Washington State Supreme Court Issues Landmark Decision on Spearin Doctrine

Cameron Sheldon | Ahlers Cressman & Sleight

The Washington State Supreme Court’s recent decision in Lake Hills Invs., LLC v. Rushforth Constr. Co. No. 99119-7, slip op. at 1 (Wash. Sept. 2, 2021) marks the first time in over 50 years that it has ruled on the Spearin doctrine. The Court’s opinion clarified the contractor’s burden when asserting a Spearin defense and affirmed the jury’s verdict in favor of contractor AP Rushforth Construction Company (AP).  The decision is a major win for Ahlers Cressman & Sleight PLLC attorneys Scott Sleight, Brett Hill, and Nick Korst, who represented AP throughout its long-running dispute with Lake Hills Investments, LLC (LH), including the two-month jury trial and the appeal. Leonard Feldman of Peterson | Wampold | Rosato | Feldman | Luna and Stephanie Messplay of Van Siclen Stocks & Firkins also represented AP on appeal.  

At trial, the owner—Lake Hills Investments, LLC (LH)—asserted it was entitled to $3 million in liquidated damages and $12.3 million for defects it alleged were caused by AP’s deficient workmanship. AP denied responsibility for the delays and most of the defects and requested payment of $5 million. Regarding LH’s defect claims, AP argued as an affirmative defense that the defects were caused by deficiencies in the plans and specifications provided by LH. This affirmative defense was rooted in the Spearin doctrine, which states that when the contractor follows plans and specifications provided by the owner, the contractor is not responsible for defects caused by the plans and specifications.  

After much back and forth over how to instruct the jury on the defect claims, the trial court instructed the jury as follows: 

For its affirmative defenses, AP has the burden to prove that LH provided the plans and specifications for an area of work at issue, that AP followed those plans and specifications, and that the [construction] defect resulted from defects in the plans and specifications.  

The jury returned a verdict in favor of AP.  The jury awarded AP $5 million on its payment claim, rejected LH’s liquidated damages claim, and awarded LH $1.5 million for defects (some of which were conceded by AP), finding that AP had performed defective work on six of the eight areas of claimed defects. But the jury awarded no damages for certain defects, indicating that it may have agreed with AP that the cause of the defect was LH’s defective plans and specifications. Ultimately, the court awarded AP a net judgment of over $9 million, including nearly $6 million in attorneys’ fees, expert fees, and costs.  

LH appealed, claiming the trial court issued incorrect jury instructions regarding AP’s affirmative defense. The Court of Appeals agreed, holding:  

[P]roof of any defect in the plans and specifications for that area contributing to a construction defect would let AP avoid all liability for that area even if Lake Hills proved AP’s deficient performance caused some of the damage. This instruction incorrectly understated AP’s burden of proof. 

According to the Court of Appeals, the instruction as given “clearly misstated the law,” and the instruction would have adequately stated the law had it included the word “solely” as LH requested. The court reasoned that the instruction provided to the jury allowed the jury to absolve AP of all liability for an area, even if only part of the defective work resulted from defective plans and specifications.  

AP petitioned the Washington State Supreme Court for review. On June 24, 2021, the Supreme Court heard oral arguments. A recording of the parties’ oral arguments can be found here: https://www.tvw.org/archives/.  

The Supreme Court reversed the Court of Appeals and ruled that although the wording of the trial court’s Spearin instruction was “potentially misleading,” it was not prejudicial to LH because it allowed the jury to apportion fault between LH and AP and “the jury had every opportunity to award LH damages based on claims for each breach of contract.” No. 99119-7, slip op. at 18. The Court explained that a Spearin affirmative defense can be used to absolve the contractor of all liability or only a portion of liability: 

An affirmative design defect defense is a complete defense if the damage is solely due to the design. However, if the defects were caused by a combination of deficient performance and deficient design, then it is not a complete defense.  

Id. at 16.  The Supreme Court recognized that the Spearin defense may be used by a contractor to reduce liability rather than totally escape it. The Supreme Court rejected the all-or-nothing reasoning of the Court of Appeals. While the Court of Appeals viewed the Spearin defense instruction as improperly allowing the jury to absolve AP of fault so long as deficiencies in LH’s plans and specifications contributed in some way to the defects, the Supreme Court understood that the instructions as a whole intended for the jury to apportion liability appropriately between AP and LH based on whether the defects were caused by the work AP performed or the plans and specifications LH provided.  

