Kenco Construction, Inc., Resp v. Porter Brothers Construction, Inc., Et Ano, Apps

• Court: Court of Appeals of Washington
• Decided: June 11, 2018
• Docket: 74069-5
• Status: Unpublished

Opinion

FILED CURT OF APPEALS, DIV I STATE OF WASHINGTON

2018 JUN 1 1 A1110: 30

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

KENCO CONSTRUCTION, INC., a ) No. 74069-5-1 Washington Corporation, ) ) DIVISION ONE Respondents, ) ) UNPUBLISHED OPINION v. ) ) PORTER BROTHERS CONSTRUCTION, ) INC., a Washington Corporation; ) ) Appellant. ) FILED: June 11,2018 ) ) BEMO USA CORPORATION, ) ) Plaintiff, ) ) v. ) ) KENCO CONSTRUCTION, INC., a ) Washington Corporation; RLI ) INSURANCE COMPANY (Bond No. ) SSB397726), ) ) Respondents, ) ) PORTER BROTHERS CONSTRUCTION, ) INC., a Washington Corporation; ) HARTFORD FIRE INSURANCE ) COMPANY (Bond No. 52BCSD1578), a ) foreign corporation; ) ) Appellants, ) ) HIGHLINE PUBLIC SCHOOL DISTRICT ) NO. 401, a public school district; ) ) Defendant. ) ) No. 74069-5-1/2

) KENCO CONSTRUCTION, INC., a ) Washington Corporation, ) ) Respondent, ) ) v. ) ) HARTFORD FIRE INSURANCE ) COMPANY (Bond No. 52BCSD1578), a ) foreign corporation; ) ) Appellant, ) ) HIGHLINE PUBLIC SCHOOL DISTRICT ) NO. 401, a public school district; ) ) Defendant. )

) TOTEM ELECTRIC OF TACOMA, INC., a ) Washington Corporation, ) ) Respondent, ) ) v. ) ) PORTER BROTHERS CONSTRUCTION, ) INC., a Washington Corporation; ) HARTFORD FIRE INSURANCE ) COMPANY (Bond No. 52BCSD1578), a ) foreign corporation; ) ) Appellants, ) ) HIGHLINE PUBLIC SCHOOL DISTRICT ) 'NO. 401, a public school district; ) ) Defendant. ) ) APPELWICK, C.J. — General contractor, Porter, appeals from jury verdicts in

favor of subcontractors, Kenco and Totem, and from summary judgment

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dismissing its claims against surety, RLI. We reverse the award of expert fees to

Kenco and Totem. We affirm in all other respects.

FACTS

The Highline School District No. 401 (District) entered into a contract (the

"prime contract") with Porter Brothers Construction Inc., to serve as the general

contractor to construct Raisbeck Aviation High School.

Porter entered into a subcontract agreement with Kenco Construction Inc.,

to perform roofing and paneling for $1,509,745.00. It entered into a second

subcontract with Kenco to perform window, door, and curtain installation for

$979,897.00. As part of these contracts, Kenco selected BEMO USA Corporation

as its supplier for the roofing system and related products for waterproofing. Kenco

also obtained surety bonds for each of these subcontracts from RLI Insurance

Company. The two surety bonds incorporated the subcontracts(which themselves

incorporated the prime contract).

Porter also entered into a subcontract with Totem Electric of Tacoma Inc.,

to perform electrical work for $2,862,980.00.

The project encountered numerous problems affecting both Kenco's and

Totem's work. At the start of the project, Totem discovered an undisclosed

underground power line. It needed to be rerouted to allow pilings to be inserted.

This required coordination with Seattle City Light. On October 6, 2011, the

architect provided supplemental instructions to address the issue. Rerouting of

the line was complete by December 23, 2011. This set the project back more than

60 days.

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In an effort to accelerate the project, the steel erector's work was expedited,

and made up 31 days of time. But, after the expedited steel erection, the structural

steel was outside of the project's specifications. Kenco was asked to complete

extra work to rectify the steel issue. Kenco was required to adapt to the out-of-

tolerance substrates.

However, one of the problems associated with the project was the suitability

of a building product used by Kenco. That product, a roofing underlayment

supplied by BEMO, did not work as intended. It did not properly adhere to the

structure, and therefore caused leaks. The underlayment had to be installed three

successive times to seal the building.

As Kenco was completing its work, it submitted applications to Porter for

progress payments. Kenco's President testified that Porter began withholding

progress payment funds owed to Kenco, starting on August 12, 2012.1 Problems

also arose affecting Totem. Predecessor work was not ready, the job site was not

properly prepared, and Totem was frequently forced to start and stop its work.

Totem also did not receive scheduling updates that should have been provided.

Totem sent numerous letters to Porter expressing concern over predecessor work,

the project schedule, and impacts on cost. As a result, Totem sent a number of

change order requests(CORs)to Porter.

1 Under the billing arrangement, Kenco was to submit an application for progress payments to Porter, who would make application for payment for the calendar month from the project owner, Highline. Highline was then obligated to pay Porter within 30 days, and Porter was obligated to disburse those funds to Kenco within 10 days. Given this arrangement, any funds that Porter withheld on August 12, 2012, would necessarily have been for work performed in July or earlier.

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As with Kenco, Porter made only limited progress payments to Totem. Both

subcontractors demanded arbitration as provided in the contract, but Porter

refused.

Kenco filed suit against Porter for breach of contract and to compel

arbitration, as provided for in the contract.2 Porter counterclaimed for breach of

contract, brought claims against RLI on the bond, and later amended its answer to

include bad faith claims against RLI. Totem filed a separate complaint for breach

of contract and quantum meruit, among other claims. The lawsuits were

consolidated.

A significant number of motions were heard prior to trial. Porter again

opposed arbitration, and the trial court found that arbitration was not proper due to

the presence of nonparties to the contract.3 .

The trial was bifurcated, with the contract dispute between Porter, Kenco,

and Totem, tried first. Porter's bad faith and Insurance Fair Conduct Act (IFCA),

RCW 48.30.010-.015, claims against RLI were to be tried separately.

Kenco and Totem's theory of the case was that they were not properly

compensated for work that they dutifully performed in response to problems with

the project that were attributable to Porter. Porter's theory was that it properly

withheld progress payments, that the subcontractors failed to give proper notice of

their claims for extra compensation as required by the subcontracts, and that

2 Porter's surety, Hartford Fire Insurance Company, was named in the suit as well. But, for the purposes of our analysis, the distinction between Porter and Hartford is immaterial. We refer to them collectively as "Porter." 3 Highline was also a named defendant, but not a party to the subcontract that required arbitration. The issues on appeal do not pertain to Highline.

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Kenco caused delays. The trial court denied Porter's midtrial and posttrial motions

for judgment as a matter of law based on inadequate notice as to both Kenco and

Totem.

The jury found in favor of Kenco and Totem. It awarded $1,815,914.49 to

Kenco, and $1,124,095.06 to Totem. And, because the jury found Porter liable, it

dismissed Porter's claims against RLI on summary judgment. Therefore, no trial

on the bad faith and IFCA claims was held. The trial court awarded fees including

expert witness fees to Kenco, Totem, and RLI.

Porter appeals.

DISCUSSION

Porter seeks reversal of the entire judgment, because the trial court erred

by instructing the jury that the subcontractors need only to substantially comply

with the subcontracts' notice of claim provisions. Porter contends that the proper

standard is strict compliance with the notice requirements. And, it argues that this

instructional error "infects every aspect of the judgment." (Capitalization omitted.)

As a result, it argues that we should reverse the jury's award in its entirety.

First, the jury awarded Kenco $1,487,205.67 in payments that Porter withheld.

Porter contends that this withholding was justified, because Kenco was not timely

performing the work and delay damages were triggered. Second, the jury also

awarded $328,708.82 in extra work that Kenco performed. Porter alleges Kenco

did not give proper notice of this extra work as required by the contract. Finally,

Porter argues that the verdict in favor of Totem must also be reversed under the

same affirmative defense: lack of notice.

