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CARNEY BADLEY SPELLMAN Washington Law LAW OFFICES A PROFESSIONAL SERVICE CORPORATION 700 FIFTH AVENUE, SUITE 5800 SEATTLE, WA 98104-5017 FAX (206) 467-8215 TEL (206) 622-8020 UPDATE A quarterly Carney Badley Spellman newsletter online at www.carneylaw.com Susan K. Beebe, Editor 206.607.4149; beebe@carneylaw.com Summer 2002 Volume 11, Number 2 Personal Injury Law: Advice Changes in the Civil Rules allow videotaping of IMEs Personal injury cases can involve auto accidents, slip and falls, construction injuries, product defects – just about any source of injury causing physical or emotional harm to a plaintiff. When defending these cases, it is often necessary to send the plaintiff out for an IME (independent medical examination) pursuant to Civil Rule 35, which allows the defense medical expert an opportunity to evaluate the plaintiff’s alleged medical condition. Civil Rule 35 is a statewide rule that governs the superior courts. CR 35 previously allowed the plaintiff to unobtrusively audiotape the examination and also to bring a representative to the examination.The new CR 35 rule, which took effect on September 1, 2001, allows that “a videotape recording of the examination may be made on agreement of the parties or by order of the court.” One of the problems associated with obtaining videotaped IMEs is that most doctors that conduct CR 35 medical examinations refuse to have the examinations videotaped due to the disruption that it causes during the examination. When doctors refuse to conduct the examination, the available physician pool shrinks. Sometimes there are no available doctors in a particular specialty, or the same doctor is consulted on multiple cases which may give the impression that the overused doctor is not impartial. If, under the new rule, the defense does not agree to the videotaping, the plaintiff’s attorney can go to the court for permission, which the courts seem to be liberally granting. A better solution may be for the defense to agree to the videotaping with the conditions that the session is videotaped by a professional court reporting service and that the videographer is required to remain in one location throughout the examination. The plaintiff’s attorney may then forgo the videotaping altogether due to the expense of the professional videographer. The courts are finding the requirements of using a professional videographer and the stationary angle to be reasonable limitations. Personal Injury Law: Advice ...................... 1 Insurance Law: Coverage Issues ............... 2 Insurance Law: Other Disputes .................. 2 Tort Liability Law: Decision ........................ 4 Environmental Law: New Statute ............... 4 Environmental Law: Decision ..................... 5 Community Property: Decision .................. 5 Construction: Legislative News .................. 6 Construction Law: Analysis ........................ 8 Construction Law: Decisions ..................... 9 Employment Law: Decisions .................... 10 In the Spotlight .......................................... 12 In the Winner’s Circle ................................ 15 Washington Law UPDATE Summer 2002 Carney Badley Spellman If the parties come to an agreement to videotape, both the defense attorney and the doctor can be comfortable in the knowledge that videotaping can work to their benefit. The doctor has proof that a thorough examination was conducted. The defense attorney can demonstrate to a jury certain aspects of the plaintiff’s demeanor, including exaggerated pain complaints or absolutely no objective findings regardless of subjective pain complaints. ✍ Carney attorney Cindy Flynn researched and wrote this article. She can be contacted at 206.607.4167 or flynn@carneylaw.com. The Port of Seattle sued the insurers that provided coverage during 1997 and 1998 for the expenses it incurred upgrading its computer systems to avoid Year 2000 date recognition problems at the turn of the century. The 1997 insurers sought and received summary judgment because the Port failed to bring suit within the policy’s 12-month suit limitation. The 1998 insurers were also granted summary judgment based on the Port’s untimely filing and were granted summary judgment on coverage issues as well. The appellate court disagreed with the 12-month suit limitation decision, noting that the standard insurance form with the limitation was not incorporated into the policies and therefore the six-year statute of limitations applied. However, the appellate court found that both sets of insurers were correct in denying coverage because the Y2K problem was not a “computer virus”, which was explicitly included in the policies. The court also found that the Y2K problem was internal, not external, and thus qualified as an “inherent vice”, an excluded loss. Because the appellate court found no coverage, and because the legal issues were the same for both the 1997 and the 1998 policies, the appellate court affirmed the dismissal of the claims for both sets of insurers. ✍ Insurance Law: Coverage Issues Coverage for regular babysitter falls under business pursuits exclusion A business pursuits exclusion in a homeowner’s policy barred liability coverage for a babysitter and her parents. Leanderson v. Farmers Insurance Company of Washington, 111 Wn.App. 230, 43 P.3d 1284 (Div. 3, April 2002). Crystal Leanderson worked an average of 8 to 10 hours per day, 4 to 5 days per week caring for the three Hawkins children during the summer of 1999. While babysitting, Crystal accidentally started a fire at the Hawkins’ home, which was insured by Grange Insurance Association. After Grange paid the loss, it initiated a subrogation claim against the Leandersons, who were insured by Farmers Insurance Company of Washington. Farmers denied coverage. On summary judgment, the trial court decided that Farmers’ business pursuits exclusion applied and dismissed the Complaint. The appellate court affirmed and held that Crystal’s babysitting satisfied the requirements of a business pursuit because she worked on a regular and continuous basis and she testified that she babysat to earn money. ✍ Insurance Law: Other Disputes Claims adjuster practicing law? In a five-to-four decision, the Washington Supreme Court ruled that an insurance claims adjuster’s actions constituted the practice of law and she was therefore required to abide by the standard of care of a practicing attorney. Jones v. Allstate Insurance Company, 45 P.3d 1068 (May 2002). Janet Jones was injured in a car accident caused by Jeremy France, who was insured by Allstate Insurance Company. An Allstate claims adjuster contacted Jones and her husband and ultimately sent a letter, check and release form to Jones. Jones signed and deposited the check but did not sign the release because the Jones’ wanted to retain the right to sue the manufacturer of their car for joint and several liability Y2K upgrading expenses not covered The Port of Seattle’s Y2K problem did not constitute a “computer virus” and was therefore not covered under its insurance agreements’“Data Processing Media” inclusion provisions. Port of Seattle v. Lexington Insurance Company, 48 P.3d 334 (Div. 1, May 2002). 