Washington Construction Law Blog

Yesterday the Supreme Court handed down its decision in the important Vertecs case.  The primary issue in the case was whether the discovery rule should be adopted for accrual of claims for latent construction defects.  While the Court of Appeals in the Architectonics case several years ago did recognize the discovery rule, the Supreme Court had not squarely decided the matter until yesterday.

In a somewhat puzzling twist, the Supreme Court held that Architectonics was wrongly decided but then essentially adopted the rule espoused in Architectonics.  As a result, the rule today in Washington is that the 6 year statute of limitation does not begin to run until the claimant knew or had to reason to know the defect.

But wait.  In 2003, the Legislature in RCW 4.16.326(1)(g) banished the discovery rule in construction claims, declaring the applicable limitation period shall expire six years after substantial completion, regardless of discovery.  The Supreme Court declined to apply the 2003 statute retroactively to the claim in this case, which had already accrued under the discovery rule recognized by the court. 

Vertecs thus creates a complex transitional situation as claims that accrued prior to the effective date of the 2003 statute presumably will still be governed by the discovery rule.  One would assume that, eventually, the situation will simplify as those accrued claims extinguish.   All that can be said with certainty today is that the transition period is complex and fact-dependent.

The MTCA opinion summarized in yesterday's post contains another interesting tidbit of relevance to a common type of clause found in many construction industry contracts -- the "contractual limitation period" by which the parties agree to shorten up the normal statute of limitations for commencement of suit.

The contract at issue in this case stated that any suit against the geotechnical engineer (Golder) had to be brought within 1 year of Golder's substantial completion of services -- considerly shorter than the 3 year or 6 year statutes that would normally govern claims against design professionals or contractors.

In this additional holding, Division 1ruled the 1 year clause was valid and enforceable regardless of whether the engineer "misrepresented" the soils conditions -- that is, the Court declined to adopt a fraud exception to the ordinary rule that such clauses are to be enforced as written.

The Supreme Court will take up four significant issues in cases scheduled for oral argument this month:

1. Surety Law. Whether a surety’s obligation to a contractor on a subcontractor’s performance bond was conditioned on the contractor declaring a default before the subcontractor substantially completed the work and whether a contractor may recover attorney fees from the surety of a subcontractor in an action to recover on the performance bond, under the rationale of Olympic Steamship Co. v. Continental Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991). For further information, go below the fold.

2. Discovery Rule. Whether the discovery rule applies to actions for breach of contract, and if so, whether RCW 4.16.326(1)(g), which bars the use of the discovery rule in actions based on construction contracts, applies retroactively. No. 77362-9 (cons. w/77846-9), 1000 Virginia Ltd. P’ship (respondent) v. Vertecs Corp. (petitioner); Lombardi (respondent) v. JTE Constr., Inc. (petitioner). (5/16/06)

3. Registation Statute. Whether, in an action against a contractor and its surety bond, the attorney fees available to the prevailing plaintiff under RCW 18.27.040(6) are recoverable against both the contractor and the bond. No. 77661-0, Cosmopolitan Eng’g Group, Inc. (respondent) v. Ondeo Degremont, Inc. (petitioner). (5/25/06)128 Wn. App. 885 (2005). For WCL's prior coverage of this case, click here.

4. Delay Damages. Whether utilities that removed or relocated their facilities pursuant to a city-contracted street improvement project “acted for” the city, thus rendering void, under RCW 4.24.360, a contract clause barring the contractor from recovering damages for delays caused by the utilities. No. 77459-5, Scoccolo Constr., Inc. (petitioner) v. City of Renton (respondent). (6/6/06)

Decided in diversity under Alaska's three-year limitation period for breach of contract, this case provides general guidance on three asserted exceptions to the commencement of the statute of limitations.

A crane company missed the statute by bringing suit three and 1/2 years after terminating service to a hotel project. It raised -- and the 9th Circuit rejected -- three theories as to why the running of the statute should be deferred so as to make the action timely -- an "invoice" theory (the statute doesn't begin to run until plaintiff submitted it invoice), a "single contract" theory (the statute doesn't begin to run until plaintiff completed work on a second project also located in the same city) and an "open account" theory (the statute doesn't begin to run until the account on both projects closed).

Extra bonus: there's a nice primer on the rules of diversity jurisdiction as applied to LLCs (the defendant/owner operated as an LLC)

Contractors doing work for public entities would be wise to check out the recent King County Superior Court ruling in a $4 million defect dispute arising from the construction of a school on Vashon Island. The effect of the ruling: the contractor can be sued at any time beyond the normal six-year statute of limitation. Vashon Island School District v. Bassetti Architects et. al., No 05-2-09083-9SEA (Order Denying Summary Judgment dated October 10, 2005).