The Subrogation Strategist

In Zambrano v. M & RC II LLC, et al., 2022 Ariz. LEXIS 309, the Supreme Court of Arizona held that a homebuilder and homebuyer could not waive or disclaim the implied warranty of workmanship and habitability. While the court would normally enforce a contract between two parties – even if one side made a “bad deal” – they will not do so if the contract’s terms are against public policy.

In this case, Tina Zambrano (Zambrano) signed a purchase agreement with the homebuilder to buy a newly built home. The agreement included provisions which expressly disclaimed any implied warranties, including the warranty of habitability and workmanship. After the purchase, Zambrano claimed that there were construction defects within the home, including popped nails in the drywall and issues with the home’s foundation. Zambrano sued the homebuilder for breach of the implied warranty of workmanship and habitability. The homebuilder moved for summary judgment based on the waivers within the contract and the trial court, agreeing that the waivers applied, dismissed the case. Zambrano appealed and the appellate court reversed the trial court’s decision. The appellate court specifically explained that Arizona has a public policy interest in protecting consumers.

The Supreme Court of Arizona upheld the appellate court’s reversal and agreed that a waiver of the implied warranty of habitability and workmanship is against public policy. However, the state’s high court provided different reasoning than the appellate court for its holding. The court described, in depth, the “vastly unequal bargaining power, expertise, and knowledge” that exists between a homebuilder and homebuyer. The court went on to say that a homebuyer must heavily rely on the builder’s knowledge and skill. Further, homebuyers are not in a position to discover defects lurking within the walls, or those that are covered up during a normal home inspection. The court noted that if such warranty disclaimers were allowed, homebuilders would surely place the provision within every contract, leading to homes potentially sitting in disrepair forever. Further, public policy promotes builders using minimum standards of good workmanship, which conforms to a homebuyer’s reasonable expectations.

In continuing to uphold the implied warranty of workmanship and habitability, the Supreme Court of Arizona seeks to protect unknowing homebuyers from issues that might not reveal themselves for years. Thus, subrogation professionals practicing in Arizona and representing insured homebuyers should look for attempted contractual waivers of the warranty of workmanship and habitability and, if found, argue that the waivers are unenforceable because they are against public policy.