Washington Supreme Court Affirms Brightwater Decision Regarding Application of Olympic Steamship to Sureties

by Stoel Rives LLP

On July 6, 2017, the Washington Supreme Court confirmed that the equitable rule announced in Olympic Steamship—providing for attorney fees where the insurer compels the insured to take legal action—applies to performance bond sureties on public projects.[1]  In King County v. Vinci Construction Grands Projects/Parsons RCI/Frontier-Kemper, the Court affirmed the trial court’s award of over $14 million in attorney fees and costs against sureties of a public works contract.[2]

In 2006, King County contracted with a joint venture of three construction companies to build the piping/conveyance system for the new Brightwater wastewater treatment project.  The joint venture contractor submitted a performance bond from five surety companies.  Under the contract, if the contractor was in default, the sureties were obligated to step in and remedy the default.  When the project was delayed, King County declared the contractor in default and asked the sureties to cure.  They refused, claiming that the contractor was not in default.

At trial, the sureties adopted the contractor’s defense that no default had occurred. The jury, however, sided with King County, awarding $130 million in damages (the largest commercial jury verdict in Washington state history) against the contractor and sureties, jointly and severally.  Relying on Olympic Steamship and Colorado Structures,[3] which applied the Olympic Steamship rule to sureties, the trial court awarded over $14 million in attorney fees and costs against the sureties (believed to be the largest attorney fee award in Washington history).  The trial court rejected the sureties’ argument that King County’s fees should be allocated between “contractor” and “surety” issues on the ground that, by adopting all of the contractor’s defenses, the sureties had prevented such an allocation.

The contractor and sureties appealed the award of fees, arguing that RCW 39.04.240[4] provided the exclusive fee remedy for public works contracts, thus barring the equitable rule announced in Olympic Steamship.  They further argued that, even if Olympic Steamship applied, the fees should be segregated between the contractor and surety claims.  The Washington Court of Appeals affirmed the trial court’s judgment in its entirety.[5]  The Washington Supreme Court granted the sureties’ petition for review.[6]

The Supreme Court held that the rule announced in Olympic Steamship applied to the suretyship context, affirming its prior plurality opinion in Colorado Structures.  Moreover, the Court held that the fee remedy in RCW 39.04.240 did not exclude other remedies in public works contracts.

Thus, the Court affirmed the award of fees because King County was forced to assume the burden of legal action to obtain the benefit of the performance bond. Moreover, the trial court did not abuse its discretion in declining to segregate the attorney fees because the sureties adopted the entirety of the contractors’ defenses against breach, and the issues of breach and coverage under the bond shared a “common core of facts.”

This case has important implications for contractors and performance bond sureties. Sureties will face the prospect of attorney fees in cases where, as here, the owner is compelled to take legal action to obtain the benefit of the bond.  Moreover, sureties may be jointly and severally liable for the full award of fees where the breach and coverage claims are intertwined and indistinguishable.

Congratulations to the construction and design, litigation, and appellate teams at the Seattle office of Stoel Rives LLP for their impressive work on this historic decision.

[1] Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991) (plurality opinion).

[2] King Cty. v. Vinci Constr. Grands Projects/Parsons RCI/Frontier-Kemper, No. 92744-8, 2017 WL 2876138 (Wash. July 6, 2017) (en banc).

[3] Colo. Structures, Inc. v. Ins. Co. of W., 161 Wn.2d 577, 598, 167 P.3d 1125 (2007).

[4] RCW 39.04.240 applies the attorney fee award provisions of RCW 4.84.250 through RCW 4.84.280 to public works contracts.

[5] King Cty. v. Vinci Constr. Grands Projects/Parsons RCI/Frontier-Kemper, 191 Wn. App. 142, 184, 189, 364 P.3d 784 (2015).

[6] King Cty. v. Vinci Constr. Grands Projects/Parsons RCI/Frontier-Kemper, 186 Wn.2d 1008, 380 P.3d 459 (2016).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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