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J. Kent Holland, Esq.

A subsequent (non-original) homeowner may not bring a negligence suit against a homebuilder for economic losses arising from latent construction defects when there has been no physical injury to persons or property. The builder’s violation of a building code did not give rise to a public-policy based tort duty. The appellate court affirmed the trial court decision that the purchasers were not within the class of persons protected by the public policy framework that mandates specific design and construction standards for safe residential construction. Sullivan v. Pulte Home Corp., 237 Ariz. 547 (2015).

In this case, the homebuilder, Pulte Home Corporation, built a home and sold it to an original homeowner in 2003. That homeowner sold the house to a new owner in 2009, and that owner subsequently discovered problems with a hillside retaining wall. An expert for that owner concluded that the wall was constructed without proper structural and safety components, including footings, rebar, and adequate drainage and grading.

In an earlier reported decision on this same matter (Sullivan 1), the court held that the economic loss doctrine did not bar the homeowner’s negligence claims against the builder because, in the absence of a contract between them, there was no barrier to tort claims otherwise permitted by substantive law. The current appellate decision does not address the economic loss doctrine but instead deals with the trial court’s subsequent decision on remand that granted the builder’s motion for summary judgment on the basis that the builder owed no duty of care under the building code to a subsequent purchaser. The court affirmed the trial court decision that the purchasers were not within the class of persons protected by the public policy framework that mandates specific design and construction standards for safe residential construction. Sullivan v. Pulte Home Corp., 237 Ariz. 547 (2015).

The court turned first to the City of Phoenix Uniform Building Code (“Building Code”) that specified its purpose as “provid[ing] minimum standards to safeguard life or limb, health, property and public welfare by regulating and controlling the design, construction, quality of materials, use and occupancy, location and maintenance of all buildings and structures ….” The court pointed out, however, that this same section of the Building Code specifically disclaims any intent to protect or benefit a particular group or class, stating, “[T]he purpose of this code is not to create or otherwise establish or designate any particular class or group of persons who will or should be especially protected or benefited by the terms of this code.”.

The court explained that a statute or regulation typically gives rise to a tort duty premised on public policy only if it “is designed to protect the class of persons, in which the plaintiff is included, against the risk of the type of harm which has in fact occurred as a result of its violation, and concluded, “It would be anomalous, as well as inconsistent with this well-established legal tenet, to premise a tort duty on a regulatory scheme that expressly eschews any intent to protect or benefit a class or group of persons.” And the court stated that,

“Although Arizona’s appellate courts have held that statutes enacted for public safety may support public policy-based tort duties, they have done so largely in the context of injury and death cases.” *** “Nor do we find Arizona’s statutory and administrative schemes governing licensed contractors a sufficient basis for holding that homebuilders owe public policy-based tort duties to subsequent homeowners for economic loss. Like the Building Code, the governance of licensed contractors has a broad, general purpose: ‘to protect the public health, safety and welfare by licensing, bonding and regulating contractors engaged in construction.’”

In conclusion, the court found:

“The [homeowners] have no contract with Pulte, and they concede that no duty arises from a relationship between the parties. Although licensed contractors are subject to discipline for, inter alia, ‘[d]eparture from or disregard of … any building code of the state or any political subdivision of the state in any material respect,’ A.R.S. § 32–1154(A)(2), this regulatory provision does not support imposing public policy-based tort duties in favor of subsequent property owners asserting economic loss. Professional codes frequently establish standards for licensees that do not give rise to private causes of action.”

In further explaining the holding, the court stated,

Finally, our conclusion is consistent with, though not dependent on, the Restatement (Third) of Torts: Liability for Economic Harm (“Restatement”)…. Section 1(a) of the Restatement states that “[a]n actor has no general duty to avoid the unintentional infliction of economic loss on another,” explaining that such duties are “notably narrower” than duties to prevent physical harm and “that duties to avoid causing economic loss require justification on more particular grounds than duties to avoid causing physical harm.” … The Restatement also expressly rejects the imposition of a duty of care on homebuilders for economic losses that subsequent homeowners experience due to latent construction defects.”

Comment: This decision does not technically alter the earlier Sullivan 1 decision with regard to the applicability of the economic loss doctrine in the state of Arizona. But it further refines the bases upon which economic losses can be sought and rejects the imposition of a duty of care on homebuilders for economic losses that subsequent homeowners experience due to latent defects, regardless of whether there had been code violations.