2 Washington Law UPDATE Summer 2002 Carney Badley Spellman and because the settlement amount fell short of her medical expenses. The trial court found that Allstate “engaged in the unauthorized, negligent practice of law and breached its fiduciary duties to the Jones’ in representing the Jones’ on their claims against the Frances.” The Court of Appeals granted discretionary review and then certified the case to the Supreme Court. The Supreme Court decided that the issue of unauthorized practice of law was not before the court because the Jones’ did not seek to enjoin or prohibit the practice. The court chose instead to focus on Allstate’s duty and whether the duty was breached. The court found that the duty Allstate owed to the Jones’ was that of an attorney to an unrepresented third party and that the adjuster breached that duty when she led the Jones’ to believe that she had their best interests in mind. To support its decision, the court cited an Allstate policy of reducing attorney involvement to achieve a higher rate of return on settlement claims. The court concluded that the letter the adjuster sent to Jones contained more than an administrative request to return the release; the letter constituted advice to accept the settlement offer. The court warned that the adjuster should have advised the Jones’ that there were potential legal consequences of signing a settlement check and a release of all claims or refer them to independent counsel and should have fully disclosed the conflict of interest she presented. A lengthy dissent written by Justice Madsen concluded that Allstate did not owe a duty of good faith to the Jones’. Madsen would have held that the trial court should have denied summary judgment and required a trial on the issue of whether the signing and depositing of the check concluded the settlement. A Motion for Reconsideration was filed. The Supreme Court has requested that plaintiff respond to the Motion. ✍ Bad faith must be decided by a judge not a jury Because the insured did not meet her burden of showing that, as a matter of law, the insurer had “no reasonable basis” to deny coverage, the bad faith claim should have been dismissed on summary judgment. American States Insurance Company v. Symes of Silverdale, Inc., 111 Wn. App. 477, 45 P.3d 610 (Div. 2, May 2002). Fire severely damaged Symes, a family restaurant and sports bar located in Silverdale. Symes was in Chapter 11 bankruptcy, which was converted to Chapter 7 after the fire. When the bankruptcy trustee attempted to collect insurance policy proceeds, American States denied the claim and filed a declaratory judgment action alleging that the restaurant’s president set the fire. The trustee counterclaimed for breach of contract, Consumer Protection Act violation, and insurance bad faith. The appellate court upheld the trial court’s ruling that the intentional act exclusion can be maintained against the trustee’s action, the policy was part of the bankruptcy estate, and the trustee was bound by the acts and omissions of the debtorin-possession. The appellate court reversed the trial court on the issue of bad faith and held that American States was entitled to summary judgment on the bad faith claim as a matter of law. Interpreting a 2001 Washington Supreme Court decision (Ellwein v Hartford Accident & Indemnity Company, 142 Wn.2d 766, 15 P.3d 640), the appellate court said that henceforth, the issue of bad faith will not be a jury question. If there are no genuine issues of material fact, a court should make a legal determination on summary judgment and if there is a question regarding “coverage-determining facts,” then the insurer is entitled to summary judgment and a finding that it did not commit bad faith. Because the trustee did not provide any evidence showing that the restaurant president lacked a motive to commit arson, she was unable to show that American States had “no reasonable basis” to deny its coverage claim. Judge Seinfeld, while concurring in the outcome, disagreed that Ellwein created a new standard. ✍ 3 Washington Law UPDATE Summer 2002 Carney Badley Spellman Tort Liability Law: Decision City’s duty not dependent on lack of plaintiff’s fault In a five-to-four decision, the Washington Supreme Court found a jury instruction about a municipality’s duty to all persons, whether negligent or fault-free, to build and maintain its roadways in a condition that is reasonably safe for ordinary travel misleading and legally erroneous to the extent it allowed the jury to premise the city’s duty on a motorcyclist’s negligence. Keller v. City of Spokane, 44 P.3d 845 (April 2002). Casey Keller crashed his motorcycle into Walter Balinski’s car in an intersection in Spokane. Balinski had stopped at the stop sign before proceeding into the intersection. The fact that there was no stop sign for Keller was introduced to argue the City’s negligence. The jury found Keller was 60 percent at fault and Balinski was 40 percent at fault. The Court of Appeals reversed and remanded for a new trial holding that one of the jury instructions erroneously allowed the jury to determine that the City had no duty at all if it found that Keller was negligent and that it failed to instruct the jury as to the City’s duty of ordinary care to provide safe streets. The Supreme Court affirmed the Court of Appeals and held that the jury instruction (as well as the Washington Pattern Instruction it was based on) was inherently misleading and legally erroneous to the extent that it allowed a jury to premise a municipality’s duty on the absence of negligence by the plaintiff. Three justices joined in Justice Johnson’s dissent, which would have reversed the Court of Appeals. ✍ Brownfields are abandoned, idled, or underused industrial and commercial facilities where expansion or redevelopment is complicated by real or perceived environmental contamination. The new legislation eases liability issues and helps finance the cleanup of contamination. It provides new flexibility and funding to developers building in areas previously deemed too “brown” to develop. The law authorizes $200 million a year starting in fiscal year 2003, to states, local governments, and Native American tribes for brownfields assessment and cleanup. It is designed to give the states authority in working with local developers in cleanup of the sites and to bar the Environmental Protection Agency from enforcing regulations otherwise applicable to these sites. The new law also protects developers of brownfields when additional contamination is found after development. A property purchaser will be excused from liability as an innocent landowner if acquisition occurs after January 11, 2002; all disposal of hazardous substances occurs prior to acquisition; and the purchaser • made all “appropriate inquiries” into previous ownership and uses of the facility (inspection and title search are enough for residential properties; the EPA has been instructed to promulgate regulations defining “appropriate inquiries”); • exercises appropriate care to stop any continuing release; prevent any threatened future release; prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substance; • provides full cooperation to regulatory authorities; • complies with land use restrictions; • complies with all requests for information and subpoenas; and • has no affiliation with potentially liable parties. Contiguous property owners are protected if they did not cause, contribute or consent to the release of a hazardous substance from real property that they do not own or operate and they take reasonable steps to stop any continuing release and prevent any future release. Environmental Law: New Statute Brownfields Revitalization Act In January, President Bush signed the “Small Business Liability Relief and Brownfields Revitalization Act” into law. This legislation will enable states, tribes, and communities throughout the country to assess, remediate, and ready for reuse a multitude of sites that otherwise would remain abandoned for many years. 