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In response, Kenco argues that Porter's conduct excused strict compliance

with the notice requirements. And, Totem claims that it gave proper notice, but

even if it did not, Porter's own conduct made full notice, as required by the contract,

impossible. .

Porter presents numerous other arguments: that the trial court erred by

entering inconsistent orders, by allowing the subcontractors to recover certain

types of damages, by excluding certain forms of evidence, by imposing

prejudgment interest, and by preventing Porter from recovering for concurrent

delay caused by Kenco.

Porter also argues that the trial court erred in dismissing its bad faith and

IFCA claims against Kenco's surety, RLI.

Porter, the subcontractors, and RLI all seek attorney fees. Porter also

specifically argues that the trial court erred in awarding expert fees to the

subcontractors.

I. Porter's Breach for Withheld Payments

We first address the jury's award of $1,487,205.67 of withheld payments to

Kenco. Porter concedes that it stopped paying Kenco, because it believed Kenco's

work was not satisfactory.4 Kenco argued below that this constituted a material

breach of the contract. Under the subcontract, Porter was required to disburse to

Kenco payments that it received from Highline, within 10 days of receiving that

4 The jury awarded $168,277.00 to Totem for the unpaid contract balance. Porter does not make any argument challenging this specific award.

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money from Highline. Kenco argues that Porter failed to do so, and thus was in

material breach of the contract for withholding those payments.

The jury heard testimony from Kenco's president that Porter began

withholding payments on August 12, 2012, only four days after CCD (construction

change directive) 053 was issued. Any billed payment due on August 12 would

logically have been for work performed in previous months. For these withheld

payments, Kenco asked the jury for $1,487,205.67. The jury awarded Kenco that

full amount.5 Thus, the jury fully adopted Kenco's arguments that a breach of

contract occurred and that the withheld payments began on August 12, 2012.

Porter contends that even if the jury did find that it was in breach of contract,

the trial court erred by instructing the jury that Porter could not recover for

concurrent delay caused by Kenco. But, question 13 of the verdict form asked the

jury to determine whether "Kenco breached its subcontracts by causing delays to

the project." The jury found in favor of Kenco on this question. This means that

the jury found Kenco did not breach by causing delays. Because the jury found

that Kenco did not breach, it necessarily would not have apportioned any

responsibility for the delay or any damages to Kenco. A jury instruction error is

reversible error only if it prejudices a party. Anfinson v. FedEx Ground Package

Sys., Inc., 174 Wn.2d 851, 860, 281 P.3d 289(2012). Thus, regardless of whether

the instruction should have been given, the jury instruction could not have

prejudiced Porter, and is not grounds for reversal.

5 Porter's brief acknowledges that Kenco was seeking the amount that the jury ultimately awarded for withheld payments.

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We reject Porter's argument on concurrent delay and we affirm the jury's

verdict regarding the $1,487,205.67 withheld payments.

II. Notice of Claims Based on Extra Work

The jury awarded Kenco $328,708.82 for unpaid work pursuant to CCD 053

and change orders. It also awarded Totem $884,357.00 in labor inefficiency

damages, in addition to damages for the unpaid contract balance, and damages

for the unpaid change orders. Porter does not argue that the subcontractors failed

to perform the work or that the extra work was deficient. Instead, it simply argues

that these awards must be reversed because the failure to provide notice as

required under the contract is a failure to satisfy a condition precedent to recovery.

The subcontracts required Kenco and Totem to give Porter notice of its

intent to make a claim for extra compensation within 2 days of an occurrence that

gives rise to the claim, and a certified, detailed statement of its claim within 30 days

after that written notice. The subcontracts clearly refer to these as a condition

precedent to the right to prosecute any claim. Porter pleaded, as an affirmative

defense, that Kenco and Totem never gave such notice and never submitted a

proper claim and their recovery for the extra work is therefore barred. On appeal,

it argues that the lack of notice entitled it to summary judgment and judgment as a

matter of law on these claims. And, it argues that the trial court erred in instructing

the jury that the subcontractors need only substantially comply with the notice

requirements, because Washington law requires strict compliance with contractual

notice and claim requirements.

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A. Summary Judgment against Kenco was properly modified

Porter argues that the trial court entered an order at trial that conflicted with

an earlier summary judgment order dismissing Kenco's claims against it for lack of

notice.6 Before trial, on July 10, 2015, the trial court granted summary judgment

to Highline on Porter's cross claims against Highline that arose out of a CCD.7

Highline's motion was grounded in Porter's failure to comply with the required

notice provisions in the prime contract. Specifically, Highline argued that Kenco,

Porter's subcontractor, gave insufficient notice to Highline for the extra work that

Kenco performed, and thus Porter necessarily gave insufficient notice to Highline.

Porter had also moved for summary judgment against Kenco. August 7,

2015, the trial court granted this motion: "To the extent that Porter Brothers

Construction, Inc.'s claims against Highline School District No. 401 are barred, any

related claims made by Kenco Construction, Inc. against Porter Brothers

Construction, Inc. and Hartford Fire Insurance Company are hereby dismissed with

prejudice." (Emphasis added.) But, at trial, the court allowed Kenco to argue

claims against Porter (not Highline) arising out of CCD 053. Porter argues that

allowing Kenco to make those arguments was inconsistent with the summary

judgment order.

6 This summary judgment motion did not pertain to Totem. 7 The directive was CCD 053. While a number of directives were generated throughout the course of this complex project, this is the key CCD at issue on appeal, because the disputed changes in the scope of work arose out of this directive.

10 No. 74069-5-1/11

The trial court has the authority to interpret and enforce its own orders. Bero

v. Name Intelligence, Inc., 195 Wn. App. 170, 179, 381 P.3d 71 (2016), review

denied sub nom. Westerdal v. Name Intelligence, Inc., 187 Wn.2d 1002, 386 P.3d

1085(2017). And,"'an order which adjudicates fewer than all claims or the rights

and liabilities of fewer than all parties is subject to revision at any time before entry

of final judgment as to all claims and the rights and liabilities of all parties.'" Moratti

v. Farmers Ins. Co. of Wash., 162 Wn. App. 495, 501-02, 254 P.3d 939 (2011)

(quoting Washburn v Beatt Equip. Co., 120 Wn.2d 246, 300,823 P.2d 860(1992)).

At trial, Kenco's opening statement and questioning of witnesses related to

how much Kenco claimed for performing extra work arising out of CCD 053. Porter

objected on the basis of the earlier summary judgment ruling. Porter argued the

evidence presented was related to Highline, because the evidence of liability arose

from CCD 053, which Highline issued. Kenco explained its theory that this was

not related to notice to Highline, but to defects in predecessor work that caused

the building to not be ready for Kenco's work. Kenco stressed that it sought

recovery in quantum meruit, as well as breach of contract. Regarding its earlier

ruling, the trial court stated, "[W]hen I ruled, I had in mind that it was basically a

done deal, that because of how I had ruled with regard to the school district, I would

rule similarly with regard to Porter Brothers." The trial court also noted that "I did

not have in my mind the other potential claims." It then effectively modified its

earlier ruling and allowed the evidence.

11 No. 74069-5-1/12

This modification was warranted. Questions of fact remained regarding

recovery in quantum meruit and regarding whether Kenco could survive the notice

requirements challenge, either because compliance was excused or because it did

in fact comply. Porter fails to establish that the trial court's ruling on August 7,

2015, allowing Kenco to pursue its claims for extra work compensation against

Porter, was error.

B. Denial of Judgment as a Matter of Law against Kenco and Totem

Porter moved for judgment as a matter of law at the close of the

subcontractors' case and again after the jury verdict. It argues that the trial court

erred in denying these motions because the subcontractors provided insufficient

notice under the contract, which was a precondition to recovery. CR 50(a)(1)

authorizes a court to grant judgment as a matter of law if there is no substantial

evidence or reasonable inference to sustain a verdict for the nonmoving party.