The Supreme Court’s reversal means the jury verdict stands and the case will not be retried. However, the Supreme Court remanded the case to the Court of Appeals to consider LH’s arguments on to the trial court’s award of attorneys’ fees, which the Court of Appeals did not reach in its earlier decision.   

Commentary 

The Supreme Court’s opinion is the first time the Court has considered Spearin in 50 years, and it provides an essential clarification of the contractor’s burden when asserting a Spearin defense. In particular, the Court’s decision reaffirms clear precedent limiting a contractor’s liability for defects when the contractor follows the owner’s plans and specifications, as well as Washington’s public policy allocating risk and liability between contractors, owners, and architects (among others) on construction projects. Importantly, the opinion indicates that a contractor can still use a Spearin defense to reduce its liability even if some defects were caused in part by its own deficient work.  

In Rare Construction Law Ruling, Washington Supreme Court Affirms $9 Million Jury Verdict And Provides Guidance On The ‘Spearin Doctrine’

Ellie Perka | Lane Powell

Construction Legal Update

Large construction cases rarely come before a jury due to their complexity and the cost of litigation. It is even rarer for the Washington Supreme Court to weigh in. But the Supreme Court did so on September 2 in Lake Hills Investments, LLC v. Rushforth Construction Co., Inc., when it affirmed the jury’s award of $9 million in favor of the contractor, ruling that a jury instruction was “potentially misleading,” but not prejudicial. The Court’s ruling reaffirmed application of the “Spearin Doctrine” affirmative defense and articulated an apportionment theory for its application.

What is the Spearin Doctrine?

Under the widely accepted Spearin Doctrine, a project owner on a traditional fixed sum contract (often called design-bid-build) impliedly warrants to a contractor that the plans and specifications for a particular project (i.e., the design documents) are accurate and suitable for construction. If the contractor builds the project according to owner-provided design documents, then the contractor will not be responsible for failures caused by any defects.

This implied warranty has been a cornerstone of construction law in the U.S. for nearly 100 years. It got its name from the historic Supreme Court decision in U.S. v. Spearin, 248 U.S. 132 (1918), often considered to be the most significant construction law case. While much has changed in the construction world since the Spearin holding – including the introduction of multiple alternative delivery methods such as Design-Build (DB), General Contractor/Construction Manager (GC/CM), and Public-Private Partnership (PPP or P3) – application of the doctrine outside these alternative delivery methods, in the traditional design-bid-build context remains alive and well in most state and federal courts, including Washington. Contractors sued for breach of contract for defects will often assert Spearin as an affirmative defense to liability, as was the case in Lake Hills.

The Lake Hills Dispute

The Lake Hills litigation involved a large development project in Bellevue, outside of Seattle, Washington called Lake Hills Village. The “Village” consists of multiple buildings constructed over several years – a public library, two mixed-use residential/retail buildings, three commercial buildings, and townhouses. Connecting the library and an adjacent commercial building is an elevator tower and a pedestrian bridge.

Disputes arose during construction, resulting in the owner notifying the contractor that it was in breach of the contract schedule and identifying work it considered to be defective. The contractor responded in part that the construction defects were the result of the owner’s bad design or lack of a complete design, and not due to failures of the contractor. The relationship between the parties deteriorated with the owner withholding multi-millions in progress payments. Lake Hills filed a breach of contract lawsuit, and the contractor filed its own breach claim.

At trial, the owner argued that the contractor was responsible for more than $16 million in defective work and delays. The contractor argued it was entitled to more than $5 million in improperly withheld payments. In response to the owner’s claims for defective work, the contractor asserted multiple affirmative defenses, including Spearin, arguing that the Spearin Doctrine shielded it from liability for the defects, based on deficient plans and specifications supplied by the owner. After a costly two-month jury trial, in which the jury heard from more than two dozen witnesses, the jury returned a mixed verdict with a net judgment award of more than $9 million in favor of the contractor.

The Appeal and the Court’s Apportionment Theory

On appeal, the owner argued that multiple jury instructions were erroneous, including the instruction on the contractor’s burden under Spearin. The owner argued that, to rely on the Spearin defense as a shield to liability, a contractor must establish the defect resulted “solely” from the defective or insufficient design, not from another contractor-created cause. The owner argued that when the jury instructions did not use the word “solely,” the instruction was so erroneous that a new trial was needed. A division of the Washington Court of Appeals agreed reversing the jury verdict and remanding for a new trial.