4 Washington Law UPDATE Summer 2002 Carney Badley Spellman The law includes two new exemptions. 1) The De Micromis Exemption states that a person shall not be liable for response costs if the material disposed of at a facility on the National Priority List is less than 110 gallons of liquid materials or 200 pounds of solid materials and all of the disposal treatment or transport occurred before April 1, 2001. 2) The Municipal Solid Waste Exemption states that a person shall not be liable for response costs for municipal solid wastes disposed of before April 1, 2001 at a facility if the “person” is residential, a small business entity (fewer than 100 employees), or a 501(c)(3) nonprofit organization (also with fewer than 100 employees). ✍ Carney attorney Don Verfurth authored the chapter on Washington state in the legal treatise entitled: Brownfields Law and Practice, published by Lexis. He can be reached at 206.607.4224 or verfurth@carneylaw.com. court determined that because it had no record to determine what level of cleanup might be reasonable nor the economic impact of the order, that the takings claim could not be resolved. It also determined that because there was no record on the availability and effectiveness of less drastic protective measures, the substantive due process analysis could not be performed. The court vacated the trial court’s order and remanded the case without prejudice, concluding that the issues were not justiciable. Justice Sanders dissented, writing that not only were the issues justiciable, but that he would hold for Asarco on the merits. Justice Bridge concurred in the dissent. ✍ Community Property: Decision Gains from stock options belong to the community even if purchased with separate funds In a divorce proceeding, not only were the wife’s stock options community property, but any gains earned on the stock purchased via the options were also community property. The wife was held to have a lien claim against the community for the amount of her separate contribution to purchases made via the stock options. Chumbley v. Beckmann, 110 Wn. App. 871, 43 P.3d 53 (Div.3, March 2002). During the sixteen years that Patricia Beckmann was married to Gerald Chumbley she earned her Ph.D. in biochemistry and pharmacology and then worked as a research scientist at Immunex Corporation. Immunex granted Beckmann stock options as part of her employment. At one point, Beckmann used her separate money inherited from her father to exercise her Immunex stock options. The trial court determined that the stock purchased with Beckmann’s separate funds was her separate property. Because the court recognized that the stock options were community property, it awarded Chumbley about $51,000, the difference between the market value of the stock and the cost to Beckmann at the time she exercised the options. The trial court did not award any of the stock’s increased value to Chumbley reasoning that the stock was Beckmann’s separate property. Environmental Law: Decision Challenge to constitutionality of MTCA vacated Asarco’s challenge to the constitutionality of the state Model Toxics Control Act was vacated by the Washington Supreme Court because the state Department of Ecology had not yet issued a final enforcement order. Asarco Incorporated v. Department of Ecology, 145 Wn.2d 750, 43 P.3d 471 (March 2002). Arsenic and lead were smelted on a site in Everett at the turn of the last century. By 1937, the company that later became Asarco had sold all of the property. In 1991, the Department of Ecology informed Asarco that it was proposing to find Asarco a “potentially liable person” for the cleanup of the site. Asarco cooperated until Ecology and Asarco could not agree on the cleanup standards. Asarco brought a declaratory judgment action challenging the constitutionality of the Model Toxics Control Act as applied to Asarco.The trial court found that retroactive application of MTCA did not offend the United States Constitution, but that the burdens imposed by the cleanup of the surrounding site did violate due process principles and was an unlawful taking. The Washington Supreme Court focused on whether the challenge was appropriate since Ecology had not yet entered a final enforcement order. The 5 Washington Law UPDATE Summer 2002 Carney Badley Spellman The appellate court reversed the trial court’s decision reasoning that “the increase in stock value had nothing to do with Beckmann’s separate contribution; rather, market forces increased the value of both the stock options and the stock.” The community’s right to purchase stock at a fixed price “led to the substantial benefit realized when the stock price went up.” The court concluded that the stock purchased via the options was therefore community property and that Beckmann had a lien claim only for the amount of her separate contribution. ✍ ping, it is entitled to monetary damages for the violation, but may not necessarily get the job. The Legislature did not change the rule that the aggrieved bidder must sue before the contract is signed to prevent the award of the contract. The subcontractor can, however, obtain just compensation without ever setting foot on the job site. In the amended statute, the Legislature provided prime contractors with a list of legitimate reasons for substituting a subcontractor without incurring liability for “bid shopping” or “bid peddling”: (i) the listed subcontractor's refusal to sign a contract with the prime contractor; (ii) the bankruptcy or insolvency of the named subcontractor; (iii) the inability of the listed subcontractor to perform the requirements of the contract or the project; (iv) the inability of the original subcontractor to obtain the necessary license, bond, or other statutory requirements to perform the work detailed in the contract; or (v) a court order barring the named subcontractor from participating in the project. The third reason, the inability of the subcontractor to perform, will, no doubt, be the major battleground in these types of disputes. As general contractors and subcontractors are well aware, this excuse can be very subjective. Although subcontractors have the burden to prove bid shopping by a preponderance of the evidence, a prime contractor likely will have to justify why it changed its position regarding the capability of the subcontractor after already naming the subcontractor in its bid for the specific project. Consulting with an attorney familiar with these issues before taking action may prevent a public bid from becoming a public problem. ✍ Carney attorneys Sandip Soli and John Dippold researched and wrote this article.You can contact Sandip at 206.607.4107 or soli@carneylaw.com or John at 206.607.4127 or dippoldj@carneylaw.com. Carney has many other qualified construction law attorneys that you can contact via our general number: 206.622.8020. Construction: Legislative News Subcontractor can now sue for bid shopping damages A subcontractor named in a prime contractor’s bid proposal for a major state job but later abandoned by the prime contractor when awarded the contract now