Sing v. John L. Scott, Inc., 134 Wn.2d 24, 29, 948 P.2d 816(1997). In considering

a motion for judgment as a matter of law, a court must treat the nonmoving party's

evidence as true and draw all reasonable inferences from that evidence in favor of

the nonmoving party. Hill v. BCTI Income Fund I, 144 Wn.2d 172, 187-88,23 P.3d

440(2001), abrogated on other grounds by Mikkelsen v. Pub. Util. Dist. No. 1, 189

Wn.2d 516, 404 P.2d 464 (2017). Review is de novo. Id. at 187.

"The general rule with respect to compliance with the terms of a bilateral

contract is not strict compliance, but substantial compliance." DC Farms, LLC v.

Conagra Foods Lamb Weston, Inc., 179 Wn. App. 205, 220, 317 P.3d 543(2014).

However, Porter argues that the contractual notice of claim clause at issue here is

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a condition precedent to a claim and requires strict compliance under Mike M.

Johnson, Inc. v. Spokane County, 150 Wn.2d 375, 386, 78 P.3d 161 (2003). In

that construction dispute, Johnson informed the county that it would be performing

extra work beyond Johnson's contract and expected to be paid for that work, but

gave little further detail. See id. at 378, 381, 383, 384. Johnson's president

"admitted he knew of the protest and claim provisions but could not say whether

he actually complied." Id. at 384. The Supreme Court addressed whether "actual

notice" of a contractual claim for extra work acts as an exception to compliance

with mandatory notice of claim provisions under a contract. Id. at 386. It held that

it did not. Id. at 391.

In Weber Construction, Inc. v. Spokane County, 124 Wn. App. 29, 32, 34-

35, 98 P.3d 60 (2004), on summary judgment the court addressed excuse from

compliance with a contractual notice requirement that functioned as a condition

precedent. Weber sued for additional compensation for extra work, but the county

argued that it was not liable for that compensation because Weber did not adhere

to the notice requirements in the contract. Id. at 31. First, the Court of Appeals

held that Weber's failure to adhere to the notice requirements was excused,

because that failure was caused, at least in part, by the county's failure to

cooperate.8 Id. at 35. Second, it held that the county waived compliance with the

8 Johnson also discussed the requirements of waiver:

Washington law generally requires contractors to follow contractual notice provisions unless those procedures are waived. A party to a contract may waive a contract provision, which is meant for its benefit, and may imply waiver through its conduct. Waiver by

13 No. 74069-5-1/14

notice requirement through this conduct. Id.; see also Bignold v. King County, 65

Wn.2d 817, 825-26, 399 P.2d 611 (1965) (upholding quantum meruit award in

favor of contractor, even when strictly proper notice was not given, when conduct

of the county required contractor to perform extra work). The subcontractors rely

on these two principles from Weber for why judgment as a matter of law was not

appropriate.

1. Strict Compliance Regarding Notice

Porter argues that Kenco and Totem failed to give timely, adequate, certified

notice of its claims, which was a condition precedent to Kenco's and Totem's right

to seek an extension of time and costs, and therefore it was entitled to judgment

as a matter of law. In response, Kenco and Totem argue that, viewing the facts of

notice in the light most favorable to the subcontractors, a jury could reasonably

rule in their favor. Porter relies on Johnson in arguing that compliance with notice

provisions is a condition precedent to enforce the subcontractors' rights to seek an

extension, extra costs, or to bring a lawsuit under the contract.

Porter correctly describes Johnson, however, we find Johnson

distinguishable on these facts. In Johnson there was no discussion of the party

claiming lack of notice being in breach of contract. See 150 Wn.2d at 396. A party

is barred from enforcing a contract that it has materially breached. Rosen v.

Ascentry Techs., Inc., 143 Wn. App. 364, 369, 177 P.3d 765(2008). Here, Kenco

conduct, however, "requires unequivocal acts of conduct evidencing an intent to waive."

150 Wn.2d at 386 (internal citations omitted)(quoting Absher Constr. Co. v. Kent Sch. Dist. No. 415, 77 Wn. App. 137, 143, 890 P.2d 1071 (1995)).

14 No. 74069-5-1/15

asserted Porter materially breached the contract first, and evidence to support

such a finding had been presented to the jury at the time the trial court denied the

motion midtrial. If the jury found that Porter was first to materially breach the

contract, Porter would have no authority to enforce compliance to the contract's

strict notice requirements. The jury found Porter breached the contract, but not

Kenco. Denial of Porter's motions for judgment as a matter of law as to Kenco on

failure of the notice condition precedent was not error.

With respect to Totem, if liability under a contract depends upon a condition

precedent one cannot avoid his liability by making the performance of the condition

precedent impossible. Refrigeration Eng'g Co. v. McKay, 4 Wn. App. 963, 970,

486 P.2d 304 (1971). Totem gave notice to Porter that it could not stay on

schedule and budget, because other contractors' work was not complete. That

notice was not followed within 30 days by a revised schedule or cost estimate for

Totem's additional work, which strict compliance would require. But, evidence was

admitted showing that it was impossible for Totem to provide a revised schedule

or to accurately estimate additional costs without a recovery plan from Porter

showing when other contractors would complete their work. The evidence also

showed that, as the general contractor, only Porter could control the work of other

trades or provide and update a recovery schedule. But, Porter did not provide the

schedule updates or recovery plan that Totem requested. From this evidence, a

jury could find that Porter prevented Totem from complying strictly with the notice

requirements, and therefore could conclude that Totem was excused from the

condition precedent to making its claim. Denial of Porter's motions for judgment

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as a matter of law as to Totem on the issue of compliance with the condition

precedent was not error.

2. Jury Instructions on Notice

Appellate courts review a challenged jury instruction de novo, within the

context of the jury instructions as a whole. Gregoire v. City of Oak Harbor, 170

Wn.2d 628, 635, 244 P.3d 924 (2010). Porter argues that the instructions erred

by (1) placing the burden on Porter to prove that the subcontractors did not give

notice, and (2) instructing that the subcontractors were only required to

substantially comply with the contractual notice requirements.

a. Jury Instruction on Burden of Proof as to Notice

First, Porter argues that the trial court erred in giving instruction 19 and 22,

because those instructions imposed the burden of proof on Porter to show that the

subcontractors did not comply with the notice requirements.9 On the one hand,

Washington law ordinarily requires that, when a defendant's obligation is subject

to a condition precedent to be performed by the plaintiff, the plaintiff must prove

that he or she satisfied, or was excused from performing, that condition. Puget

9 Kenco and Totem argue that Porter failed to preserve its arguments on instructions 19 and 22 regarding the burden of proof and good faith efforts. Instructions 19 and 22 contained virtually identical language, but instruction 19 applied to Kenco and instruction 22 applied to Totem. We find that the arguments on these instructions were preserved. When the parties were discussing jury instructions, Porter stated to the trial court, "I'd rather that that language about good faith not be in there at all," and "Well, the problem with this now is that their [sic] shifting the burden of proof." This shows that Porter argued to the trial court on the issues of good faith and the allocation of the burden. Porter also challenges instruction 24. However, the language on waiver that it argues is required was, in fact, contained in instruction 24. We address it no further.

16 No. 74069-5-1/17

Sound Serv. Corp. v. Bush, 45 Wn. App. 312, 316, 724 P.2d 1127 (1986). But,

Washington law also ordinarily requires that the defendant prove any affirmative

defenses that he or she alleges. See Kastanis v. Educ. Emp. Credit Union, 122

Wn.2d 483, 493, 859 P.2d 26, 865 P.2d 507 (1993). And, here Porter pleaded

"failure to comply with contractual and statutory notice and claims requirements"

as an affirmative defense.1° Porter therefore assumed the burden to prove this

affirmative defense. The jury instructions, like Porter's own answer to the

complaint, referred to the lack of notice argument as an affirmative defense. The

trial court did not err in requiring Porter to prove an affirmative defense that it

alleged.

b. Instructing on Substantial Compliance Rather than Strict Compliance

Porter argues that instructing on substantial compliance with notice, rather

than strict compliance required by the condition precedent, was error. Porter

argues that jury instructions 19 and 22 were therefore a misapplication of Johnson

and Weber. We disagree.

