Washington Construction Law Blog

The GC's insurance company settled a stucco defect claim by paying the owner $318,000 which the owner promptly used to tear down the existing house (and EIFS) and dispose of the "evidence" to make way for the new home.  In response to the carrier's subrogation suit, the responsible subcontractor filed for summary judgment on the ground that its expert was deprived of the crucial opportunity to see the defective work and resulting damage.  Division 2 held the carrier had no control over the owner's home and was not at fault for the evidence destruction.

Reversing the trial court in a condo defect case, Division 1 has held that an indemnity clause between GC and sub which requires the sub to protect the GC from "any and all claims" connected with services performed under the subcontract is broad enough to include contract as well as tort claims.

The Court rejected the sub's claim that the indemnity clause related only to tort claims because it excluded coverage for certain claims caused by the "sole negligence" or "concurrent negligence" of the indemnitee (GC).  Instead of seeing these carve outs as modifying the "any and all" language, the Court instead saw them as efforts to comply with RCW 4.24.115.

It is often the case that funds paid by a project owner to a general contractor -- while intended for use on the project to pay off subcontractor liens -- get drained off to other purposes, leaving the owner in the position of having to pay twice.  This important new case will give owners a significant newly recognized remedy in efforts to chase down the misapplied proceeds.  Division 1 held that:

• Progress payments made by a project owner to a general contractor constitute "trust funds" for the benefit of subcontractors, when the agreement between owner and contractor is based on AIA A201 (1997)
• If the bank that finances the operations of the general contractor has "knowledge sufficient to require inquiry" whether the funds deposited by its borrower were trust funds, that bank may be liable for misappropriating trust funds when it uses the proceeds to pay down the borrower's debt to the bank,
• The bank may also be sued for conversion based on essentially the same facts, but is not liable for any potential violation of the Consumer Protection Act, and
• The bank may avoid liability if it were established that the trust funds were "properly accounted for" i.e., that the seizure of the funds, from an accounting standpoint, did not cause injury to the owners. 

Where is the line of distinction between a defective specifications claim and a differing site conditions (DSC) claim?  For an example of why this matters, check out this new decision from the Court of Federal Claims arising out of a Washington road improvement project.

The contractor complained that the aggregate specified for use in the design documetnts for re-surfacing the road was unsuitable.  In its complaint, the contractor alleged various theories, among them defective specifications and DSC.   The government moved for summary judgment on the grounds that the DSC and specifications claims were redundant.  The Court denied the motion, allowing the contractor to proceed on both theories.