has the right sue the prime contractor and the substituted subcontractor for monetary damages. Amended RCW 39.30.060 took effect on June 13, 2002, to discourage bid shopping and bid peddling on state projects.The amended statute supersedes the decision by the Washington State Court of Appeals last year that held, under the former statute, that a named subcontractor could not sue when the prime contractor substituted a different contractor. McCandlish Electric, Inc. v. Will Construction Company, 107 Wn. App. 85, 95-96, 25 P.3d 1057 (2001). In a bid on a state project costing one million dollars or more, a prime contractor must name an electrical, plumbing, and HVAC subcontractor to perform such work, or name itself if it intends to do such work. In amending RCW 39.30.060, the Legislature expressly prohibits “bid shopping”, (when a general contractor substitutes another subcontractor who will perform the job for less money), and “bid peddling”, (when a general contractor threatens to change subcontractors to force the subcontractor to reduce its price), before or after the contract award. If the prime contractor replaces the subcontractor in violation of the statute, the originally listed subcontractor can sue the prime contractor and the substituted subcontractor – but not the public entity awarding the contract. If the named subcontractor can prove bid shop- 6 Washington Law UPDATE Summer 2002 Carney Badley Spellman New law requires notice before bringing construction defect suit Hoping to reduce the number of lawsuits between owners and construction professionals for claims of construction defects, the Washington State Legislature recently adopted a new law requiring owners to provide construction professionals notice of alleged construction defects before the owner is allowed to file suit. The law contemplates that construction professionals will be provided with an opportunity to cure any construction defects without the costs of a lawsuit. The new law, which went into effect in July of 2002, requires all claimants who allege construction defects against a construction professional to serve the construction professional with a notice of the claim 45 days before suit can be brought. The law defines a construction professional as an architect, builder, builder/vendor, contractor, subcontractor, engineer, inspector and dealer, as defined by the condominium act. After receipt of the claim, the construction professional has 21 days to respond. If the construction professional disputes the claim or fails to respond within 21 days, the claimant may then bring suit on its claim. If the construction professional responds to the notice of claim by offering to settle the claim, the claimant may either accept or reject the offer. If the offer is accepted, case closed and litigation is avoided. If the offer is rejected, the claimant must serve written notice of its rejection before it can commence suit for the construction defect claimed in the original notice. The construction professional may also respond to the notice of claim by requesting an inspection of the property. If the claimant rejects the inspection proposal and does so by written notice served on the construction professional, the claimant may then commence suit. If the claimant accepts the offer to inspect, it must then provide the construction professional reasonable access. Within 14 days from completion of the inspection, the construction professional must serve on the claimant either a written plan to remedy the defect, an offer to compromise or notice that it has no intention to proceed to remedy the alleged defect. If the construction professional notifies the claimant that it will not proceed to remedy the alleged defect or if he fails to remedy the defect as provided for in his plan, the claimant may immediately proceed to file suit without further notice. Any action that is commenced by the claimant before compliance with the notice provisions in the new law is subject to dismissal and may not be recommenced until the claimant has complied with the notice requirements. To protect claimants from running up against the statute of limitations during the notice period, the new law tolls or suspends the running of the statute of limitations clock until 60 days after the time when the claimant may commence suit. In other words, if notice of a claim is served upon a construction professional as provided for in the new law, the statute of limitations will stop running to allow for the construction profession to respond and will not start up again until 60 days after the date the claimant is allowed to bring suit. Importantly, the statute tolls both the applicable statute of limitations and the construction statute of repose. The new law also requires construction professionals to tell owners about the new law when entering into a contract for the sale, construction or substantial remodel of a residence. Although the Legislature provided a notice to be used, it did not provide any consequence to the construction professional for failing to provide the notice. Additionally, the new law requires boards of directors of condominium associations to provide each homeowner with written notice of the commencement or anticipated commencement of an action alleging construction defects before service can be made of the summons and complaint on any defendant.This notice is required to state the nature of the action, the relief sought and the expenses and fees that the board of directors anticipates will be incurred in prosecuting the action. Further, the new law requires all claimants against a construction professional, including a construction professional asserting a claim against another construction professional, to file with the court and serve on the defendant a list of known construction defects within 30 days after the commencement of the action. The list of construction defects must specify the construction professional’s responsibility for each of the construction defects listed.The court, in its discretion, may increase the 30-day period. 7 Washington Law UPDATE Summer 2002 Carney Badley Spellman This new law may keep some construction defects claims out of litigation, but it really doesn’t provide for anything more than what a reasonable claimant would have done before the law. Claimants have always had the right to make demands on construction professionals to correct any construction defects. With the suspension of the statutes of limitation and repose during the notice period, however, the new law gives the parties a chance to resolve claims without litigation. ✍ Carney attorney John Welch researched and wrote this article. You can contact him at 206.607.4198 or welch@carneylaw.com. Carney has many other qualified construction law attorneys that you can contact via our general number: 206.622.8020. Construction Law: Analysis Statute of limitations for breach of contract begins upon discovery of breach The Court of Appeals ruled, for the first time, that the discovery rule is applicable to causes of action arising in breach of contract. This decision, if not reversed by the Supreme Court, has profound ramifications for the construction industry. Architechtonics Construction Management, Inc. v. Khorram, 111 Wash. App. 725, 45 P.3d 1142 (Div. 1, May 2002). In general, parties to a construction contract who have suffered purely economic damages can only bring suit against other parties to the