As discussed above, Johnson would not control if there was a first breach

by Porter. Kenco submitted sufficient evidence of Porter's prior breach of contract

to warrant instructing the jury on substantial compliance. And, the Weber court

found that judgment as a matter of law was not warranted, because, viewing the

evidence in the light most favorable to Weber, the county did not provide enough

information for Weber to be able to give strict notice of extra costs. 124 Wn. App.

10 Porter did not use identical language in its separate answers to Kenco and Totem. But, it pleaded lack of contractually required notice as an affirmative defense in both.

17 No. 74069-5-1/18

at 35. Although Weber analyzed the issue under a substantial evidence standard,

the law underlying that holding is that interfering with a party's ability to give notice

excuses strict compliance. See id. at 35-36; see also Refrigeration Eng'g Co., 4

Wn. App. at 970-71. And, Totem presented sufficient evidence to warrant giving

the jury instruction.

Turning to the specifics of the instructions here, instructions 19 (regarding

Kenco), and 22 (regarding Totem) explicitly informed the jury that it may find in

favor of Porter if three elements were met:(1) Porter performed its obligations,(2)

the subcontractors failed to make good faith efforts, and (3) the subcontractors

"materially breached one or more of [their] contractual obligations claimed by

Porter."

Porter had the opportunity to argue that Kenco and Totem breached the

contract by not strictly complying with the notice and claim requirements for extra

work. Kenco and Totem had the opportunity to argue that they were excused from

the contractual duty to meet the condition precedent and only had to substantially

comply with the contract's notice requirements to submit their claims. Jury

instructions are sufficient if they allow each party to argue its case, are not

misleading, and properly inform the jury of the applicable law when read as a

whole. Rekhter v. Dep't of Soc. & Health Servs, 180 Wn.2d 102, 117, 323 P.3d

1036 (2014). The jury instructions and verdict form adequately allowed the parties

to argue their case.

18 No. 74069-5-1/19

C. Sufficient Evidence to Find Substantial Compliance

Both Kenco and Totem provided sufficient evidence that they substantially

complied with the notice provisions of the contract to warrant instruction to the jury.

First, with respect to Kenco, Porter notified Kenco via e-mail that additional

work orders were forthcoming. On August 1, 2012, Kenco submitted to the

architect and Porter request for information (RFI) 307, which requested further

guidance on whether and how to proceed with modification to the substrates. On

August 8, 2012, the same day that Highline issued CCD 053, a Porter employee

e-mailed a Kenco employee that "CCD 053 forthcoming for additional work." The

Kenco employee responded,"How do you want me to provide notification that we

will plan on providing the additional work required on a T[ime] & M[aterials] basis?

This is really going to be a moving target with ongoing impacts." Porter

acknowledged this, and instructed Kenco as follows:

This is how we will be proceeding with CCD 053 "roof shimming" on a time and materials basis. . . . Please keep daily timesheets with hours/material/equipment used to do this corrective work. This complete, corresponding CCD work can be billed monthly with billing statement according to the % of the CCD work complete through the end of the month. Please keep daily records of the CCD work. . . .

Can you give me a NTE [(not to exceed?

Kenco responded that its not-to-exceed amount was $1,500,000.00. Days later,

Porter informed the project architects that the forecasted cost of the extra work

would be $1,500,000.00, ostensibly adopting the amount given by Kenco.

Porter did not object that the extra work would be billed on a time and

materials basis, and that the costs would not exceed $1,500,000.00. The purpose

19 No. 74069-5-1/20

of the contract's notice provisions were met: to identify any potential disputes over

changes that might arise and resolve them before the work was performed. A jury

could conclude that the correspondence was substantial compliance with the

notice requirements for the extra work.

In April 2013, when Kenco submitted a billing statement to Porter for its

extra work, it was rejected, not because Kenco failed to comply with the notice

requirements. Instead, the architect objected to the bill's inclusion of costs related

to the remediation of the defective membrane, among other items. Kenco

resubmitted the bill. At this point, the issue was not whether the claim was barred

due to failure to comply with notice and claim requirements in advance of

performing the work, but whether the billing for the extra work was correct. The

subcontract directed such disputes to be resolved in arbitration, which Kenco

sought. But, Porter resisted, because of the presence other parties and issues.

The jury ultimately resolved the question.

With respect to Totem, on September 24, 2012, Totem employee Jason

Riley asked Porter for an updated schedule. Porter responded that it would

provide one by the end of the week. 8 Porter subsequently told Riley that it was

deliberately not providing Totem with an updated schedule. Then, on October 3,

2012, Totem received a letter, including and updated project schedule,from Porter

stating that Porter intended to provide monthly schedule updates. But, Riley

testified that Totem questioned the accuracy of the dates on that schedule and did

notreceive additional schedule updates.

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On October 8, 2012, Totem sent a letter to Porter. That letter stated (1)that

a substantial portion of other contractors' work scheduled to be completed by that

point was not in fact complete, (2) that these delays were affecting Totem's

schedule and costs,(3) that the subcontract requires Totem to give Porter notice,

and (4) that "the purpose of this letter is to ensure that you have timely notice of

these issues and the fact that Totem could be impacted."

Totem sent a second notice letter to Totem on November 1, 2012, listing

the specific incomplete work items that were affecting Totem's ability to perform its

work. The November 1 letter also stated that it was intended to provide Porter

notice of Totem's costs and delays.

Totem sent another notice letter to Porter on November 28, 2012. That

letter informed Porter again of the increased costs and timeline, and expressed

Totem's concern that it had not received a recovery plan or project schedule

updates that Porter had promised. And, as a result, Totem was limited in its ability

to estimate its own revised schedule and costs. The letter closed by stating,

"Please understand that even though Totem may experience impact costs and

delays, it is Totems [sic] intention to continue to work with and cooperate with

Porter Brothers in the effort to complete this project successfully." Absent a

recovery plan or updated schedule, Totem was limited in its ability to provide

further details. Totem followed up with a similar letter, with even more detail about

the ongoing problems, on December 11, 2012.

Kenco and Totem presented sufficient evidence for a jury to conclude that

they substantially complied with the contractual notice and claim provisions. The

21 No. 74069-5-1/22

jury instructions properly allowed the parties to argue their theory of the case. The

jury instructions properly allocated the burden of proof as to the affirmative

defenses alleged.

III. Scope of Damages

Porter assigns error to the damages awarded in two ways. First, it argues

that the trial court erred in allowing Kenco to recover compensation for losses due

to the delay," even though Kenco did not present evidence required by the

contract as to how the project's critical path was affected. Second, it argues that

the trial court erred in allowing Totem to recover damages using the total cost

method.

A. "Delay" Damages for Kenco

Porter argued pretrial in a motion in limine that Kenco was bound by the

contract provision that required the contractor to explain to the owner how a delay

affected its critical path before collecting damages for that delay. The trial court

denied this motion. Porter claims this was error.

The prime contract stated that time extensions and damages were limited

to those that change the project's critical path. Kenco's subcontracts incorporated

the prime contract. The subcontract allowed Kenco to collect damages due to

delay "only upon the same terms and conditions and only to the extent actually

allowed to Contractor by Owner." Thus, Porter argues that Kenco was required to

show how the alleged breach affected the critical path, which it claims it did not do,

11 Porter refers to these delay damages as "impact damages."

22 No. 74069-5-1/23

before collecting such damages. Section 13 of the subcontract provides liquidated

damages for "delay or interference." Kenco did not produce a critical path analysis.

