WASHINGTON CONSTRUCTION CLAIMS RESOURCES
1 Construction Claims
- 1.1 Limitations & Repose Periods
- 1.2 Right to Repair Laws and/or Pre-Suit Statutory Procedures
- 1.3 Indemnity and Contribution
- 1.4 Certificate of Merit / Experts
- 1.5 Economic Loss Doctrine
- 1.6 Contractor Licensing Requirements
- 1.7 Common Law & Statutory Claims
- 2 Construction Damages
3 Coverage / Trigger of Coverage
- 3.1 Definition of an Occurrence
- 3.2 Duty to Defend
- 3.3 Coverage Issues / Defenses
- 3.4 Choice of Law (Forum Selection Clauses)
- 3.5 Targeted Tenders
- 3.6 Consent Judgments
Construction cases can implicate different statutes of limitations depending on the legal theories being pursued. The statute of limitations for written contracts is six years. RCW 4.16.040. The statute of limitations for oral contracts and tort-based legal theories is three years. RCW 4.16.080. Condominium claims has a four year statute of limitations for breach of statutory warranties. RCW 64.34.452.
All claims or causes of action shall accrue, and the applicable statute of limitations shall begin to run only during the period within six years after substantial completion of construction, or during the period within six years after termination of services, whichever is later. RCW 4.16.310. The statute of repose does not run against a state entity. Washington State Major League Baseball Stadium Public Facilities Dist. V. Huber, Hunt & Nichols-Kiewit Const. Co., 165 Wn.2d 679, 202 P.3d 924 (2009).
RCW 64.50 et seq governs pre-suit claims processes for construction defect claims involving residential construction. These procedures apply to new residential construction, or to remodels where the total cost exceeds 50% of the pre-remodel assessed value of the residence. This process does not apply to commercial construction or third-party claims. Notice of construction defects must be provided to a construction professional at least 45 days before filing suit. This triggers a process whereby the construction professional agrees to repair the alleged defects, agrees to a settlement, or disputes the defects. If a lawsuit is filed before the pre-litigation procedures are completed, then the lawsuit will be dismissed without prejudice and cannot be refiled until the process is completed.
RCW 4.24.115 prohibits a subcontractor from indemnifying a general contractor for that general contractor’s sole or partial negligence. The statute does not apply to limit coverage under insurance policies, such as agreements to provide coverage to an additional insured. See Int’l Marine Underwriters v. ABCD Marine, LLC, 179 Wn.2d 274, 313 P.3d 395 (2013).
Washington’s contributory fault statute has effectively abolished the common law rights to contribution and indemnity. RCW 4.22.040. A right of contribution now only exists between those who are jointly and severally liable upon the same indivisible claim for the same injury, death or harm. Contribution is available to a person who enters into a settlement with a claimant only (a) if the liability of the person against whom contribution is sought has been extinguished by the settlement and (b) to the extent that the amount paid in settlement was reasonable at the time of the settlement.
In Washington, there is no requirement for filing certificate or affidavit of merit for claims against design or construction professionals.
The Washington State Supreme Court replaced the “economic loss doctrine” with the “independent duty doctrine.” Unlike the “economic loss doctrine,” the “independent duty doctrine” does not focus exclusively on whether the injury was an economic loss in order to determine whether the plaintiff can pursue a remedy in tort law. Rather, the “independent duty doctrine” focuses on all of the surrounding facts to determine whether a defendant owed a tort duty that was independent of the duties owed under the contract. If so, then the plaintiff has a remedy in tort law. See e.g. Eastwood v. Horse Harbor Foundation, Inc., 170 Wn.2d 380, 241 P.3d 1256 (2010); Pointe at Westport Harbor Homeowners’ Ass’n v. Engineers Northwest, Inc., 193 Wn. App. 695, 2016 WL 2643729 (2016); Donatelli v. DR Strong Consulting Engineers, Inc., 179 Wn.2d 84, 312 P.3d 620 (2013).
Contractors are required to register with the Washington State Department of Labor and Industries. RCW 18.27.020(1); WAC 296-200A-025. If a contractor performs work without registering then this is a per se unfair or deceptive act or practice under Washington’s Consumer Protection Act. RCW 19.86 et seq. General contractors are required to hold a surety bond with a minimum of $12,000 and specialty contractors are required to hold a surety bond with a minimum of $6,000. RCW 18.27.040; WAC 296-200A-030.