contract. For example, an owner who has contracted directly with a general contractor and who has suffered water damages due to an improperly installed roof must bring suit against the general contractor and not the general contractor’s roofing subcontractor. Washington has a six-year statute of limitation for causes of actions arising out of a written contract. This has been interpreted to mean that claimants had six years from the date work was completed to commence a lawsuit. Practically speaking, after six years a contractor’s liability for economic damages is extinguished – well, that is, until the decision in Khorram. Now, if the decision is affirmed, a breach of contract suit can be filed against a contract up to 12 years after the work is completed. The 12-year limitation period is due to the construction statute of repose, which creates an ultimate statute of limitations, requiring that all causes of action “accrue” within six years of substantial completion or termination of services. A cause of action accrues and the statute of limitations begins to run when the claimant discovers, or should have discovered, the damage or injury. Therefore, under Khorram, a claimant who discovers work that is not in compliance with the construction documents within six years after the work was completed, can wait up to six years to commence suit. The application of the discovery rule to contract causes of action and the statute of repose creates this possible 12-year period in which suits against contractors may be commenced. In Khorram, Parviz and Ladan Khorram contracted with Kensington Homes, Inc. to construct a home, which was substantially completed in June of 1993. Sometime in 1998, the Khorrams discovered a piece of molding that had rotted and fallen from the eaves. During the repair work on the eaves the Khorrams discovered dry rot in the walls of the house. In July of 2000, more than six years after substantial completion, Khorram commenced suit against Kensington for breach of contract. Kensington moved for summary judgment, arguing that the six-year statue of limitation for written contracts prohibited the Khorrams’ suit. The trial court agreed with Kensington and dismissed the claim. The Khorrams appealed. In its decision, the Court of Appeals recognized that the statute of limitations in contract actions begins to run at the time of the breach – that is, at the time the work is performed but noted that Washington courts have never considered when the statute begins to run where reasonable diligence would not reveal the breach. The court then referred to a number of tort cases to demonstrate that over the last 30 years our courts have expanded the discovery rule as it applies to tort cases, as well as a claim for a breach of the implied warranty of habitability. The court did not identify any instances where Washington courts have applied the discovery rule to a contract cause of action. Instead, it relied on a previous decision of the court that left open the possibility that, given the right set of facts the discovery rule may apply to contract causes of action. Anticipating a challenge to its decision, the appellate court noted that jurisdictions that refuse to 8 Washington Law UPDATE Summer 2002 Carney Badley Spellman apply the discovery rule to contract causes of action do so for two reasons: first, a perceived absence of liability insurance for contract defendant; and second, a general perception that contract claimants have more control over their risk of loss than tort claimants. The court quickly dismissed the insurance crisis argument by noting that although liability insurance was a problem for tort defendants when the discovery rule was first applied in tort cases, the Legislature solved the problem by adopting a statue of repose for such cases. The court noted that Washington already has a construction statute of repose, which mitigates insurance costs by elimination the prospect of unlimited and indefinite liability. The court, however, did not address the second reason. This decision doubles the time allowed to bring suits against contractors under certain circumstances. Luckily, Washington allows contracting parties to negotiate and contract for limitation periods that vary from what is provided for in the statute. The decision of Khorram highlights the importance of considering the issue of claims limitation during contract formation. An attorney can help you negotiate contract terms that can protect your business. ✍ Carney attorney John Welch researched and wrote this article. You can contact him at 206.607.4198 or welch@carneylaw.com. Carney has many other qualified construction law attorneys that you can contact via our general number: 206.622.8020. The trial court allowed Pearson to amend his complaint against the property owners to add the banks. The appellate court held that this was error and that Pearson lost its lien rights against the banks because the lien time had expired. The court discussed legislative amendments to the statute and noted that the Legislature had not addressed “the well-established rules specifying the time to serve non-necessary parties.” ✍ Engineers not liable to homeowners An engineering firm that provided an analysis of city property lying above homeowners’ properties did not owe a duty to the homeowners whose houses were severely damaged in landslides. Burg v. Shannon & Wilson, Inc., 110 Wn. App. 798, 43 P.3d 526 (Div. 1, April 2002). Landslides on Perkins Lane West (in the Magnolia neighborhood) severely damaged several homes. The City of Seattle owned the bluff property above their homes. Before the storm that damaged the Burg residence “beyond repair”, the City hired Shannon and Wilson, a geotechnical engineering firm, to make recommendations about increasing the land’s stability. After the storm, the homeowners sued the engineering firm claiming it had a duty to warn the homeowners of the remedial measures that it had recommended to the City in order to increase the stability of the bluff property above Perkins Lane. The trial court concluded that the engineering firm owed no duty to the appellants and ordered summary judgment for Shannon and Wilson. The appellate court affirmed. Professional engineers owe duties to their clients and to their employers, but the court could not find a special relationship between the homeowners and the engineering firm that would impose a legal duty. The court also rejected arguments that 1) the homeowners were third-party beneficiaries to the contract between the City and the engineering firm and that 2) the engineering firm owed them a gratuitous duty. ✍ Construction Law: Decisions Mortgage holders must be timely served to preserve lien rights A contractor lost its lien rights to foreclose on a construction lien against two banks that held mortgage liens against real property because the contractor did not provide notice to the banks of its construction lien within the time allowed by statute. Bob Pearson Construction, Inc. v. First Community Bank of Washington, 111 Wn. App. 174, 43 P.3d 1261 (Div. 2, April 2002). Bob Pearson Construction recorded a lien and later sued to foreclose on the lien after construction was halted on a proposed building. Pearson sued and served the property owner within the statutory period. Pearson did not sue and timely serve two banks that had mortgage liens on the property. Local government cannot escape its own future negligence A waiver