On review by the Supreme Court, the Court disagreed, in part, with the Court of Appeals. After a comprehensive review of the history and development of the Spearin defense, the Court explained that “there does appear to be some tension” in Washington’s caselaw, and agreed that the jury instruction was “potentially misleading.” Nonetheless, the Court found the error to be harmless and no new trial necessary. In other words, since the owner did not establish it was prejudiced by the error, the Supreme Court reversed the lower court’s remand for a new trial.

The Court explained that the rationale for the Spearin Doctrine defense is “based on control,” or lack thereof – i.e., if an owner provides a defective design, then a contractor should not be responsible for damage caused by that defective design because the contractor “was not the source of the defects.” The Court went on, explaining that the Spearin Doctrine is a “complete defense” to design defect claims only if the damage is “solely due” to the defective design. If it is not, then it is not a complete defense, and the jury must instead calculate and attribute proportionate liability between the owner (for its defective design) and the contractor (for its deficient performance). As with all affirmative defenses, the party asserting the defense bears the burden of proving both defective design, causation, and that it followed the design documents during construction.

The case now goes back to the Court of Appeals for consideration of arguments regarding the trial court’s award of $6 million in attorney fees and costs to the contractor.

The Takeaway

This is an important ruling as the Spearin Doctrine is a fundamental tenet of construction law and, although it was established almost 100 years ago, it is still regularly used by litigants. The Supreme Court struck a balance in the Lake Hills ruling – on the one hand, reaffirming the widely-accepted Spearin Doctrine defense while, on the other hand, finding no prejudice, thus keeping a costly jury verdict intact and no remand necessary.

Washington Trial Court Narrows Definition of First Party Claimant, Clarifies Available Causes of Action in Commercial Property Loss Context

Kathleen A. Nelson and Jonathan R. Missen | Lewis Brisbois Bisgaard & Smith

The law in the State of Washington, albeit clear on issues regarding first party claimants, was recently challenged in the matter of Eye Associates Northwest, P.C. v. Sedgwick et. al. However, despite this challenge of first impression, the court limited the application of the term “first party claimant” (a term of art akin to “insured”) based upon the wording of a loss payee clause, as well as taking into consideration and harmonizing the wording of the leases, other provisions in the policy regarding tenant improvements, and the simple fact that Eye Associates was not named in the policy whatsoever.

In Eye Associates, the plaintiff leased office space in a high-rise medical office building, insured by three separate insurance companies. A water loss caused damage to the plaintiff’s leased space, and the plaintiff brought suit against the owner of the building, its insurers, the property manager, a third-party administrator (TPA), and two individual adjusters assigned to inspect and adjust the water loss claim.

The plaintiff claimed that it qualified as a “first party claimant/insured,” under the policies issued by the landlord’s insurers because there was coverage under the policies for tenant improvements. The plaintiff alleged that the TPA, through the individual adjusters, hid coverage and misrepresented policy provisions, thereby causing it to incur significant damages and delays to fund its own repair. The plaintiff brought suit for insurance bad faith, fraud, intentional/negligent misrepresentation, and violations of the Washington Insurance Fair Conduct Act (IFCA) and Washington Consumer Protection Act (CPA). The plaintiff further claimed unauthorized practice of law as against the individual adjusters.

After extremely expensive and litigious discovery, both parties moved for summary judgment on liability. The dispute centered on whether tenant improvements, belonging to the tenant, were covered property under the landlord’s policies. The TPA and individual adjusters moved for summary judgment on the basis that the tenant lacked standing to bring claims because its property was not covered and therefore did not qualify as an insured or first party claimant of the landlord’s policies.

To resolve this question, the court looked to the express language of the identical policies and interpreted Merriman v. Am. Guar. & Liab. Ins. Co., 198 Wn. App. 594 (Wash. Ct. App. 2017). In Merriman, the Merrimans’ property was destroyed in a storage warehouse fire. The warehouse policy provided coverage for “personal property of others in the [insured’s] care, custody and control.” The policy further provided: “Our payment for loss of or damage to personal property of others will only be for the account of the owner of that property.” The warehouse insurer concluded that coverage applied to the Merrimans’ personal property.

Under these circumstances, the Merriman court found that the Merrimans were first party claimants because the policy directed the insurer to send claim payment checks to them as owners of the damaged personal property. However, in doing so, the court expressly held that if the policy had included language used in other cases such as “the loss shall be adjusted with the named insured for the account of the owners of the property,” then the Merrimans would not be first party claimants. The Merriman court ultimately concluded that: “A clear lesson…is that no presumption can be made that ‘other owners’ whose property is covered by this type of policy are first party claimants or that they are third party claimants. Policies can be, and are, written both ways.”