Most Washington causes of action for construction defects involve allegations for breach of contract.
Breach of warranty claims in Washington can involve: (a) breach of express warranties set out in the construction contract; (b) breach of implied warranties for the fitness of the materials, workmanship, compliance with codes, and suitability of a structure for its intended purpose; (c) the Washington Condominium Act express and implied warranties as set forth in RCW 64.34.443 and 64.34.445; and (d) the implied warranty of habitability, which runs between a builder and the first purchaser of a residence, see for example, Frickel v. Sunnyside Enterprises, Inc., 106 Wn.2d 714, 725 P.2d 422 (1986).
Washington recognizes a cause of action for negligent misrepresentation where the defendant knows that the plaintiff is relying on the misrepresentation to their detriment. See Schaaf v. Highfield, 127 Wn.2d 17, 896 P.2d 665 (1995); Haberman v. Washington Public Power Supply System, 109 Wn.2d 107, 744 P.2d 1032 (1987). Washington also recognizes a cause of action for fraud where a developer knowingly conceals a dangerous latent defect to a purchaser that the purchaser would not discover through a reasonable inspection of the property. See Atherton Condominium Apartment-Owners Ass’n Bd. Of Directors v. Blume Development Co., 115 Wn.2d 506, 799 P.2d 250 (1990).
Negligent construction is not a viable theory in Washington. However, negligent construction that causes injury to persons and property (other than to the construction itself) can constitute a valid negligence claim.
Construction defect claims can also constitute violations of the Washington Consumer Protection Act (CPA), RCW 19.86 et seq, where the plaintiff can meet the elements of such a claim. A CPA claim requires proof of (a) an unfair or deceptive act or practice, that (b) occurred in trade or commerce, (c) impacted a public interest, (d) injured business or property, and (d) the unfair or deceptive act or practice was causally related to the injury. Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 780, 719 P.2d 531 (1986).
The cost of repair is typically the appropriate measure of damages in construction defect cases. See Alpine Industries, Inc. v. Gohl, 30 Wn. App. 750, 637 P.2d 998 (1981).
The diminution in value is also available as a remedy if the cost of repair is disproportionately high in comparison to the loss in value. See Park Avenue Condominium Owners Ass’n v. Buchan Developments, LLC, 117 Wn. App. 369, 71 P.3d 692 (2003) (citing Restatement (Second) of Contracts § 348 (1981)).
Washington does not recognize punitive damages, however, up to treble damages are available under the Washington Consumer Protection Act up to $25,000 per violation. RCW 19.86.090.
Joint and several liability is imposed where the plaintiff is fault free, in cases where there is vicarious liability, and where the defendants act in concert. RCW 4.22.070 . Liability is several in all other case.
See “Cost of Repair,” supra.
Consequential damages are recoverable if they are not disclaimed in the construction contract. See MA Mortenson Co., Inc. v. Timberline Software Corp., 140 Wn.2d 568, 998 P.2d 305 (2000).
Unintentional construction defects generally do constitute an “occurrence” and “property damage” under Washington law, even if the damage is to the insured’s own work. Diamaco, Inc. v. Aetna Cas. & Sur., 97 Wn. App. 335, 983 P.2d 707 (1999); Yakima Cement Prods. Co. v. Aetna Cas. & Sur., 93 Wn.2d 210, 608 P.2d 254 (1980). Moreover, the legal theory attached to the claim – whether it be breach of contract, negligence, etc. – is generally irrelevant. See Mid-Continent Cas. Co. v. Titan Constr. Corp., 281 Fed. Appx. 766 (9th Cir. 2008). It is the factual allegations and not the legal theories that are relevant. Id.
An insured is typically entitled to commercial general liability coverage for contractual indemnity to the extent that the indemnification agreement is an “insured contract,” as defined by the insurance policy.