Porter's argument fails for two reasons. First, for the same reasons that

Porter's first breach prevented it from enforcing the strict notice and claim

provisions, it also prevents enforcement of a delay damages limitation.12 Second,

even if the trial court should have excluded delay damages, Porter fails to establish

that Kenco's claimed damages were "delay" damages as contemplated by the

contract. Kenco's April 2013 billing sent to Porter included a single line item of

$386,488.99 for "[s]chedule delays and other impacted costs."13 But,

notwithstanding the caption on the billing letter, Kenco did not seek liquidated delay

damages under section 13. It sought actual damages necessitated by project

changes, not merely pay for additional days to completion. Thus, the failure to

present critical path evidence was of no consequence. And, the jury verdict form

did not contain a specific option to award delay damages.

The trial court did not err in allowing Kenco to present the damages

evidence.

12 Porter cites to a federal case from the Federal Court of Claims, where a party was precluded from recovering when it did not present a critical path analysis. Mega Const. Co, Inc. v. United States, 29 Fed. Cl. 396, 435 (1993). But, the trial court cited to federal case law in imposing the critical path requirement. Id. at 424- 25. It did not address the critical path requirement as a strictly contractual mandate. See id. Moreover, it did not address the extent that a complaining party's own breach affects the necessity of a critical path analysis. See id. And, Porter cites no Washington authority that presents grounds for reversal. 13 Furthermore, it is unclear whether the jury even awarded for this amount of claimed damages. The "schedule delays and other impacted costs" amounted to $386,488.99. In its April 11, 2013 demand to Porter, Kenco demanded $636, 281.99 for extra work. In closing argument, Kenco asked for $1,042,784.25 for extra work. But, the jury awarded only $328,708.92 for extra work.

23 No. 74069-5-1/24

B. Total Cost Damages for Totem

Porter contends that the trial court erroneously denied its motion for

judgment as a matter of law to foreclose Totem from using the total cost method

to calculate its damages.

The total cost method of proving damages consists of subtracting the bid

on the project, or the estimated cost of completion, from the actual total cost.

Seattle W. Indus., Inc. v. David A. Mowat Co., 110 Wn.2d 1, 6, 750 P.2d 245

(1988). This approach has been termed a "last resort" method of determining

damages, and is sometimes permitted only where no better method of proof of

damages is available. Id. "Once the fact of damage has been established by a

preponderance, the plaintiff is obligated to produce only the best evidence

available which will afford the jury a reasonable basis for estimating the dollar

amount of his loss." Id. "So long as the jury is not left to speculate or conjecture,

it has wide latitude in calculating damages."14 Id.

The trial court instructed the jury that it may award total cost damages, as

Totem urged, if the four elements were met:15

14 Porter presents foreign authority where courts have urged extreme caution in using the total cost method. See, e.g., John F. Harkins Co., Inc. v. School Dist. of Philadelphia, 313 Pa. Super 425, 433, 460 A.2d 260 (1983) (observing that the total cost method "should be used only when the circumstances are exceptional"). But, the first element in the instructions given here required that there be no other reasonable method by which to track Totem's losses. This, in and of itself, allows such damages in only exceptional circumstances. 15 Porter does not argue that the jury instruction on total cost damages misstated the law. Rather, it argues that the court should have granted its CR 50 motion for judgment as a matter of law to dismiss the total cost calculation method, because the facts did not satisfy the applicable elements.

24 No. 74069-5-1/25

(1) There was no other reasonable method by which to track Totem's direct actual losses on the Project;

(2) Totem's bid was reasonable;

(3) Totem's actual costs were reasonable; and

(4) Totem has subtracted from its claim costs that were unreasonable or caused by its own errors.

The jury ultimately awarded Totem $884,357 in damages.16

Porter argues that denying its motion for judgment as a matter of law on the

total cost method was improper, because (1) Totem's damages were subject to

contractual limitation of liability, and (2) Totem could not meet the first and fourth

total cost elements. In considering a motion for judgment as a matter of law, a

court must treat the nonmoving party's evidence as true and draw all reasonable

inferences from that evidence. Hill, 144 Wn.2d at 187-88. Review is de novo. Id.

at 187.

1. Applicability of Contractual Damage Limitations

Porter claims that the total cost method was not warranted, because it is not

part of the damages provided for in the contract. First, it points to section 13 of the

subcontract. That section provides liquidated damages for "delay or interference."

But, as Totem points out, Porter's own expert, Jerry Hainline, explicitly

distinguished Totem's inefficiency claims from delay claims:

Q. This Totem claim, what type of a claim is it? Is it an inefficiency claim, or is it a delay claim?

A. It's an inefficiency claim.

16 The verdict form did not explicitly identify which damages calculation method that the jury used.

25 No. 74069-5-1/26

Hainline's testimony distinguished delay claims, which section 13 applies

to, from inefficiency claims. Section 13 of the subcontract did not make any

mention of inefficiency claims, and thus did not bar them. And, this reading is

supported by section 13's consistent referral to increments of time and extensions,

which would typically be associated with a delay claim, rather than the costs

associated with an inefficiency claim.

Second, Porter argues that section 8.3.3.3 of the prime contract also bars

total cost damages. That section states that "ftlhe contractor shall not in any event

be entitled to damages arising out of actual or alleged loss of efficiency; . . . impact

damages including cumulative impacts; or similar damages." (Bold face omitted.)

Porter stresses that § 5.3.1 of the prime contract generally imposes the same

rights and obligations from subcontractor to contractor, as it does from contractor

to owner.17 This provision in the prime contract may well prevent a subcontractor

from collecting loss of efficiency damages against an owner, but it does not bar

17 Section 5.3.1 states,

By appropriate agreement, written where legally required for validity, the Contractor shall require each Subcontractor, to the extent of the Work to be performed by the Subcontractor, to be bound to the Contractor by terms of the Contract Documents, and to assume toward the Contractor all the obligations an responsibilities, including the responsibility for safety of the Subcontractor's Work, which the Contractor, by these Documents, assumes toward the Owner and Architect. Each subcontract agreement shall preserve and protect the rights of the Owner and Architect under the Contract Documents with respect to the Work to be performed by the Subcontractor so that subcontracting thereof will not prejudice such rights, and shall allow to the Subcontractor, unless specifically provided otherwise in the subcontract agreement, the benefit of all rights, remedies and redress against the Contractor that the Contractor, by the Contract Documents, has against the Owner.

26 No. 74069-5-1/27

collecting such damages from the general contractor. And, the subcontract

contains no provision similar to section 8.3.3 that would apply between the

subcontractor and the general contractor.

The trial court correctly concluded these provisions do not bar Totem's

recovery for inefficiency damages. The trial court did not err in allowing Totem to

collect its total cost damages.

2. Evidence to Survive Judgment as a Matter of Law

Having determined that total cost damages were not outright barred by the

contract, we must determine whether the challenged first and fourth total cost

elements were satisfied. Here, they were.

As to the first element, expert testimony addressed the impracticability of

alternative damage calculation methods. Totem expert Bruce Black testified that

Totem's impact and inefficiency claim presented a unique challenge in quantifying

costs:

It's difficult to quantify, because for impacts, you're still doing, base contract work or work which has been quantified under other units, but you can't do it the way you're supposed to. And it's very hard to get a handle on how much -- how to exactly quantify the dollars.

When asked whether Totem was able to independently track impacts with

specificity, he testified that "[o]n a job like this, it's just impossible.. . .[W]hen you

are faced with a situation like this, your trades mensimply [sic] are not geared to

separate an impact hour from a basic hour." On appeal, Porter argues that Kenco

should have used a "measured mile" damage analysis. But, Black testified that a

measured mile analysis "was completely impracticable" for this project. Viewed in

27 No. 74069-5-1/28

the light most favorable to Totem, the jury could conclude that the first total cost

element was satisfied.

