Northwest Business Litigation

Washington expands statutory limitation on contractual indemnity obligations

Washington will alter the limitation on indemnity obligations in the construction arena when amendments to RCW 4.24.115 become effective on June 7, 2012. The current version of the law limits the contractual indemnity obligations a party can incur related to the construction, alteration, repair, maintenance, or development of a building, highway, railroad, or other project attached to real property (or a motor transportation contract). In particular, it limits the duty to defend to the extent of the indemnitor's own negligence.  The amendment expands the indemnity limitations to apply to "architectural, landscape architectural, engineering and land surveying services." 

RCW 4.24.115 was originally enacted to curb the growing practice of contractually pushing more and more responsibility for problems related to construction projects to those entities (typically lower tier subcontractors) that were not in a position to control the risk, did not have the leverage to change the language of the contract, and often could not fully fund such an indemnity obligation. In the past, design professionals have argued in the courts that the law applied to them, with varied success. The revisions to the law now make clear that indemnity limitations do apply to design professionals. 

The new version of RCW 4.24.115 expands the scope of the limitation in two other respects. First, the existing limitation prohibits Party A from indemnifying Party B for personal injury or property damages arising out of Party B’s sole negligence. The new limitation also prohibits Party A from agreeing to take on the duty and costs to defend against such claims. Additionally the amendment applies the limitation to liability for all damages arising out of the services provided by Party A, not just damages arising out of bodily injury or damage to property.

To see the new law in its entirety click here.

Homeowner may pursue negligence claim for construction defect, Oregon Supreme Court holds

Last week the Oregon Supreme Court held that a homeowner seeking to recover against a builder for damages caused by construction defects may sue for common law negligence, absent a contractual provision that forecloses such a claim.  In Abraham v. T. Henry Construction, Inc., plaintiff homeowners hired defendant contractors to build a house.  When plaintiffs discovered defects in the construction years later, they sued for negligence. 

The Court of Appeals held that the parties' contractual relationship did not prevent a negligence claim, and that plaintiffs were entitled to pursue a negligence per se claim based on a violation of the Oregon Building Code.

The Supreme Court affirmed, but on a somewhat different basis.  First, according to the Court, a construction defect claim concerns damage to property -- and not mere economic losses -- and thus is not barred by the economic loss doctrine.  Second, the existence of a contract between plaintiff and defendant does not preclude a common law negligence claim for personal injury or property damage, unless the contract defines the parties' obligations and remedies in such a way as to limit or foreclose such a claim.  As a result, plaintiff is entitled to pursue a tort claim as long as the property damage at issue was a reasonably foreseeable result of defendant's conduct.  Plaintiff is not limited to a negligence per se claim. 

See our discussion of the Court of Appeals opinion in Abraham here.

Washington State’s new reseller permit system begins January 1, 2010

Currently Washington businesses that purchase items for resale may self-issue resale certificates to avoid paying sales tax.  Beginning January 1, 2010 reseller permits issued by the Washington State Department of Revenue ("DOR") will be required in order to purchase items at wholesale and avoid sales tax.  The new system was put in place to reduce non compliance with sales tax regulations.  If you make wholesale purchases in Washington, you can apply for a reseller permit by going to http://dor.wa.gov/resellerpermit.  You may either print an application, complete it and fax or mail to to DOR or, if your business is registered with My Account at www.dor.wa.gov, you may apply on-line.

Businesses registered with the DOR before January 1, 2009, may obtain a reseller permit that is valid for four years.  Businesses registered with the DOR on or after January 1, 2009, may obtain a permit valid for two years that can be renewed for four years.  Permits for the construction industry are valid for twelve (12) months.  Qualifying contractors must reapply each year and provide information about materials and contract labor purchases.

Without a reseller permit, businesses will have to pay sales tax on purchases made for resale and thereafter go through a cumbersome process to obtain a rebate for the sales taxes paid.  Businesses making purchases for resale in Washington are encouraged to apply for a reseller permit as soon as possible in order to obtain their reseller permit before the end of the year.