included in a deed to property that later flooded violated the Legislature’s explicit abolition of sovereign immunity to the extent that it exculpated 9 Washington Law UPDATE Summer 2002 Carney Badley Spellman a local government for its own future negligence. Howe v. Douglas County, 43 P.3d 1240 (April 2002). Bart and Connie Howe sued Douglas County after their property was damaged by flooding. The County had required the developer to include a waiver of “all claims and damages against any governmental authority arising from the construction and maintenance of public facilities and public property within the subdivision.” The trial court dismissed the suit on summary judgment based on the public duty doctrine and on the recorded exculpatory language in the deed to the property.The Court of Appeals affirmed. The Washington Supreme Court held that narrowly tailored, bargained-for exculpatory clauses may be permissible, but that exculpatory clauses secured routinely for the performance of a government function, such as the one in the Howes’ deed, are not permitted. The court contrasted preexisting conditions caused by private developers (for which liability can be limited) with the local government’s own future negligence which cannot be limited. To the extent that the waiver limited the County’s liability for otherwise actionable negligence, the waiver was held void. ✍ The City required as a condition of granting the building permit, an exculpatory covenant releasing it from liability for damages caused by soil movement. The trial court dismissed all claims against the City at summary judgment. The Court of Appeals agreed that the claims arising from permitting should be dismissed, but reinstated the claims arising from negligently maintained storm drains. The Supreme Court affirmed the dismissal of the negligent permitting claims and affirmed the reinstatement of the claims relating to the storm drains. ✍ No unfair advantage to late bid The denial of a second bidder’s preliminary injunction was not improper because the first bidder’s tardiness was insignificant. Quinn Construction Company v. King County Fire Protection District No. 26, 111 Wn. App. 19, 44 P.3d 865 (Div. 1, April 2002). Quinn Construction Company and Korsmo Construction, among others, submitted bids to build a new facility for King County Fire Protection District 26. Quinn protested the bid award to Korsmo because Korsmo missed the bid submission deadline by five to ten seconds. Quinn obtained a temporary restraining order to enjoin the District from entering into the contract with Korsmo, but the District and Korsmo had already signed the contract.The trial court later denied Quinn’s application for a preliminary injunction, ruling that the District had a right to waive the bid deadline. The appellate court affirmed: “Because Quinn failed to show any unfair advantage to the late bidder, the District had the right to accept the late bid.” ✍ City could be liable for negligent storm drain maintenance In a townhouse landslide case, an exculpatory covenant releasing the City of Seattle from liability for damages caused by soil movement was held not to violate the state’s abolition of sovereign immunity. The public duty doctrine, however, did not bar a claim for negligent maintenance of a drainage system. 1515-1519 Lakeview Boulevard Condominium Association v. Apartment Sales Corporation, 146 Wn.2d 194, 43 P.3d 1233 (April 2002). The owners of three condominiums that were rendered uninhabitable when the soil underlying the property gave way during winter storms brought suit against several parties. In a previous Supreme Court decision, the statute which limits the period when construction and repair claims could be filed, was upheld. In this recent decision, the Supreme Court was asked to focus on the portion of the suit directed at the City of Seattle. Employment Law: Decisions Breach of contract does not entitle at-will employee to future earnings An at-will employee who was not rehired at an equal position after completing a treatment program for alcohol abuse, even though a position has been promised, is not entitled to future lost earnings. Ford v. Trendwest Resorts, Inc., 43 P.3d 1223 (April 2002). 10 Washington Law UPDATE Summer 2002 Carney Badley Spellman Bobby Ford worked as an at-will employee at Trendwest, which promised to rehire him as an at-will employee in a position equal to that which he held after he completed an alcohol counseling program. Instead, Trendwest offered him a far less lucrative position which he declined. A jury found Trendwest breached its duty to rehire and awarded Ford both past economic damages and future economic damages. The appellate court affirmed that lost damages were an appropriate measure of damages. The Supreme Court reversed, holding that while lost earnings are available to remedy a wrongful discharge, the parties to an at-will employment contract did not bargain for future earnings, and it was not reasonable for Ford to expect future earnings. The case was remanded for an “entry of nominal damages on Ford’s breach of contract claim.” Three justices dissented. ✍ vided sufficient evidence to show that Regent’s alleged incidents of prior poor performance were either false, thus pretextual, or subject to serious factual dispute.The issue was thus remanded for trial. ✍ First employer owed no duty to next employer in recommendation letter As a matter of first impression, a former employer was held not to owe a past employee’s new employer a duty under common law negligence principles to include the dismissed charges of child molestation and reprimands in letters of recommendation. Richland School District v. Mabton School District, 111 Wn. App. 377, 45 P.3d 580 (Div. 3, April 2002). Richland School District hired Jesus Caballero as a night custodian after receiving three written letters of recommendation from Mabton School District officials. The letters did not mention charges of child molestation or various reprimands Caballero had received for inappropriate comments made to students. Richland terminated Caballero and sued Mabton for negligence based on misrepresentation and nondisclosure. The trial court found that Mabton did not owe a duty to Richland and granted summary judgment to Mabton.The appellate court affirmed concluding that “a reasonable person would not foresee that a person with Mr. Caballero’s record of questionable accusations and minor discipline problems posed a risk of physical harm to students.” The court added that if Richland had requested Caballero’s personnel file, Mabton may have had a duty under the Public Disclosure Act to provide it. Mabton, however, did not have the counterpart duty to offer the information when not specifically requested. ✍ Planning to have kids? Factual dispute over reasons for firing requires trial A woman, discharged soon after she responded affirmatively to her superiors’ inquiries about whether she was planning to have children, provided sufficient evidence to challenge her employer’s reasons for termination. Kuest v. Regent Assisted Living, Inc., 111 Wn.App. 36, 43 P.3d 23 (Div. 1, March 2002). Jodi Kuest worked as the general manager of Regent Assisted Living’s Northshore facility. She was fired two weeks after advising her supervisors that she planned to have children. She sued for sex discrimination. The trial court determined that Kuest did not carry her evidentiary burden of raising any triable issue of fact, and awarded summary judgment to Regent. The appellate court reversed, finding that Kuest had pro- The preceding summaries of recent court opinions and new laws may be pertinent to your business. We offer them with two caveats: (1) This is not necessarily inclusive of all the recent cases or new laws that you should be aware of when making your business decisions; and (2) While every effort has been made to ensure accuracy, you should not act on the information contained in these summaries without seeking more specific professional advice. 