Second, the jury heard evidence that Totem subtracted any unreasonable

costs, or those caused by its own error. Totem excluded pay for man hours after

a certain date to make its claim "conservative," and to omit bills for hours on what

Black described as a "variety of straggling issues." It deducted 176 hours of what

its expert described as "non-productive hours." Viewed in the light most favorable

to Totem, the jury could conclude that Totem subtracted unreasonable costs

caused by its own errors.

The evidence was sufficient to survive judgment as a matter of law with

respect to the first and fourth elements of its claim for total cost damages.

IV. Evidentiary Issues

Porter makes two evidentiary arguments. First, it argues that the trial court

erred in excluding a letter from Kenco to BEMO as a settlement communication.

Second, it argues that the trial court erred in excluding evidence that Porter sought

to make progress payments to Kenco, but that RLI refused to waive potential

defenses in return.

A. Kenco's Liability for Defective Product

Kenco argues that the trial court abused its discretion by excluding what the

trial court viewed as a settlement offer under ER 408. The evidence in question

was a letter from Kenco to BEMO,the supplier of roof membrane product to Kenco.

The letter informed BEMO that Kenco found the membrane product to be

defective, and that it believed it had viable product liability claims against BEMO.

28 No. 74069-5-1/29

The trial court excluded the letter, and testimony regarding the letter, because, in

its view, "the context of the discussions were entirely geared towards settlement

and, therefore, should be considered conduct or statements made in compromise

negotiations as ER 408 mentions."18 Kenco argues that this was error, because

the letter contained no offer of compromise.

Under ER 408, offering or promising to compromise, or attempting to

compromise a claim, is not admissible to prove liability for or invalidity of the claim.

Evidence of conduct or statements made in compromise negotiations is likewise

not admissible.19 Id. This court reviews a trial court's decision to admit or exclude

evidence for an abuse of discretion. Salas v. Hi-Tech Erectors, 168 Wn.2d 664,

18 The trial court granted Kenco's motion in limine seeking to exclude references to the content of any settlement negotiations. The order in limine did not specifically reference the BEMO letter, or any other specific settlement evidence. The trial court excluded the BEMO letter specifically as settlement evidence once it was referenced at trial, and at the time reasoned that it fell within its order in limine on settlement evidence. 18 Porter argues that ER 408 applies only to settlement evidence offered by an offeree. Here, BEMO was the offeree, and thus Porter argues that ER 408 does not apply. But, it did make this assertion below. Moreover, the argument over reads Washington case law. Porter cites 5A Karl B. Tegland, Washington Practice: Evidence Law and Practice § 408.5, at 62 (6th ed. 2016). Tegland observes that our Supreme Court has held that ER 408 does not bar the offeror from offering settlement evidence. Id. This was the principle our Supreme Court set forth in Bulaich v. AT&T Info. Sys., 113 Wn.2d 254, 265, 778 P.2d 1031 (1989). Tegland states that this means that ER 408 bars settlement evidence introduced only by an offeree. § 408.5, at 62. This is an overstatement of Bulaich's holding, and Tegland acknowledges that "it is possible that a Washington court might reach a different result on different facts." Id. In Bulaich, the court said that the rule does not bar offerors from introducing such evidence, but it said nothing about the rule being limited to only offerees. 113 Wn.2d at 265. Rather, the policy reasons that bar offerees from introducing settlement evidence, would also apply to the third party here, Porter, from offering such evidence. Kenco may assert ER 408, even though Porter is a third party, rather than the offeree.

29 No. 74069-5-1/30

668, 230 P.3d 583 (2010). A trial court abuses its discretion if its decision is

manifestly unreasonable or based on untenable grounds. Kreidler v. Cascade

Nat'l Ins. Co., 179 Wn. App. 851, 866, 321 P.3d 281 (2014).

Porter cites favorably to Fetty v. Wenger, 110 Wn. App. 598, 36 P.3d 1123

(2001). In Fetty, Wenger hired Fetty to represent a potential heir's interests in an

estate planning matter. Id. at 599. Wenger became dissatisfied with Fetty. Id.

Over the course of 12 months, Wenger sent Fetty a request for an itemization of

his fees. Id. Fetty failed to oblige. Id. On appeal, Wenger argued that the letters

were inadmissible under ER 408, and that the trial court should have therefore

excluded them. Id. at 601-02. With little analysis, and no discussion of the specific

content of the letters, the Court of Appeals held that the letters were not subject to

ER 408 exclusion. Id. Fetty has little applicability to Porter's argument. The case

gives no details on the letters' contents. And, the court found that the trial court

admitting the letters was not error, whereas here, the issue is whether the trial

court excluding the letters was an abuse of discretion. Fetty does not control.

Here, the trial court's decision was within its discretion. The letter is not an

explicit settlement offer. And, it provides no specific amount that Kenco would be

willing to settle the product dispute for. But, the letter mentions damages: "[W]e

believe this to be a product liability issue and [that we] have legal claims against

your company and your product liability insurance for the damages noted above."

And, it continues with: "It is unfortunate that what is otherwise a good looking roof

project has lead us to this conflict and process." This language suggests intent to

come to an agreement. It goes on to "request you [BEMO] engage both your

30 No. 74069-5-1/31

insurance carrier and corporate management in resolving the multiple claims and

counterclaims across multiple parties."2° (Emphasis added.)

Presiding over this complex trial with many parties, the trial court was in the

best position to gauge whether, in context, this letter was part of settlement

negotiation. Its ruling that the letter was barred under ER 408 was not manifestly

unreasonable, and it was not an abuse of discretion.21

B. Progress Payments

Porter next contends that the trial court abused its discretion in excluding

evidence of RLI's refusal to consent to Porter releasing progress payments to

Kenco.

RLI provided Kenco's surety bond. Porter claims that it was prepared to

pay Kenco certain undisputed and limited payments. Before doing so, Porter

wanted RLI's promise that it would not use any such payment as part of an

"unauthorized payment" defense its obligations under the bond. See, e.g., City of

Tacoma v. Peterson, 174 Wash. 621, 625, 25 P.2d 1034 (1933)(discussing the

20 Moreover, the jury heard evidence that the BEMO product did not work as intended. Even if the letter was wrongfully excluded, it would have been cumulative to other evidence, because other evidence showed the delay and expense that the BEMO product caused. 21 Porter alternatively argues that the letter should have been admitted under an exception for settlement evidence that contains admissions of distinct fact. It cites one Court of Appeals case, Eagle Ins. Co. v. Albright, 3 Wn. App. 256, 264, 474 P.2d 920 (1973) for this proposition. But, nothing in the record shows that they argued this specific exception to ER 408 below. Porter also argues that the trial court should have admitted a redacted version. But, the record does not show that Porter requested redaction of the settlement letter below, even though it requested admission of other redacted documents at trial. As such, these alternative arguments are waived under RAP 2.5(a).

31 No. 74069-5-1/32

"general rule" that, a surety bond obligee must deduct from payments to the

principal any sum owed to the obligee, otherwise the surety will be discharged).

RLI refused, and reserved all rights.

Porter cites no authority to support its argument that this exclusion was in

error, or that RLI was required to accept Porter's offer. Nor does it reference any

specific contractual provisions. Instead, it simply argues that it was deprived of a

fair trial. Porter's decision to pay or not to pay may have had consequences. But,

Porter was always free to pay. RLI was not required to accept Porter's offer. To

the extent the decision not to make the payments exposed Porter to damages,

Porter did not demonstrate that RLI forced the choice on Porter, or that RLI violated

an obligation to agree to Porter's demand. The trial court's narrow ruling to exclude

evidence regarding consent was not an abuse of discretion.

V. Prejudgment Interest

Porter also argues that the trial court erred by holding Porter responsible for

prejudgment interest. Prejudgment interest is granted to compensate a party for

the loss of use of money to which he was entitled. Jones v. Best, 134 Wn.2d 232,

242, 950 P.2d 1 (1998). It "is favored in the law because it promotes justice."