Washington’s anti-indemnity statute does not limit coverage under insurance policies, such as agreements to provide coverage to an additional insured. See Int’l Marine Underwriters v. ABCD Marine, LLC, 179 Wn.2d 274, 313 P.3d 395 (2013).
a.Coverage for AI’s own negligence vs. vicarious liability for Named Insured - As discussed supra, Washington’s anti-indemnity statute has not placed limitations on the scope of additional insured coverage. The plain meaning of the policy controls the scope of coverage available to the additional insured. Washington courts have, generally speaking, construed additional insured endorsements broadly. See e.g. Equilon Enterprises LLC v. Great American Alliance Insurance Co., 132 Wn. App. 430, 132 P.3d 758 (2006).
b.Determining Primary and Non-Contributory vs. Excess Position - Washington courts will attempt to harmonize the language in the policies to determine what policy is primary vs. excess. See Mission Ins. Co. v. Gaurantee Ins. Co., 37 Wn. App. 695, 683 P.2d 215 (1984). If the policy terms are mutually repugnant as to what policy is primary vs. excess, then the court will set the policy terms aside and craft its own equitable apportionment between the policies. See Rasmussen v. Allstate Ins. Co., 95 Wn. App. 635m 726 P.2d 1251 (1986); Mission Ins. Co. v. Allendale Mut. Ins. Co., 95 Wn.2d 464, 626 P.2d 505 (1981).
c.AI carrier’s rights to reimbursement for defense expenses from other, co-primary carriers - Washington recognizes a right to contribution between co-carriers. Mut. of Enumclaw Ins. Co. v. USF Ins. Co, 164 Wn.2d 411, 191 P.3d 866 (2008). But the right to contribution only extends to other insurance carriers that the insured “selectively tendered” the claim to. Id. Pre-tender defense costs are also recoverable. See Nat’l Sur. Corp. v. Immunex Corp., 176 Wn.2d 872, 297 P.3d 688 (2013).
a.Insured’s Right to Independent Counsel - An insured is not entitled to retain independent counsel at the insurer’s expense. Rather, an insurer is entitled to select counsel, but that counsel only represents the insured’s interests and not the insurer’s interests. Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 715 P.2d 1133 (1986).
b.Consequences of Rejecting a Defense - An insurer is liable for bad faith if it unreasonably denies its duty to defend. Am. Best Foods, Inc. v. Alea London, Ltd., 168 Wn.2d 398, 229 P.3d 693 (2010). Washington has some of the most severe bad faith penalties in the United States. The penalty for bad faith denial of a defense (or failure to settle) is “coverage by estoppel” and a presumption that the insurer’s bad faith harmed the insured. Safeco Ins. Co. v. Butler, 118 Wn.2d 383, 393, 823 P.2d 499 (1992); Besel v. Viking Ins. Co., 146 Wn.2d 730, 736-37, 49 P.3d 887 (2002). This means that an insurer that has denied a defense (or failed to settle) in bad faith will not be allowed to challenge coverage for any reasonable settlement entered into by the insured, or judgment entered against the insured. Moreover, the insured is also not required to prove that they were actually harmed by the insurer’s bad faith conduct. Harm is presumed. The Washington State Supreme Court has acknowledged that the presumption of harm is virtually impossible to disprove. Butler, 118 Wn.2d at 407; Mut. of Enum. Ins. Co. v. Dan Paulson Const., Inc., 161 Wn.2d 903, 169 P.3d 1 (2007). The insured is also entitled to tort damages arising from the bad faith, which is in addition to the amount of the settlement or judgment. Miller v. Kenny, 180 Wn. App. 772, 325 P.3d 278 (2014). The insured is also entitled to attorney fees and up to treble the amount of damages under Washington’s Insurance Fair Conduct Act, RCW 48.30.015 .
These are typically found at subparts j(5) and j(6) of the exclusions section to the standard ISO commercial general liability policy form. Exclusion j(5) excludes damage to real property on which the insured is performing operations. Exclusion j(6) excludes damage to that particular part of any property that must be repaired or replaced because the insured’s work was incorrectly performed on it. The Washington courts have applied these exclusions to bar coverage for damage to all areas where ongoing operations are underway. See Vandivort Costr. Co. v. Seattle Tennis Club, 11 Wn. App. 303, 522 P.2d 198 (1974) (Holding that the exclusions for ongoing operations are not limited to the portion of property that was subject to the operations, but bars coverage for all damages caused while operations are underway); Atlantic Cas. Inc. Co. v. Johnny’s Quality Exteriors, Inc., 131 F.Supp.3d 1077 (2015) (“This exclusionary language is designed to exclude coverage for defective workmanship by the insured building causing damage to the construction project”).