11 Washington Law UPDATE Summer 2002 Carney Badley Spellman In the Spotlight Experienced litigator joins Carney Jeff Laveson brings a diverse practice to Carney. He has spent the last 16 years at Lane Powell, another Seattle law firm, and developed expertise in several areas of law including insurance law, aviation law, environmental law, construction law, professional liability litigation, real estate and land use litigation, commercial litigation, appellate practice and employment law. Laveson has significant experience representing London-market insurance interests. He has worked as co-counsel with Carney attorney Don Verfurth on a number of environmental insurance coverage cases over the years. Laveson is a former U.S. Navy pilot and flight instructor. He began his aviation training in Pensacola, Florida in 1979, spent a year in Texas for advanced jet training where he earned his Navy wings, and was then assigned to a squadron at Naval Air Station North Island in San Diego, California, where he met his wife Margaret. After a tour of duty on board the aircraft carrier USS Ranger, he was assigned a flight instructor position in San Diego. Laveson attended law school at the University of San Diego, where he served as the Executive Comments Editor for the Law Review and graduated in 1986. He is a former President of the King County Bar Association Aviation Section. As the father of two sons, Laveson has coached and been involved in youth baseball. He is currently the President of Bainbridge Island Babe Ruth. His son Michael is now a sophomore at Boston College and son Marc is a senior at Seattle Prep. ✍ Group goes Global Carney is the Washington State member firm of the State Capital Global Law Firm Group. The Group was recently renamed to add Global to its title because it now includes member firms located in all 50 U.S. state capitals and in business markets and financial centers around the world. In 1989, several former state governors, who had returned to the practice of law, including Carney’s former Gov. John D. Spellman, took the lead in forming an association of independent law firms. Member firm attorneys based in U.S. state capitals offer a unique knowledge of state legislatures and regulatory agencies. Those based outside the United States offer similar perspectives and abilities in their jurisdictions. The more than 110 member firms are located in North America, Europe, South and Central America, the Caribbean, Asia and the Pacific Rim, and Africa and the Middle East. The Group allows Carney quick access to lawyers across the world with legal and business expertise. Carney attorneys actively participate in continuing legal education and networking opportunities with other Group members and, through these activities gains additional resources and relationships that benefit Carney attorneys and clients alike. Member firms of the State Capital Global Law Firm Group practice independently and not in a relationship for the joint practice of law. ✍ More information about the State Capital Global Law Firm Group is available at www.statecapitallaw.org. 12 Washington Law UPDATE Summer 2002 Carney Badley Spellman Carney welcomes new construction associate Sandip Soli is a recent addition to the construction law department at Carney. In addition to construction law, Soli practices commercial litigation and employment law. Before joining Carney, he clerked for the Honorable Walter E. Webster, Jr. and the Honorable H. Joseph Coleman at the Washington State Court of Appeals, Division One, where he drafted judicial opinions in over 90 cases covering a wide variety of subjects. Soli has a lengthy association with the University of Washington that began even before he and his twin brother, Sanjay, were born at the University Hospital: His parents met at the UW during graduate school. His mother was studying Chinese language and literature and his dad was studying civil and structural engineering. Both of Soli’s degrees come from the UW; he has a B.A. in international studies and, of course, a juris doctorate. He continues to live in the heart of the University District, amid a flurry of construction activity. During law school, he appeared in federal district court as a legal intern at the United States Attorney’s Office in Seattle. He also interned at the Starbucks Department of Law and Corporate Affairs where he worked with attorneys on employment disputes, products liability issues and commercial leases. Construction is a natural area of law for Soli to practice. He has experience counseling engineers and architects on various employment and business issues. His father is the CEO of ABKJ, Inc., a well-established, local engineering firm, while his twin brother is an up and coming architect at Kaplan McLaughlin Diaz. Soli has been dating Carrie Montgomery, an attorney at another Seattle law firm, since they met in their first year of law school. Their first date was a bike ride. They also enjoy soccer, tennis, and skiing. Several years ago, Soli had the opportunity to experience his cultural heritage in India. He worked at the U.S. Embassy in New Dehli and visited with relatives. Soli cofounded and serves as the president of the Kanoon South Asian Bar Association and is on the Board of Directors for the Multiple Sclerosis Association of King County. He also volunteers at the International District Legal Clinic. ✍ Carney client honored Longtime Carney client, Patrick Quigg, vice-president of Grays Harbor Paper Company, has been named the Association of Washington Business’ 2002 recipient of the Bruce Briggs Award for community service. Quigg was honored for his efforts chairing the Grays Harbor YMCA fund drive which raised $10 million to build the new “Y”. The award was presented during the association’s Spring Board meeting in Spokane.