Seattle-First Nat'l Bank v. Wash. Ins. Guar. Ass'n, 94 Wn. App. 744, 760,972 P.2d

1282(1999). This court reviews an award of prejudgment interest for an abuse of

discretion. Mehlenbacher v. DeMont, 103 Wn. App. 240, 250, 11 P.3d 871 (2000).

The jury verdict was entered on September 17, 2015. The parties brought

a number of motions in the months following trial. The subcontractors and RLI

brought motions for attorney fees and entry of judgment. On October 21, 2015,

32 No. 74069-5-1/33

Porter moved for judgment as a matter of law, or alternatively for a new trial. The

trial court did not rule on these motions for months. Then, on July 12, 2016, it

denied Porter's motion for judgment as a matter of law or for a new trial. It entered

judgment in favor of each of the subcontractors and RLI. However, on July 20,

2016, Porter filed a motion seeking reconsideration and vacation of the judgments,

because of the trial court's failure to promptly act. A new trial judge22 denied this

motion.

On appeal, Porter argues that the trial court erred by allowing the prevailing

parties to collect prejudgment interest for the period prior to entry of judgment. It

relies on Seattle-First, 94 Wn. App. at 761. It argues that the case stands for the

proposition that there is no basis for awarding prejudgment interest when a delay

is not attributable to the defendant.

But, that overstates the holding in Seattle-First. The prevailing party waited

four years to move for entry of judgment. Id. at 760-61. The trial court ruled that

the prevailing party had foregone its right to collect interest by not presenting its

judgment during the four years. Id. at 761. The Court of Appeals described this

delay as "unexplained" and "unreasonable". Id. It therefore affirmed the denial of

prejudgment interest. Id. It reasoned that " Washington trial judges have

discretion to disallow such interest during period of unreasonable delay in

completing litigation that is attributable to claimants.' " Id. (emphasis added)

22 The trial judge presided over the posttrial motions, except Porter's July 20, 2016, motion, which was heard by a separate judge.

33 No. 74069-5-1/34

(quoting Colonial Imports v. Carlton Nw., Inc., 83 Wn. App. 229, 245, 921 P.2d 575

(1996)).

Porter asserts that this rule means that prejudgment interest should not be

awarded unless a delay is attributable to a defendant. But, the inverse is true.

Seattle-First holds that the trial court has discretion to deny prejudgment interest if

the delay is attributable to claimants. Id. Porter makes no argument that the delay

was the result of the claimants' conduct here. And, the trial court was faced with

numerous, complex posttrial motions. Its actions may not have been prompt, but

they do not amount of an abuse of discretion. The trial court did not abuse its

discretion in awarding prejudgment interest.

VI. Claims Against RLI

Porter also appeals the trial court's dismissal of its claims against RLI for

bad faith and violation of IFCA. And, Porter argues that the trial court erred in

awarding RLI attorney fees below.

A. Relevant Facts

Kenco's subcontracts23 required surety bonds. RLI provided Kenco with

two surety bonds. The bonds stated that RLI's obligation was null and void on the

condition that Kenco promptly and faithfully performed its duties.

Porter believed that Kenco failed to satisfy its obligations under its

subcontract. On January 14, 2013, Porter tendered a bond claim to RLI

demanding that RLI step in and "immediately perform Kenco's obligations under

23 Technically, Kencohad two subcontracts: one for the roof and one for the windows, doors, and curtain walls. Therefore, RLI provided two separate bonds. The distinction between the two bonds is immaterial for this dispute.

34 No. 74069-5-1/35

its subcontracts." On April 24, 2013, RLI responded that coverage was not

warranted, because Kenco had since satisfied the demand made in January.24 On

May 29, 2014, Porter tendered a second claim to RLI for defense against claims

made by Totem, Highline, and BEMO. On July 2, 2014, RLI responded that this

second claim was not covered, because RLI had no duty to defend a bond obligee

such as Porter.25

Subsequently Porter added claims to include causes of action for common

law bad faith and violation of IFCA. However, after the jury issued their verdict

against Porter in the first trial, RLI renewed its motion for summary judgment. The

trial court granted the motion. There was no second trial on Porter's claims against

RLI. Porter argues that this was in error, because issues of material fact remained

between Porter and RLI.

B. Standard of Review

When reviewing a trial court's order on summary judgment, this court

engages in the same inquiry as the trial court. Safeco Ins. Co. of Am. v. Butler,

118 Wn.2d 383, 394, 823 P.2d 499 (1992). The court considers the facts in the

light most favorable to the nonmoving party, and summary judgment is appropriate

only if reasonable persons could reach but one conclusion. Id. at 394-95. A court

should grant summary judgment only when there is no genuine issue as to any

24 In this coverage denial letter, RLI did not concede that Kenco had ever failed to perform in any way. 25 In other words, RLI was duty bound to fulfill obligations of its principal, Kenco, but not to defend against lawsuits by third parties against the obligee, Porter.

35 No. 74069-5-1/36

material fact. Id. at 395. The court makes all reasonable inferences in favor of the

nonmoving party. Id.

Resolution of this issue requires an interpretation of the surety contract.

The undertakings of compensated sureties are regarded as in the nature of

insurance contracts, and subject to the rules applicable to simple contract law.

Colo. Structures, Inc. v. Ins. Co. of the W., 161 Wn.2d 577, 586, 167 P.3d 1125

(2007). Interpretation of an insurance contract is a question of law, reviewed de

novo. Id.

C. Insurance Bad Faith

Porter argues that RLI's two denials of coverage (in response to the first

and second claims) amount to both common law bad faith and violation of IFCA.26

Substantively, Porter argues that RLI's liability arises out of: (1)failure to conduct

a reasonable investigation, (2) failure to tender a defense when there was a

potential for a covered claim, and (3) bad faith interference with payment. And, it

argues that this alleged wrongful conduct should result in coverage by estoppel.

Before arguing the specifics of each of these three claims, Porter relies

broadly on Colorado Structures, 161 Wn.2d 577, in arguing that its status as bond

obligee gives rise to a duty flowing from RLI to Porter. Colorado Structures hired

a subcontractor, Action. Id. at 582. Action breached its contract. Id. at 583.

Colorado Structures successfully argued that it gave adequate notice to the surety

26 Porter also argues that summary judgment should necessarily be reversed on the insurance issues, if this court reverses on the contract issues. But, because we affirm the contract issues, this is not grounds for reversing the insurance issues.

36 No. 74069-5-1/37

to trigger payment on the bond. Id. at 594. However, there was no specific bad

faith claim. Instead, the substantive dispute was over adequacy of notice. See id.

Having resolved this issue, the court went on to hold that Olympic Steamship27

fees were available to Colorado Structures as a bond obligee:

The process for purchasing surety performance bonds is much like the process for purchasing insurance contracts. . .. We read Olympic Steamship as including performance bonds.

When an event occurs that arguably triggers the surety or insurance company's duty to make payments, the parties may dispute whether payment is in fact owed. The disparity of power, at this point in the relationship, is compelling. Sureties may be tempted to withhold payment in every case, gambling that the transaction costs of litigation will dissuade even a percentage of their obligees from asserting their right to payment. If the maximum risk to the surety is the penal amount of its bond, a surety has nothing to lose. The obligee has no leverage over the surety to compel payment, except litigation. If the transaction costs of litigation are too high relative to the bond, obligees will simply cut their losses.

. . . The surety, risking only the value of the bond, may be motivated to withhold payment. As our court held in Olympic Steamship, principles of equity require courts to award attorney fees to the obligee to remedy the disparity inherent to these financial relationships.

Id. at 597, 601-03.