The “Your Work” and “Your Product” exclusions are standard exclusions in the standard ISO commercial general liability policy form. These exclusions bar coverage for damage arising out of an insured’s work or product. Washington courts have narrowly interpreted the “Your Work” and “Your Product” exclusions to apply just to damage to the work or product. The exclusions do not bar coverage for damage to third-party property that is not the insured’s work or product. See e.g. Mut. Enumclaw Ins. Co. v. T&G Constr., Inc., 165 Wn.2d 255, 273, 199 P.3d 376 (2008) (Damage to the insured’s defective siding was excluded, but not resulting damage caused to other property caused by the defective siding); See also Mutual of Enumclaw Ins. Co. v. Patrick Archer Const., Inc., 123 Wn. App. 728, 97 P.3d 751 (2004) (Holding that there was no coverage because all of the damages were limited to the insured’s work-product). A related question is whether damages caused by the repair process are excluded by the “Your Work” and “Your Product” exclusions. These types of damages are usually referred to by the courts as “Rip and Tear” damages. Washington courts have held that there is coverage for the cost to “rip and tear” into the insured’s work or product if that is necessary to correct resultant damage caused by the insured’s work or product. Mut. of Enumclaw v. T&G Construction, Inc., 165 Wn.2d 255, 199 P.3d 376 (2008). Similarly, there is coverage for “rip and tear” to other contractor’s non-defective work if it is necessary to correct the insured’s defective work. See e.g. Indian Harbor Ins. Co. v. Transform LLC, 2010 WL 3584412 (W.D.Wash., 2010). An example of the latter type of “rip and tear” is if the insured installed defective plumbing into a building. The cost to “rip and tear” out defective drywall to make repairs to the defective plumbing would be covered “rip and tear” damage.
RCW 48.18.200 prohibits forum selection and choice of law clauses in insurance policies delivered or issued for delivery in Washington and covering subjects in the state. Forum selection and choice of law provisions are void as a matter of law. See e.g. Jorgenson Forge Corp. v. Illinois Union Ins. Co., 2014 WL 12103362 (W.D. Wash. 2014) (voiding a Ney York forum selection clause); Cedar Grove Composting, Inc. v. Ironshore Specialty Ins. Co., 2015 WL 3473465, fn. 1 (W.D. Wash. 2015) (commenting in dicta that statute would void a New York choice of law clause). Arbitration provisions in insurance policies have also been struck down under the statute because the Washington State Supreme Court concluded that arbitration provisions are essentially forum selections clauses that deprive the Washington courts of jurisdiction. Washington Dep’t of Trasp. v. James River Ins. Co., 176 Wn.2d 390, 292 P.3 118 (2013). Washington courts refer to the Restatement (Second) Conflict of Laws § 188 to determine what law applies to an insurance policy. The Restatement directs the court to determine what state has the “most significant relationship” to the policy and the parties. The factors a court will consider in determining what state has the “most significant relationship” include: (a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation, and place of business of the parties. These factors are to be evaluated according to their relative importance with respect to the particular issue.
Washington is a “selective tender” jurisdiction, meaning that the insured must first tender a claim before an insurer has any legal obligation to provide coverage. Mutual of Enumclaw v. USF Ins. Co., 164 Wn.2d 411, 191 P.3d 866 (2008).
Washington permits consent judgments (referred to as “covenant judgments”), even in the absence of bad faith conduct by the insurer. A covenant judgment that is declared reasonable by a court establishes the presumptive damages incurred by the insured. Mut. of Enumclaw Ins. Co. v. T&G Constr. Co., 165 Wn.2d 255, 199 P.3d 376 (2008). If there is no bad faith conduct by the insurer, then the insurer is only liable to pay that portion of the covenant judgment that is actually covered under its policy. Id. But if there is bad faith conduct by the insurer in failing to settle or mishandling the defense, then the insurer is liable for the entire amount of the covenant judgment, plus tort damages, and up to treble the amount of damages under Washington’s Insurance Fair Conduct Act. See e.g. Safeco Ins. Co. v. Butler, 118 Wn.2d 383, 393, 823 P.2d 499 (1992); Besel v. Viking Ins. Co., 146 Wn.2d 730, 736-37, 49 P.3d 887 (2002); Miller v. Kenny, 180 Wn. App. 772, 325 P.3d 278 (2014).