In Eye Associates, the loss payee clause stated that “Loss, if any, will be adjusted with and payable to [Named Insured], or as may be directed by [Named Insured]” and that “Any such loss covered by this policy will be adjusted with the Named Insured and any proceeds for such loss shall be made payable to them or as may be directed by them.” The court determined that this language was on par with language at issue in the recent case of Michels v. Farmers Ins. Exch., No. 77919-2-I, (Wash. Ct. App. Apr. 8, 2019). Although unpublished, the court looked to Michels as persuasive authority. There, the loss payee clause stated: “Our payment for loss of or damage to personal property of others will only be for the account of the owners of the property…” The Michels court determined that this language was insufficient to confer first party claimant status because there was no provision providing that property owners would be paid directly. The court in Eye Associates followed the Michels analysis and determined that the plaintiff was not an insured or first party claimant to its landlord’s policies. Because the plaintiff was not a first party claimant, as a matter of law, it lacked standing to assert claims based on coverage under the landlord’s policies.

The decision in Eye Associates sends a clear signal that Washington trial courts are willing to limit the otherwise expansive definition given to “first party claimant” in Washington. Under the plaintiff’s theory, the definition of first party claimant was nearly limitless, encompassing any person or entity with a covered interest of any kind, and any entity claiming any interest under the policy. The trial court in Eye Associates found that definition too broad, ruling that a first party claimant must have defined coverage and/or a payable interest under the policy to assert causes of action as an insured.

Court Of Appeals Expands Application Of Construction Statute Of Repose

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.

Narrow Appellate Court Ruling Excuses Project Contractor From Quitting Due to Partially Withheld Payments

Geoff F. Palachuk | Lane Powell

Every party to a contract must uphold the duty of good faith and fair dealing. But there is no free-floating duty under Washington law: the parties’ respective obligations must be tied to a particular contract provision. Division One of the Washington Court of Appeals recently determined that a project owner’s continued underpayment, if material, excused a general contractor from performance based on the duty of good faith and fair dealing. Materiality of the alleged breach remains the key to excusing performance.

In Lake Hills Investments, LLC v. Rushforth Construction Co., Inc., the court of appeals examined whether an owner’s continued underpayment could excuse a contractor from quitting the project. The owner (Lake Hills) had partially withheld payments from the contractor (AP) over several months on a construction project in Bellevue. The court of appeals considered whether such prior underpayment by Lake Hills could excuse AP’s decision to leave the job. With a narrow and fact-specific holding, the court determined AP could be excused for quitting.

AP argued that Lake Hills hindered and interfered with AP’s ability to perform its obligations under the contract, and that Lake Hills could not thereby assert a breach based on AP’s failure to perform. At trial, AP introduced evidence that Lake Hills withheld portions of payment, and AP proposed a jury instruction that would allow it to prove that interference or hindrance of AP’s work could excuse AP from performing. Only a prior material breach would typically excuse the other party’s failure to perform, and the court of appeals reaffirmed this principle by acknowledging “[t]he jury should have been instructed that only a material breach of the duty of good faith and fair dealing by Lake Hills could excuse performance by AP.” The thrust of the analysis is materiality of the alleged breach.

The court of appeals held the jury instruction misstated the law, omitting the word “material,” but the court also held that error was harmless because the jury entered a finding consistent with AP’s theory of the case. During trial, AP argued that Lake Hills engaged in underpayments to “starve” AP of financial resources and force AP off the project. The jury seemingly agreed, according to the court of appeals, because the jury awarded AP the majority of the sum sought for withheld payments. The court of appeals determined that the jury’s verdict was consistent with a finding of material breach, and the absence of the word “material” in the instruction was, therefore, harmless. The court took care to emphasize that its holding should be viewed narrowly, based on “the particular facts and arguments before the jury” and the “very particular facts presented” during trial.

The court’s holding nevertheless provides an important takeaway for owners and developers. Contractors often try to assert the duty of good faith and fair dealing to argue that any hindrance or interference with the contractor’s work is a breach sufficient to excuse performance. But that is not an accurate statement of the law. Only a material hindrance or material interference — under a specific term of the contract — will constitute breach. Ultimately, the court’s fact-specific analysis in Lake Hills does not change the law requiring materiality for an alleged breach, nor the law surrounding each party’s respective duty of good faith and fair dealing.