Porter reads this holding broadly. It argues that, under Colorado Structures,

sureties are treated equally as liability insurers with respect to duties, and, thus,

bad faith. But, treating sureties equally for the purposes of bad faith goes well

beyond the facts before the court in Colorado Structures. Colorado Structures

addressed the narrow issue of Olympic Steamship fees. Porter cites no authority

that would extend this reasoning to duties of good faith to third parties. And, this

27 Olympic S.S. Co., Inc. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673(1991).

37 No. 74069-5-1/38

makes sense. Bad faith arises out of the fiduciary relationship between the insurer

and insured. Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 385, 715 P.2d

1133 (1986). Porter was not a party to the contractual relationship between RLI

and Kenco, and no fiduciary duty existed between RLI and Porter. Porter therefore

cannot pursue RLI for common law bad faith. Nor can Porter recover for any IFCA

arguments, because "nothing in the language of IFCA gives third party claimants

the right to sue." Trinity Universal Ins. Co. of Kan. v. Ohio Cas. Ins. Co., 176 Wn.

App. 185, 201, 312 P.3d 976 (2013).

Because no bad faith or IFCA duty flowed from RLI to Porter, its claims

against RLI necessarily fail. We need not address the specifics of the claim.

VII. Fees and costs

Porter argues that the trial court erred in awarding attorney fees below to

Kenco, Totem, and RLI, and erred in awarding expert fees to Kenco and Totem.

And, Porter requests fees on appeal. In response, Kenco, Totem, and RLI also

request fees on appeal.

Washington courts traditionally follow the American rule in not awarding

attorney fees and costs absent a contract, statute, or recognized equitable

exception. City of Seattle v. McCready, 131 Wn.2d 266, 273-74, 931 P.2d 156

(1997).

A. Expert Fees Below to Kenco and Totem

We first address the expert fees. The trial court awarded $282,821.43 in

expert fees to Kenco, and $65,603.20 in expert fees to Totem. It did so based on

the parties' respective subcontracts. The relevant portion of the parties'

38 No. 74069-5-1/39

subcontracts (which are virtually identical with respect to expert fees), section

14(e), provides that the prevailing party in arbitration is entitled to expert fees.

However, the expert fees below arose out of the trial, not an arbitration, and Porter

argues that the award of expert fees was therefore error. Kenco and Totem

respond that Porter resisted their attempts to arbitrate, successfully, and should

not now be permitted to avoid paying for their expert fees as a result.

Section 14(e) provided for a two-step process for dispute resolution. First,

it directed the parties to engage in mediation. If that proved unsuccessful, the

parties would enter binding arbitration. However, Porter opposed arbitration. The

trial court agreed with Porter, because of the interests of others not party to the

contract: (1) Highline's intent to pursue liquidated damages against Porter, (2)

BEMO's lawsuit against Kenco, and (3) Kenco's suit against PBC's bonding

company.28

This inability to arbitrate a complex contractual dispute was reasonably

foreseeable to Kenco and Totem. Yet, the plain language of the contract

contemplates arbitration only. The terms were clear. If Kenco and Totem wished

for expert fees to be available in a nonarbitration proceeding, they could have

insisted on such language. When a contract's terms are plain and unambiguous,

we interpret the term's meaning and the parties' intentions according to its plain

language. Cornish Coll, of the Arts v. 1000 Va. Ltd. P'ship, 158 Wn. App. 203,

231, 242 P.3d 1(2010). The expert fees provision was limited to arbitration. The

28 Porter does not argue that the presence of these extraneous matters subjected them to expert fees that would not have arisen strictly in claims between them and Kenco.

39 No. 74069-5-1/40

fees were not incurred in arbitration. Therefore section 14(e) did not apply. The

award of expert fees was error, and we reverse the award.29

B. Attorney Fees Below to Kenco and Totem

The trial court awarded attorney fees below to Kenco and Totem, based on

RCW 39.08.030, and RCW 60.28.030. At oral argument, Porter conceded that

these statutes entitled the prevailing party to attorney fees. Thus, the trial court

properly awarded attorney fees below to Kenco and Totem.3°

C. Attorney Fees Below to RLI

Porter also argues that the trial court erroneously awarded $471,414.22 in

attorney fees to RLI.

The trial court awarded fees based on the subcontract between Kenco and

Porter. Whether a contract authorizes an award of attorney fees is a question of

law that this court reviews de novo. Torgerson v. One Lincoln Tower, LLC, 166

Wn.2d 510, 517, 210 P.3d 318(2009).

Here, Porter and Kenco's subcontracts required Kenco to obtain a surety

bond. That surety bond incorporated the terms of the subcontract. The

subcontract provided for an award of attorney fees to a prevailing party. RLI's fees

were incurred in a lawsuit in which Porter sought performance from RLI on Kenco's

29 Nor do any of the applicable attorney fee statutes authorize an award of expert fees. Although RCW 60.28.030 and RCW 39.04.250 provide for an award of "costs," in addition to attorney fees, we are not convinced that this encompasses expert fees. See, e.g., Hayes v. City of Seattle, 131 Wn.2d 706, 719, 934 P.2d 1179, 943 P.2d 265 (1997) (holding that statutory language awarding "litigation expenses" encompasses expert fees, but statutory language awarding attorney fees and "costs" does not necessarily include expert fees). The statutes here only mention costs. Thus, these statutes do not support the award of expert fees here. 30 The amount or reasonableness of the fees awarded are not at issue.

40 No. 74069-5-1/41

bond. The nature of a surety bond is that the surety will stand in the shoes of a

party alleged to have failed to perform.

Washington case law that holds that funds that would otherwise be

awardable to a surety principal, should go to the surety itself. See First Interstate

Bank of Wash., N.A. v. Nelco Enters., Inc., 64 Wn. App. 158, 162-63, 822 P.2d

1260 (1992)("[T]he surety is entitled to indemnification from the principal" to the

extent that "the surety discharges the principal's personal obligation."). This

generally includes attorney fees. RESTATEMENT (THIRD) OF SURETYSHIP &

GUARANTY § 23 cmt. a(1996)("These incidental expenses may include reasonable

attorneys' fees incurred in conjunction with performance of the secondary

obligation."). 31 Here, to the extent that it was defending its actions within the terms

of the surety bond, RLI was acting in the shoes of Kenco under the subcontract.

Kenco was entitled to fees under its subcontract. Therefore, RLI is entitled to fees

under its surety bond with Kenco, which itself incorporated the terms of the

subcontract.

And, Porter's cited authority, Walton Gen. Contractors, Inc. v. Chicago

Forming, Inc., 111 F.3d 1376, 1385 (8th Cir. 1997) is inapposite. In that federal

case, the court held that neither the subcontractor, nor the contractor, was the

31 This principle becomes more persuasive if one considers the hypothetical progression of this case on remand if the fee award was reversed. Upon remand, the trial court would strike the attorney fees awarded to RLI. RLI would then seek reimbursement of its fees from Kenco. And,.Kenco would likely be liable for fees incurred in the dispute between RLI and Porter, instead of Porter, even though Kenco prevailed in all substantive respects. This would effectively grant Porter an end around its agreement with Kenco that the losing party would be liable for fees. It would defeat the purpose of the fee shifting provision that Kenco and Porter agreed to.

41 No. 74069-5-1/42

"prevailing party," and thus neither was entitled to fees. Id. The surety, however,

requested fees. Id. The appellate court denied that request, holding that the

contractor/obligee had no obligation to pay the surety's fees. Id. But, there the

surety's principal was not entitled to fees. Id. Here, RLI's principal is entitled to

fees, as discussed above. Thus, if RLI steps into its shoes, it is entitled to fees in

the same manner.

The trial court did not err in awarding attorney fees to RLI.

D. Attorney Fees on Appeal

Porter, Kenco, Totem, and RLI all request fees on appeal. For the same

reason that the parties were entitled to fees below, they are entitled to fees on

appeal. Thus, Kenco, Totem, and RLI are entitled to attorney fees on appeal,

subject to compliance with the applicable RAPs.

We reverse the award of expert fees to Kenco and Totem. We affirm in all

other respects.

WE CONCUR: