There is no statutory limitation provision specific to the CLB (Contractor License Bond) and the Utah Supreme Court has not addressed this issue. At least three statutes of limitation potentially apply:
78B-2-305. Within three years.
“An action may be brought within three years: (4) for a liability created by the statutes of this state, other than for a penalty or forfeiture under the laws of this state, except where in special cases a different limitation is prescribed by the statutes of this state.”
78B-2-307. Within four years.
“An action may be brought within four years: (3) for relief not otherwise provided for by law.”
78B-2-309. Within six years.
“(1) An action may be brought within six years:
(b) upon any contract, obligation, or liability founded upon an instrument in writing
The bond provides that the bond “shall indemnify persons, firms and corporations for losses which may occur as the result of . . . violation of any of the unlawful or unprofessional conduct provisions of Utah Code Ann. Title 58, Chapters 1 and 55 or any law respecting commerce in contracting promulgated by a licensing or regulating authority . . . .”
These SOL options are discussed here:
Argument for Three Year SOL
The argument for the three year statute of limitation is that the bond is required by statute and violations of statutes or administrative rules must be demonstrated for recovery for some claims.
The bond “shall indemnify persons, firms and corporations for losses which may occur as the result of the . . . violation of any of the unlawful or unprofessional conduct provisions of Utah Code Ann. Title 58, Chapters 1 and 55 or any law respecting commerce in contracting promulgated by a licensing or regulating authority . . . .”
Chapters 1 and 55 of Title 55 of the Utah Code concern “unlawful and unprofessional conduct” such as impersonating another licensee, aiding or abetting another to violate an accepted professional standard, willfully or deliberately disregarding or violating the building or construction laws of the state, violating through gross negligence the construction laws of this state, etc. Since such violations are statutory, then the three year limitation should apply.
The administrative rule applicable to the CLB is found at Utah Administrative Code R156-55a-602. This provision provides:
“Pursuant to the provisions of Subsections 58-55-306(1)(b) and 58-55-306(5)(b)(iii), a contractor shall provide a license bond issued by a surety acceptable to the Division in the amount, form, and coverage as follows:
. . .
(2) The coverage of the license bond shall include losses that may occur as the result of the contractor’s violation of the unprofessional or unlawful provisions contained in Title 58, Chapters 1 and 55 and rules R156-1 and R156-55a including the failure to maintain financial responsibility, the failure of the licensee to pay its obligations, and the failure of the owners or a licensed unincorporated entity to pay income taxes or self-employment taxes on the gross distributions from the unincorporated entity to its owners. (Emphasis added).”
The Administrative Rule refers to “the failure to pay financial its financial obligations” which arguably makes the three year limitation applicable to any construction related claim against the principal. Notably, the language of the bond itself is not this broad.
The three year limitation applied when a power utility sought indemnification, under the High Voltage Overhead Lines Act (HVOLA), from a well-service employer. The parties asserted the period of limitations applicable to an HVOLA indemnification action is UCA 78B–2–307(1)(a), which provides that an action based on a “liability not founded upon an instrument in writing” must be brought within four years. The court held the relevant statute of limitations for an HVOLA action is found at UCA 78B–2–305(4), which states that “[a]n action may be brought within three years … for a liability created by the statutes of this state.” Section 78B–2–307(1)(a) did not apply because the liability was not based upon a written instrument, and section 78B–2–305(4) specifically applies to liabilities created by statutes. “[W]ell-established principles of statutory construction” tell us that the “more specific statute governs.” Pan Energy v. Martin,813 P.2d 1142, 1145 (Utah 1991). The court determined that the cause of action and associated liability were created wholly by a statute—HVOLA. See Utah Code § 54–8c–4. Thus, the relevant statute of limitations was three years. Id. § 78B–2–305(4). Flowell Elec. Ass’n, Inc. v. Rhodes Pump, LLC 361 P.3d 917 (Utah app. 2015)
Because the bond is required by statute and conditioned upon violation of statutory and administrative requirements, the three year limitation provision arguably applies. This shorter time frame is not offensive since public works bonds have a one year limitation period.
Argument for Four Year SOL
If there is no specific statute of limitation applicable, then this residual four year rule applies. This statute has been applied to unjust enrichment causes of action. Pero v. Knowlden, 336 P.3d 55 (Utah 2014). Because there is no specific statute of limitation regarding a claim against a CLB, this statute of limitation is arguably applicable.
Argument for Six Year SOL
The Utah Supreme Court has stated the test for determining if a written instrument falls within the six-year statute of limitations: “[I]f the fact of liability arises, is assumed, or imposed from the instrument itself, or its recitals, the liability is founded upon the instrument in writing.” Brigham Young Univ. v. Paulsen Const., 744 P.2d 1370, 1372 (Utah 1987) (quoting Bracklein v. Realty Insurance Co., 95 Utah 490, 500, 80 P.2d 471, 476 (1938)). The liability must “grow out of written instruments, not remotely or ultimately, but immediately.” Bracklein, 80 P.2d at 476; Lilley v. JP Morgan Chase, 317 P.3d 470, 474 (Utah App. 2013) (appraisal report was not a written instrument).
The argument that this statute of limitation applies is based upon the fact that the CLB is a written instrument. The CLB is a form required by the Division of Occupational and Professional Licensing, according to statute, as a condition of licensure. The issue is whether any liability is premised upon the instrument itself or the violation of specific statutes.
There are good faith arguments that the three year, four year or six year limitation applies. The Surety professional should be aware of these limitations as necessitated by the specific facts of each claim. If the bond claim is a clear statutory violation, then this enhances the argument that the three year SOL applies.