Gordon v. Arizona Registrar of Contractors

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          Appeal from the Superior Court in Maricopa County; No. LC 2015-000451-001; The Honorable Patricia A. Starr, Judge.

         Mark R. Gordon, Phoenix, Plaintiff/Appellant

          Arizona Attorney General’s Office, Phoenix, By Thomas C. Raine, Counsel for Defendants/Appellees

         Judge Jennifer B. Campbell delivered the opinion of the Court, in which Presiding Judge Paul J. McMurdie and Judge Samuel A. Thumma joined.

          OPINION

         CAMPBELL, Judge:

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         [¶1] The Residential Contractors’ Recovery Fund (the "Fund") was established to provide a remedy to homeowners injured by unethical or negligent contractors. Mark Gordon seeks an award from the Fund based on the cost of home repairs arranged under his home warranty policy. Because breach of a home warranty contract is not a claim arising from a violation of the regulations governing contractors, he is not entitled to collect from the Fund. We affirm.

          BACKGROUND

         [¶2] In 2008, Gordon purchased a home warranty policy from InHouse Home Warranty, Inc. InHouse held two licenses: a license to sell home warranty policies, issued by the Department of Insurance ("DOI"), and a license for air system repair and replacement, issued by the Registrar of Contractors ("ROC"). The policy promised coverage through 2012. Although InHouse’s DOI license expired in 2009, Gordon continued to pay premiums through mid-2011.

         [¶3] The policy covered repairs on a wide range of household systems. Gordon paid an annual premium plus a $45 fee for each service call. After receiving service calls, InHouse often arranged with independent contractors to complete the actual work. An exception to this practice was for air system repair, which InHouse performed under its ROC license. In October 2011, InHouse stopped answering Gordon’s calls for service. Gordon filed a complaint with the ROC, accusing InHouse of performing work outside the scope of its ROC-issued license, aiding and abetting an unlicensed contractor, operating as an insurance company without a license, and failing to respond to new requests for service.

         [¶4] InHouse did not answer Gordon’s complaint. The ROC deemed all of Gordon’s allegations admitted and issued a default decision and order revoking InHouse’s air system license— the only license InHouse held subject to the ROC’s jurisdiction. Next, Gordon sought an award from the Fund. See Ariz. Rev. Stat. ("A.R.S.") § 32-1132, amended by A.R.S. § 32-1132 (2019).^[1] The ROC denied Gordon’s claim, concluding that he was not eligible because the InHouse home warranty policy was not a construction contract. The ROC also concluded that damages claimed by Gordon did not result from incomplete or defective workmanship— the only damages that can be paid out of the Fund.

         [¶5] Gordon requested a hearing with an administrative law judge ("ALJ") to determine whether the policy was a construction contract under A.R.S. § § 32-1101 and -1132. At that hearing, Gordon argued that payments he made for each service call under the policy provided the consideration necessary to create distinct construction contracts with InHouse.

         [¶6] The ALJ concluded that "InHouse’s main contract with Mr. Gordon was a home warranty policy to cover the risk that home repairs might be necessary in the future ... [and] not a construction contract to perform specific repairs for a definite and fully liquidated consideration." The ALJ noted that "[t]he only possible exception" was work InHouse performed on the home’s air system. ...