Jonathan Schirmer | Ahlers Cressman & Sleight
A recent decision by Division I of the Washington Court of Appeals in Puget Sound Energy, Inc v. Pilchuck Contractors, Inc.[1] demonstrates the broad application of the construction statute of repose to work performed by contractors.
The construction statute of repose[2] bars certain legal claims based on construction activity if the alleged harm caused by the activity does not occur within a specific timeframe. The claims covered by the construction statute of repose include:
all claims or causes of action of any kind against any person, arising from such person having constructed, altered, or repaired any improvement upon real property, or having performed or furnished any design, planning, surveying, architectural or construction or engineering services, or supervision or observation of construction, or administration of construction contracts for any construction, alteration or repair of any improvement upon real property.[3]
The statute of repose bars any cause of action based on the above which has not accrued within six years after substantial completion of construction.[4]
Puget Sound Energy, Inc. (PSE) is a public utility that provides electricity and natural gas service to the Puget Sound region. In 2001, PSE and Pilchuck Contractors (Pilchuck) entered into a services agreement under which Pilchuck agreed to perform construction, operations, and maintenance projects for PSE. The contract contained an indemnity clause requiring Pilchuck to indemnify and hold harmless PSE from any and all claims or losses arising from Pilchuck’s conduct as PSE’s contractor.
In 2004, PSE contracted with Pilchuck to perform work to install new gas lines in Greenwood, Seattle and to cut and cap the existing lines Pilchuck submitted a work notification card to PSE which indicated the existing gas lines had been retired. This notification was then entered into PSE’s master map of gas service lines to indicate the service line no longer existed. Pilchuck then finished its work and was paid in full.
Fast forward to March 2016, when gas leaked from the line and ignited, causing an explosion that destroyed several businesses. The Washington Utilities and Transportation Commission (WUTC) performed an investigation and determined the gas leak was caused by physical damage to the gas service line. The WUTC determined that the service line had not been cut and capped as documented by PSE’s contractor, and that the explosion would not have occurred but for PSE’s improper abandonment of the service line in 2004.
In 2018, PSE filed suit against Pilchuck alleging Pilchuck was required to indemnify PSE for its costs stemming from the explosion. Pilchuck moved for summary judgment arguing that PSE’s claims were barred by Washington’s construction statute of repose which bars claims arising from construction of any improvement on real property that have not accrued within six years after substantial completion of construction.[5] The trial court agreed and granted summary judgement for Pilchuck.
PSE appealed on several grounds. The Court of Appeals rejected every argument set forth by PSE and upheld the application of the statute of repose to bar PSE’s indemnity claim against Pilchuck.
First, PSE argued that because Pilchuck had not actually completed its work of deactivating the gas line, it had not performed an “improvement on real property” and thus could not avail itself of the statute of repose to bar PSE’s claim against Pilchuck.
The Court of Appeals disagreed, stating “The fact that Pilchuck did not complete that work does not change the status of gas service lines as an ‘improvement upon real property’ for purposes of the statute of repose.” The Court of Appeals relied on the intent of the legislature to broadly apply the statute of repose to protect contractors such as Pilchuck. The Court held that because PSE contracted with Pilchuck to perform work which constituted an improvement on real property, the statute of repose applied, despite the fact that the work was not performed.
Second, PSE argued that Pilchuck’s act of submitting a work report which indicated the work had been performed did not fall within the construction statute of repose since this constituted reporting activity and not ‘improvements to real property’. The Court of Appeals again disagreed, finding that because the reporting activities arose from the construction activities Pilchuck was hired to perform and were required by the services agreement between PSE and Pilchuck, the reporting activity was covered by the statute of repose.
Third, PSE argued that the statute of repose did not apply because Pilchuck did not deactivate the gas lines and thus never substantially completed its work on the gas service line necessary to trigger the running of the six-year period in the statute of repose. The Court again disagreed, relying on the statue’s definition of substantial completion as “the state of completion reached when an improvement upon real property may be used or occupied for its intended use.”[6] Based on this definition, the Court found that Pilchuck had substantially completed its work on the gas lines since the gas lines were no longer being used to provide gas and PSE treated the gas lines as retired, even though Pilchuck had not actually completed the work to retire the lines.
Finally, PSE sought to have the Court create a fraud exception to the statute of repose that would bar application of the statute where evidence of fraud existed. Citing the legislature’s intent to broadly apply the statute of repose, the Court of Appeals declined to create a fraud exception to the statute of repose and deferred to the legislature for the possible creation of such an exception.
Comment: With this decision, the Court of Appeals further expanded the application of the construction statute of repose by finding that even where work is not performed as claimed by the contractor, the statute of repose will bar claims against the contractor as long as the work at issue was at least contracted for. The Court of Appeals also signaled that it will strictly adhere to the language of the Statute of Repose and refuse to create any exceptions to the application of the doctrine absent action from the state legislature.
[1] 2020 WL 6395578.
[2] The statute of repose differs from a statute of limitations. A statute of limitations sets a deadline to file suit based on when a party suffered an alleged injury or harm. A statute of repose creates an absolute bar on claims after the passage of a set amount of time.
[3] RCW 4.16.300.
[4] RCW 4.16.310.
[5] RCW 4.16.300.; RCW 4.16.310.
[6] RCW 4.16.310.