Homeowner may sue for negligent construction, Oregon Court of Appeals holds

A homeowner who discovers construction defects may be unable to pursue the builder on a contract theory if too much time has passed and the statute of limitations has run.  And, even if the statute of limitations on a tort claim would be delayed by the homeowner's belated discovery of the defect, under the economic loss doctrine no negligence claim is available unless there is a "special relationship" between the builder and the homeowner.  (See our earlier discussion of the economic loss doctrine here.)  The lack of a special relationship associated with an ordinary construction contract typically makes it impossible for a homeowner to pursue a negligence claim.

But a panel of the Oregon Court of Appeals held earlier this month that an aggrieved homeowner may be able to pursue a negligence per se claim on the theory that the builder violated the Oregon Building Code.  In Abraham v. T. Henry Construction, Inc., the homeowners discovered the defects more than six years after construction, making a contract claim untimely under ORS 12.080(1).  The court observed that plaintiffs may nonetheless state a valid negligence claim it they can allege a breach of a standard independent of the terms of the contract.  Plaintiffs identified such a standard in the Building Code, and asserted that the purpose of that Code is to protect homeowners such as plaintiffs.  Based on the claim that the builder had caused damage to the home by violating the Building Code, the Oregon Court of Appeals reversed summary judgment for the builder and remanded the case for trial.

Apparent authority supports warranty liability, Oregon Supreme Court holds

The Oregon Supreme Court today addressed the scope of an agent's apparent authority in a case involving failed stucco siding.  In Taylor v. Ramsay-Gerding Construction Co., a building owner expressed concerns during construction about the performance of the stucco exterior.  In response, the territory manager for the stucco system's manufacturer stated orally and in a letter that the manufacturer gave a five-year warranty.  Soon after construction was complete the stucco became discolored due to rust, and the owner sued on the manufacturer's warranty.  The manufacturer contended that its manager had neither express nor apparent authority to issue the warranty.

The Supreme Court held that, while the agent lacked express authority, there was sufficient evidence to find apparent authority.  First, the manufacturer created apparent authority by assigning the agent to visit building sites and work with customers to solve problems.  Further, the agent's letter agreeing to the warranty reasonably led the owner to believe that the agent had authority.  For these reasons, the Supreme Court held that the jury properly found in favor of the owner.

Washington Department of Labor & Industries to issue policy on 'drive-time' wages

On August 8, 2008, the Washington Department of Labor & Industries will issue a draft policy addressing the uncertainy created by the 2007 Washington State Supreme Court decision in Stevens v. Brink's Home Security regarding travel time in company vehicles.  The draft policy is intended as a guide "in the interpretation and application of the relevant statutes, regulations, and policies and may not be applicable to all situations."  The policy states that whether travel or commute time is compensable depends on the specific facts and circumstances of each individual employee, employer, and work week.  If the travel or commute time is considered "hours worked" under the Washington statutes, then it is compensable.  "Hours worked" means all hours when an employee is authorized or required by the employer to be on duty on the employer's premises or at a prescribed workplace.  The policy lays out the three elements of the definition of "hours worked:"

1.  An employee is authorized or required by the employer,
2.  to be on duty,
3.  on the employer's premises or at a prescribed workplace.

If any of the three elements is not satisfied, then the time spent driving in a company-provided vehicle is not considered "hours worked."

The policy states that "time spent driving a company-provided vehicle from the employers' place of business to the job site is considered hours worked.  Time spent driving or riding as a passenger from job site to job site (if the job site is not at the employer's main business location) is considered hours worked."  The policy further states that "time spent driving a company-provided vehicle during an employee's ordinary travel, when the employee is not on duty and performs no work while driving between home and the first or last job site of the day is not considered hours worked."