“The merger of the Aberdeen and Hoquiam YMCAs is a landmark event, an effort that could have died on the vine if not for Quigg,” said AWB President Don Brunell. “For Quigg, whose family has been in Grays Harbor since the early 1900s, the YMCA has always been a part of his life. Because of this, he went above and beyond the call of duty, gathering 900 donations which allowed the new YMCA to have an opening day with little or no debt.” The Briggs award is named in honor of the late Bruce Briggs, founder of Briggs Nursery in Olympia. AWB is Washington’s oldest and largest statewide business association. It was formed in 1904. It’s 3,700 members employ over 600,000 workers. AWB also is the state’s Chamber of Commerce and umbrella organization for more than 125 trade and professional organizations. While AWB’s membership includes the state’s major employers like Boeing, Microsoft, and Weyerhaeuser, more than 85 percent of AWB members employ fewer than 100, and onethird of AWB members hire fewer than 10. ✍ 13 Washington Law UPDATE Summer 2002 Carney Badley Spellman Carney lawyers and staff give “Day of Caring” to shelter The attorneys and staff at Carney recently provided labor and materials for some needed improvements to New Beginnings, a shelter for abused women and their children, located in Washington State. Armed with shovels, rakes, hammers, saws, and lots of enthusiasm, the Carney volunteers met on a beautiful Saturday morning to work their Carney magic. Cheryl Cunningham, a certified master gardener and hard working legal assistant, led a small army of botany enthusiasts on a frontal assault of the front planting beds. After hours of sweat and toil by Cheryl and her husband Wayne, Lynn Caragol, Marie Jensen, CJ Jacobs, Laura Doyle, Shawn Mercalde, John McDowall, Emily Studebaker and Craig Holley, the planting beds were transformed from weeds to wonder. Attorneys Cindy Flynn and Jon Schorr, working shoulder to shoulder and sparing no staples, put down a new stair runner on the main stairs that lead from the front foyer to the second floor. Carney’s new construction associate, Sandip Soli, volunteered to spend the beautiful day in the basement laundry room where he and our unflappable word processor and resident scholar, Ed Wirkala replaced the suspended ceiling tiles. Meanwhile, in the kitchen and dining area, Carney’s Managing Partner Tim Parker and Chief Operating Officer Todd Summerfelt were hard at work stripping the old wax from the floor and preparing the area for new vinyl flooring. I would like to report that the flooring installation was seamless, but the crew did have to install the floor with some seams, due to the size and shape of the area. With a little touch-up plastering by Shawn Mercalde and CJ Jacobs, precision fitting of the sheet flooring by Laura Doyle and John Welch, and final installation of the cove base by Jim Lobsenz, the flooring project was a success. The residents and management of New Beginnings have repeatedly expressed their appreciation and gratitude for all the hard work.Thanks to all the volunteers for a job well done. ✍ 14 Washington Law UPDATE Summer 2002 Carney Badley Spellman In the Winner’s Circle Two defense victories Carney attorney Shauny Jaine recently obtained two defense victories for PEMCO insureds. In one case, PEMCO insured Nate Vandermeer hit some black ice and his spin-out caused him to rear-end plaintiff, who asked a jury for $700,000. After four full days of trial at King County Superior Court and a plethora of medical testimony, the jury came back with an award of $41,500. plaintiff was driving toward Smith and crashed into his right rear door. The plaintiff denied that the light was red, but witnesses corroborated Smith’s facts. A lengthy day with the arbitrator confirmed Smith’s version. Jaine’s argument to recover costs resulted in an award of $3,200 for Smith. Jaine is confident that a jury will also find that Smith was not at fault, if the matter is appealed. If plaintiff loses at trial, she will have to pay Smith’s reasonable attorney fees and expert witness fees associated with defending the action. ✍ The principal issues on appeal (argued by Kagan on February 26, 2002) centered on the propriety of the instructions given to the jury by former King County Superior Court Judge Larry Jordan.The Court of Appeals determined that pursuant to well-established case law in the State of Washington, Judge Jordan correctly instructed the jury to find liability on the part of the Lucky Seven Saloon only if it found that the staff at the Lucky Seven continued to serve Maher when he was “obviously” intoxicated, as opposed to “apparently” intoxicated, which was the instruction requested by the plaintiff. Finally, the Court of Appeals granted Kagan’s request that financial sanctions (in this case, $2,500) be imposed on plaintiff’s counsel, due to serious deficiencies in the briefing on appeal, which caused considerable expense to Carney’s client. ✍ Appellate win for Kagan Carney attorney Ken Kagan recently scored a victory in the Washington Court of Appeals. On July 22, 2002, the Court of Appeals accepted his arguments when it affirmed the defense verdict obtained by Carney attorney Nick Scarpelli in a liquor liability trial in the King County Superior Court on behalf of the firm’s client, the Lucky Seven Saloon. In October, 1995, Ned Maher, a frequent patron of the Lucky Seven, was served three pitchers of beer over a three-hour period, though he claimed he only drank two. About 30 minutes after he left the Lucky Seven, Maher crossed the center line of Highway 9 in Snohomish County, and hit the pickup truck driven by the plaintiff, Jeffrey Barrett, head on. The second defense victory came in a mandatory arbitration case that she handled for PEMCO insured Paul Smith. After colliding with Smith’s car, the plaintiff claimed damages of nearly $200,000, but pursuant to arbitration rules sought damages of $35,000 per defendant. Smith had been waiting to turn left at an intersection. When the light changed to red, he proceeded to turn. The 15 Washington Law UPDATE Summer 2002 Carney Badley Spellman Court directs town to honor Carney contract Carney attorney John Dippold recently beat the hometown favorite by getting a judge in a small Alaska community to rule in favor of a Carney client and against the town. The town had sued our client over a product defect but was refusing to honor the terms and conditions of the contract which were drafted by Carney attorneys. The contract limited the manufacturer’s liability to the amount of the contract and required binding arbitration in Seattle. The judge directed that the town must submit to arbitration in Seattle rather than litigate in Alaska. ✍ Success at the Alaska Supreme Court Carney attorney Craig Holley prevailed before the Alaska Supreme Court and will proceed to a trial on our client’s $500,000 claim. The client provided the metal decking for a hospital project in Alaska at Elmendorf Air Force Base. Design problems caused the project to go forward out of sequence resulting in additional costs for our client. Because the project was funded by the federal government, suit was filed against the general contractor in federal court. The case was dismissed on summary judgment because the client was not licensed in Alaska. The case was refiled in Alaska state court and again was dismissed on summary judgment.The case was appealed to the Alaska Supreme Court where the lower court’s decision was reversed on all grounds. A trial on the merits was ordered and fees were awarded to our client. ✍ Favorable verdict in tree-topper case Carney litigator John McDowall recently received a favorable verdict in a timber trespass case for a PEMCO insured. The plaintiffs claimed that our clients cut the top of a 45-foot tree bordering their properties and demanded that plaintiffs pay over $7,500 to replace the tree, treble damages of $15,000 under the Timber Trespass Statute, and attorney fees. The arbitrator awarded the plaintiffs $6,000 and no treble damages or attorney fees, after the plaintiffs had refused a settlement offer of $9,750. McDowall has handled several cases regarding the unlawful cutting of trees and vegetation. ✍ If you would like to receive your copy of the newsletter by email instead of in print, please email that choice to beebe@carneylaw.com. You can also provide us with names and means of delivery for friends and colleagues who would appreciate receiving Washington Law UPDATE. Past issues are available on our website at www.carneylaw.com. 16