Summary
The Washington Supreme Court held that a construction obligee was not required to formally declare the subcontractor in default before the surety’s liability under a performance bond was triggered. The court concluded that the bond’s default-declaration provisions governed specified remedies rather than constituting a condition precedent to the surety’s underlying liability. The court also held that Olympic Steamship attorney-fee principles apply to disputes involving performance bonds.
Topics
Practice areas
Questions Presented
- Whether the performance bond required Colorado Structures to formally declare Action Excavating and Paving in default before Insurance Company of the West became liable.
- Whether Olympic Steamship attorney fees apply to an obligee's action against a surety on a construction performance bond.
- Whether the dispute was a coverage dispute warranting Olympic Steamship fees rather than merely a factual claims dispute.
Holdings
- The performance bond did not require Colorado Structures to formally declare Action in default before Insurance Company of the West's liability was triggered. The declaration-of-default provisions in Paragraph C governed the remedies and measures of damages available under that paragraph, not the surety's underlying liability under Paragraphs A and B.
- Olympic Steamship attorney fees apply to actions involving construction performance bonds when the surety wrongfully denies coverage and the obligee must litigate to obtain the benefit of the bond.
Key quotations
“[West]’s liability on the bond was not conditioned on a declaration of default, and [Structures]’s failure to make such a declaration did not relieve [West] of its duty to pay on the bond.” (at 592)
“We conclude that under the plain language of the contract, Structures was not required to formally declare Action in default to trigger the performance bond issued by West. Olympic Steamship attorney fees apply to performance bonds.” (at 608)
Factual background
Colorado Structures contracted with Wal-Mart to construct a store and subcontracted the off-site sewer work to Action Excavating and Paving. Insurance Company of the West issued a performance bond guaranteeing Action's performance, but Action fell materially behind schedule and installed some sewer pipe at the wrong slope. Structures supplemented Action's crews, notified West repeatedly of Action's performance problems, completed the project, and sought payment under the bond; West refused because Structures had not formally declared Action in default before substantial completion.
Procedural history
Colorado Structures sued Insurance Company of the West, Action Excavating and Paving, Inc., and Action's owner after Action materially breached its sewer-work subcontract and West refused to pay under the performance bond. Following a bench trial, the Clark County Superior Court found material breach, held that no formal declaration of default was required, awarded damages and contract attorney fees up to the bond amount, but denied Olympic Steamship attorney fees. The Court of Appeals affirmed liability, reversed the denial of Olympic Steamship fees, and directed an award of fees beyond the bond's penal amount. The Washington Supreme Court accepted review and affirmed.
Remand instructions
Remanded for any other proceedings not inconsistent with the opinion, including proceedings to award Olympic Steamship attorney fees without limiting those fees to the performance bond's penal amount.