequence of his deeds.
Fire Ins. Exch. v. Estate of Therkelsen, 2001 UT 48, 15, 27 P.3d 555, 559 (citing Nova Cas. Co. v. Able Constr., Inc., 1999 UT 69,13, 983 P.2d. 575 (alteration in original).
B.Under Utah law, when determining whether there is an accident, the court is not to examine whether the underlying act is intentional, deliberate, or foreseeable, but rather whether the result of the act was intended or expected from the perspective of the insured. Cincinnati Ins. Co. v. Spectrum Dev. Corp., No. 2:11-CV-0015-CW, 2015 WL 730020, at *4 (D. Utah Feb. 19, 2015) (citing N.M. ex rel. Caleb v. Daniel E., 2008 UT 1, 11, 175 P.3d 566 (Utah 2008)).
C.Accordingly, harm or damage is not accidental if: (1) it is the result of actual design or intended by the insured, or (2) it is the natural and probable consequence of the insured's act or should have been expected by the insured. Id.
D.“Because subcontractors are contractually required to correctly perform their own work regardless of the type of supervision they receive, their negligent acts are neither something that is to be expected nor the natural and probable consequences of the way they are supervised.” Id. (citing Great Am. Ins. Co. v. Woodside Homes Corp., 448 F. Supp.2d 1275, 1281 (D. Utah 2006) ((“Given the Utah Supreme Court's focus on the acts of the insured when determining whether there has been an occurrence, it follows that the negligent acts of Woodside's subcontractors can be considered an occurrence from Woodside's ‘point of view’”)
Duty to Defend
i.In insurance contracts, the duty to indemnify arises from a contractual duty. Accordingly, the scope of that duty is defined by the terms of the insurance contract. Benjamin v. Amica Mut. Ins. Co., 2006 UT 37, 27-28; Fire Ins. Exch. v. Estate of Therkelsen, 2001 UT 48, 14, 27 P.3d 555.
ii.The duty to indemnify is tied to the existence of covered claims. Benjamin v. Amica Mut. Ins. Co., 2006 UT 37, 16, 28.
iii.While the duty to defend is determined under the allegations of the complaint, the duty to indemnify is determined by the facts as they are developed during the case, and by the ultimate judgment entered in the case. See Fire Ins. Exch. v. Estate of Therkelsen, 2001 UT 48, P23 (Utah, 2001). Thus, the duty to indemnify cannot normally be fully analyzed until a case has reached its conclusion.
While Utah’s anti-indemnity statute for construction contracts, Utah Code Ann. §13-8-1 bars indemnity provisions in a “construction contract”, the statute does not apply to an obligation to purchase liability insurance. An agreement in a construction contract to purchase insurance that covers liability stemming from the other party’s negligence has been held not to violate the statute that voids indemnification agreements. See Meadow Valley Contrs., Inc. v. Transcon. Ins. Co., 27 P.3d 594 (Utah Ct. App. 2001).
Coverage for AI’s own negligence vs. vicarious liability for Named Insured: while Utah’s anti-indemnity statute for construction contracts, Utah Code Ann. §13-8-1 bars indemnity provisions in a “construction contract”, the statute does not apply to an obligation to purchase liability insurance. An agreement in a construction contract to purchase insurance that covers liability stemming from the other party’s negligence has been held not to violate the statute that voids indemnification agreements. See Meadow Valley Contrs., Inc. v. Transcon. Ins. Co., 27 P.3d 594 (Utah Ct. App. 2001).
D.Determining Primary and Non-Contributory vs. Excess Position
Primary coverage contrasts with coverage of a different order, such as “secondary” or “excess coverage.” Generally, “primary insurance” is “[i]nsurance that attaches immediately on the happening of a loss; insurance that is not contingent on the exhaustion of an underlying policy.” Li v. Enter. Rent-A-Car Co. of Utah, 2006 UT 80, 21, 150 P.3d 471, 478 (quoting Black’s Law Dictionary 807 (7th Ed. 1999)) (discussing primary vs. secondary insurance in a rental car situation and interpreting Utah statutes requiring insurance coverage for drivers).
E.AI carrier’s rights to reimbursement for defense expenses from other, co-primary carriers
i.“Under the framework we announced in Sharon Steel Corp. v. Aetna Casualty & Surety Co., when determining how to apportion defense costs among insurers, we “apply equitable principles […] unless express policy language decrees the method of apportionment.” Ohio Cas. Ins. Co. v. Unigard Ins. Co., 2012 UT 1, 11, 268 P.3d 180, 183, (citing 931 P.2d 127, 140 (Utah 1997)).
ii.For cases with a continuous injury where successive insurers are involved, Utah Courts apply the “time on the risk” apportionment method that considers the time each insurer spent “on the risk” and each insurer's policy limits. Ohio Cas. Ins. Co. v. Unigard Ins. Co., 2012 UT 1, 23, 268 P.3d 180, 185 (citing Sharon Steel Corp., 931 P.2d. at 140–41.)
iii.In addition, an insurer, under the doctrine of contribution or equitable subrogation, is entitled to recover the costs of defense from other insurers who were equally obligated to defend a case but failed to do so. Sharon Steel Corp. v. Aetna Cas. & Sur. Co., 931 P.2d 127, 137–38 (Utah 1997)
F.Insureds Right to Independent Counsel and Consequences of Rejecting a Defense
i.In instances where there is insurance, it is recognized that generally the insurance company “actually takes over, employs counsel, investigates the case, interviews the witnesses, controls offers of settlement, and in fact handles the entire matter.” Ellis v. Gilbert, 429 P.2d 39, 42 (Utah 1967).
ii.That said, “[t]he insured is wholly dependent upon the insurer to see that, in dealing with claims by third parties, the insured’s best interests are protected. In addition, when dealing with third-parties, the insurer acts as an agent for the insured with respect to the disputed claim. Wholly apart from the contractual obligations undertaken by the parties, the law imposes upon all agents a fiduciary obligation to their principals with respect to matters falling within the scope of their agency.” Beck v. Farmers Ins. Exch., 701 P.2d 795, 799-800 (Utah 1985).
iii.However, an insurance attorney only represents the insured “insofar as any claim is made against him for which the insurance company might be liable.” Berlant v. McAllister, 480 P.2d 126, 127 (1971).
iv.When an insurer breaches its duty to defend an insured, the insured is only entitled to recover the amount that the insured paid for reasonable attorneys fees. Sharon Steel Corp., 931 P.2d at 139 (citing cases).
A.The Utah Supreme Court has ruled that an insurer may “exclude from coverage certain losses by using language which clearly and unmistakably communicates to the insured the specific circumstances under which the expected coverage will not be provided.” Alf v. State Farm Fire & Cas. Co., 850 P.2d 1272, 1274 (Utah 1993)(citing Village Inn Apartments v. State Farm Fire & Cas. Co., 790 P.2d 581 (Utah App. 1990)).
B.Moreover, an “insurer may include in a policy any number or kind of exceptions and limitations to which an insured will agree unless contrary to statute or public policy.” Farmers Ins. Exch. v. Call, 712 P.2d 231, 233 (Utah 1985).
C.However, if there is ambiguity in an insurance contract, it is construed against the insurer. The Utah Supreme Court has stated that “insurance policies should be strictly construed against the insurer and in favor of the insured because they are adhesion contracts drafted by the insurance companies.” U.S. Fidelity & Guar. v. Sandt, 854 P.2d 519, 522 (Utah 1993) (citation omitted).
D.Also, “[t]he insured is entitled to the broadest protection that he could reasonably believe the commonly understood meaning of its terms afforded him.” Id. (quotations and citation omitted).
E.If there is “ambiguous or uncertain language in an insurance contract that is fairly susceptible to different interpretations [it] should be construed in favor of coverage.” Id. (citations omitted).
F.Furthermore, “if an insurance contract has inconsistent provisions, one which can be construed against coverage and one which can be construed in favor of coverage, the contract should be construed in favor of coverage.” Id. (citations omitted).
G.A “corollary to these rules is that provisions that limit or exclude coverage should be strictly construed against the insurer.” Id.
H.Recently, the United States District Court for the District of Utah has evaluated the applicability of the of the Your Work exclusion in CGL policies. See Auto-Owners Ins. Co. v. Timbersmith, Inc., 2016 U.S. Dist. LEXIS 78748.
I.In Timbersmith, the court specifically evaluated if an “accident” occurs for CGL purposes under the general contractor’s policy for poor workmanship by a subcontractor. The court concluded:
From these provisions, the court can distil that the [CGL Policy issued to the general contractor] covers 1) damage to property other than the defective work completed by [the subcontractor] that occurred while operations were ongoing, and 2) property damage to a subcontractor’s or other work caused by a subcontractor’s faulty workmanship that occurs after operations are completed.
Id. at 21.J.In Cincinnati Ins. Co., the court stated that the plain language of “Exclusion j.5” of a CGL “restricts its scope to the specific part of the property on which operations are being performed. It is also quite clear that damage on that particular part must occur concurrent with the performance of the operation—which must be the cause of the harm—for it to be excluded.” Cincinnati Ins. Co. v. Spectrum Dev. Corp., No. 2:11-CV-0015-CW, 2015 WL 730020, at *5 (D. Utah Feb. 19, 2015).
K.The court in Cincinnati Ins. Co. also stated that the plain language of the “Your Work” Exclusion, or “Exclusion j.6” is restrictive and “applies only to the cost of repairing or replacing distinct component parts on which the insured performed defective work.” Id. at *6.
Choice of Law (Forum Selection Clauses)
A.Utah courts apply standard contract interpretation rules, including the “four corners rule”, to forum selection and choice of law provisions. If that language is unambiguous, then a court uses the plain meaning of the language to determine the parties’ intent. Innerlight, Inc. v. Matrix Grp., LLC, 2009 UT 31, 14, 214 P.3d 854, 857.
B.Utah courts will regard forum selection and choice of law provisions as their own separate enforceable contracts that are considered separate from the rest of the contract. Innerlight, Inc. v. Matrix Grp., LLC, 2009 UT 31,16, n.5.
C.A forum selection clause controls where its signatories may sue and binds them to the procedural laws of the selected forum. Federated Capital Corp. v. Libby, 2016 UT 41,13, 384 P.3d 221 (citing to Innerlight, Inc. v. Matrix Grp., LLC, 2009 UT 31, 3,16; Trillium USA, Inc. v. Bd. of Cty. Comm'rs, 2001 UT 101, 15, 37 P.3d 1093).
D.A choice of law clause “selects the substantive law that will govern a contract dispute”, Federated Capital Corp. v. Libby, 2016 UT 41,13, 384 P.3d 221, 226.
E.Utah has adopted the majority view that a parties’ agreement as to the place of the action will be given effect unless it is unfair or unreasonable. A plaintiff who brings an action in violation of the choice-of-forum provision bears the burden to demonstrate that enforcing such a clause is unfair or unreasonable. Prows v. Pinpoint Retail Sys., Inc., 868 P.2d 809, 812, 1993 WL 533774 (Utah 1993)(quoting Restatement (Second) of Conflict of Laws § 80 (Supp. 1988).
F.To meet this burden, a plaintiff must demonstrate that the “chosen state would be so seriously an inconvenient forum that to require the plaintiff to bring suit there would be unjust”. Prows, 868 P.2d at 812 (quoting Restatement (Second) of Conflict of Laws § 80 cmt. c).
Does not exist in Utah.
Claim preclusion applies to consent judgments. State, Office of Recovery Servs. v. V.G.P., 845 P.2d 944, 946–47 (Utah Ct. App. 1992)