Employers should examine their personnel policies to be sure that employees have clear guidance regarding company vehicle use.   

See our earlier post about the Brink's case here.

Oregon Supreme Court affirms negligence claim against builder for property damage

The Oregon Supreme Court on Thursday held that a builder may be liable to a subsequent purchaser for repair costs resulting from negligent construction.  The defendant in Harris v. Suniga unsuccessfully urged the court to bar damages under the 'economic loss' doctrine, which provides that a defendant is ordinarily not liable for negligently causing a stranger's purely economic loss without injuring his person or property.

Defendants argued that plaintiffs' losses amounted to nothing more than a decrease in the value of their investment, and did not constitute injury to property.  The court, affirming the Court of Appeals, rejected that characterization: "plaintiffs here seek recovery for physical damage to their real property, and this court's cases generally permit a property owner to recover in negligence for damages of that kind."

See our coverage from December 2006 of the economic loss doctrine and the Court of Appeals opinion in Harris v. Suniga.

Washington's LLCA time-bars general contractor from pursuing claims

Overturning a trial court ruling, the Washington Court of Appeals, Division One, yesterday ruled that the “effective date of dissolution” of an administratively dissolved limited liability company under the Washington Limited Liability Company Act (LLCA), RCW 25.15 et seq., is three years from the date of administrative dissolution, not the date the limited liability company’s certificate of formation is canceled. The LLCA provides that the affairs of a limited liability company that is administratively dissolved are “wound up” under RCW 25.15.270 and its certificate of formation is canceled under RCW 25.15.290(4) two years after the administrative dissolution date.  The LLCA, at RCW 25.15.270, sets forth several different methods of dissolution of a limited liability company.  The Court’s ruling in Belltown Waterproofing, Inc., v. Clear Brook Construction meant that general contractor Clear Brook Construction Limited’s construction defect claims against subcontractor Belltown Waterproofing, LLC were barred by the statute of limitations.

The case aptly demonstrates that a general contractor’s potential risk does not end at project completion.  Clear Bank is not the first and will certainly not be the last general contractor to get caught in the middle between an owner’s claim brought within, but near the end of, the applicable statute of limitations, and the applicable statute of limitations and/or statute of repose the general contractor must meet in order to timely bring its claims against its subcontractors. 

Evidence of immigration status allowed on claim for future wage loss under Washington law

In a case of first impression, Washington Court of Appeals, Division I, held yesterday that a plaintiff's immigration status may be admissible where plaintiff claims damages for future wage loss.

The case, Salas v. Hi-Tech Erectors, involved an injured worker's claims against a scaffold supplier for damages caused when the worker slipped from a scaffold ladder at a construction site.  Plaintiff entered the United States on a valid visa, which had since expired, and he had applied for citizenship.  Plaintiff sought to exclude evidence of his immigration status at trial.  The trial court found that if he chose to pursue his claim for impairment of future income, his status as a non-legal resident would be allowed as probative as to the extent of the future impairment.  The Court of Appeals affirmed, stating "we conclude that evidence of a party's illegal immigration status should generally be allowed only when the defendant is prepared to show relevant evidence that the plaintiff, because of that status, is unlikely to remain in this country throughout the period of claimed lost future income."

In the opinion the court discussed differing holdings from several other states.  Look for this and related immigration status issues in other appellate court cases across the country.

Washington business, labor and Legislature react to the Brink's drive-time ruling

Blog contributor Brenda Molner has published an article addressing the responses of business, labor, and the Washington legislature to the Washington Supreme Court's October 2007 ruling in Stevens v. Brink's Home Security, Inc.  The article is in the February 2008 edition of the Puget Sound Chapter of the National Association of Women in Construction's newsletter.  The Brink's case deals with payment of drive-time to employees who use company vehicles to commute to and from work.  The article is a follow-up to a previous article in the same publication.

You may access Washington HB 3294 and SB 6867, referenced in the article, by clicking on the links provided.