Washington State Construction Law and Legislative Update for the First Quarter of 2007

In the evolving world of Washington construction law, it is important for the contractor to stay well informed of changes that may affect the way it performs business or that may open up new liabilities for work it performs. This may include consulting with your attorney, researching on your own, or being advised by your local builders association—such as the Building Industry Association—to stay current with Washington construction law. In an effort to keep you informed, the following provides you—the construction contractor—with a summary of a few of the important court decisions and legislative proposals that occurred over the first quarter of 2007.

The year 2006 ended with an important ruling affecting the amount of attorney fees a claimant can recover when proceeding against the contractor’s statutorily required surety bond. In Cosmopolitan, an unpaid subcontractor brought action against the general contractor’s bond and sought to recover attorney fees from the general contractor over and above the amount of the surety bond. Specifically, the Registration of Contractors Act, found under chapter 18.27 of the Revised Code of Washington ("RCW"), requires contractors in Washington to register and to file a surety bond with the Department of Labor and Industries. RCW 18.27.040 provides a mechanism for consumers, subcontractors, and other injured parties to recover against the bond.

In 2001, the legislature amended the statute in part by adding a provision to RCW 18.27.040 allowing a prevailing party to recover attorney fees in an action for breach of contract filed under that section. The issue in Cosmopolitan then became whether the subcontractor could recover attorney fees directly from the general contractor in an amount over and above the amount of the bond, absent a specific provision in the construction contract allowing for attorney fees to the prevailing party.

Remarkably, the court of appeals ruled in favor of the subcontractor, thereby creating new liability to the general contractor for attorney fees over and above the $12,000 statutory bond amount. But the Washington Supreme Court reversed the lower court’s decision, and ruled that while the amended statute authorizes a prevailing plaintiff to recover attorney fees for an action against the bond, it does not provide a mechanism to recover attorney fees for an action against the contractor. In rationalizing its opinion, the supreme court upheld the American Rule, which mandates that each party in a civil action will pay its own fees and costs, absent a statute or contract providing attorney fees. In Cosmopolitan, there were no contractual provisions allowing for attorney fees, and the court found that the legislature intended recovery of attorney fees to be only against the bond, and not
the contractor.

The beginning of 2007 marked the end of the "completion and acceptance" doctrine in Washington. Under that doctrine, once an independent contractor finishes work on a project and the work has been accepted by the owner, the contractor is no longer liable for injuries to third parties, even if the work was negligently performed.

In the Davis case, Baugh entered into a contract to build a network of subterranean pipes for a processing facility. The work was completed in 1997 and accepted by the owner. In 2000, the owner suspected a leak in one of the pipes and sent in a crew to excavate the area and locate the leak. Tragically, the excavation hole collapsed, killing one of the crew members. Evidence later suggested that one of the pipes had failed, causing the leak. Suit was brought against Baugh, among others, by the estate of the deceased employee.

The trial court ruled in favor of Baugh, on the ground that the completion and acceptance doctrine relieved Baugh of liability for negligence after the work was completed and accepted by the property owner. Upon direct review, the Washington Supreme Court joined 37 other states and found that the doctrine was outdated, incorrect, and harmful to third parties who were physically injured by the negligence of the contractor. Notably, however, the supreme court was quick to point out that its opinion considered only a claim involving physical harm, and that its decision did not alter the long-standing rule in Washington that a plaintiff cannot sue a builder for "negligent construction" in the absence of personal injury or property damage.

Under Washington law—specifically, the Contractor Registration Act—contractors cannot sue clients to recover compensation or for breach of contract if the contractors are not properly registered. That act was designed to prevent the victimizing of the public by unreliable, fraudulent, and incompetent contractors. To that end, contractors are required to be registered and bonded. Those who do not comply are denied access to the courts for compensation or for breach-of-contract claims.

In Coronado, an unpaid landscaper’s claim for compensation was denied on the grounds that he was not registered. The court’s decision weighed heavily on the definition of "contractor," which is defined in part as any person who undertakes to "construct, alter, repair, add to, subtract from, improve, move, wreck or demolish, for another, any building, highway, road, railroad, excavation or other structure, project, development, or improvement attached to real estate." RCW 18.27.010(1). A "specialty contractor" is any contractor who is not a "general contractor," defined as a contractor who superintends more than two building trades. RCW 18.27.010(4), (9).

The Coronado decision reconfirms the importance of being a "registered" contractor in Washington if you perform work that (1) requires you to be registered, and (2) you want to be paid for.

The 2007 Washington Legislature’s regular-session calendar ran from January 8 to April 22, 2007. Some important bills were introduced that would significantly impact contractors—two of those bills are discussed below. Fortunately for the contractor, time was on its side because the bills did not make it out of committee in time for a full vote. But given the interest to further protect the public and create additional liabilities on contractors, there is a good chance that these proposed laws will resurface in 2008.

Unless provided for in a contract, the only warranty that relates to new-home construction in Washington is the narrow implied warranty of habitability, which applies only to the first purchaser of a home. Aptly referred to as the "Homeowner’s Bill of Rights," Senate Bill 5550 would have created nonwaivable warranties for new-home construction—extending even to subsequent purchasers—that included:

• a two-year warranty against defects
  in materials and workmanship;
• a three-year warranty against
  defects in electrical, plumbing,
  heating, cooling, and ventilation
  systems;
• a five-year warranty for defects
  leading to water penetration; and
• a ten-year warranty that the home
  will be free from structural defects.

The Senate voted and approved the bill in March 2007. It was then sent to the House Judiciary Committee, and then later to the House Rules Committee, where it ultimately died on the vine. But in light of ongoing pressures from consumer groups, this bill may be reintroduced next year.

Absent property damage or personal injury, Washington does not allow a homeowner to bring suit against a builder for negligent construction. Senate Bill 5046 sought to carve out an avenue for original owners and subsequent purchasers to sue participants in the designing or building process—namely, general contractors, subcontractors, material suppliers, product manufacturers, and design professionals—in tort for deficiencies in the construction, design, specifications, surveying, planning, supervision, or testing of homeowners’ residences. Such a claim itself would be based on violations of building standards set forth in the proposed statute. The tort claim could be asserted anytime within four years of discovery. Presumably, Washington’s six-year statute of repose would apply, meaning that at the very least, discovery of the deficiency must take place within six years from the date of substantial completion, but Senate Bill 5046 does not address this.

Fortunately for contractors, this bill never made it out of the Consumer Protection & Housing Committee in time for a vote by the Senate. Like the warranty bill discussed above, this may be introduced in a new format next year to complement a warranty bill or as an independent alternative. Only time will tell.

Stay tuned for upcoming issues of From the Ground Up newsletters and e-FLASH e-mails for additional case law and legislative updates affecting the construction industry.