Indemnity - Use It Or Lose It
March, 2003
A new appellate decision has sent a clear message to developers, general contractors and their insurers: An indemnity claim only accrues when payment is made or the entity has been adjudged obligated to pay. If the indemnity claim does not accrue within six years from substantial completion, it is lost!
In Parkridge Associates, Ltd. v. Ledcor Industries, Inc., 54 P.3d 225, (Wash.Ct.App. 2002), the Washington Court of Appeals affirmed a trial court's dismissal of a general contractor's indemnity claims against several subcontractors. In that case, the owners of the Parkridge Apartments in Seattle sued their general contractor, Ledcor Industries. Ledcor, in turn, joined its subcontractors, including our client Coast Plastering, Inc., Ledcor's biggest target.
Pursuant to a mediation, Coast's insurer was prepared to offer the applicable policy limits to Ledcor. However, after analyzing Ledcor's indemnity claim, we reasoned that, for three reasons, the claim was barred by the statute of repose. First, the Builder's Statute of Repose, RCW 4.16.310 bars all claims that have not accrued within six years after substantial completion or termination of services, whichever is later.
Second, the Washington Supreme Court in Rice v. Dow Chemical Co., 124 Wn.2d 205, 875 P.2d 1213 (1994), held that the statute of repose terminates a right of action after a specific time, even if the injury has not yet occurred. Third, in Central Refrigeration, Inc. v. Barbee, 133 Wn. 2d 509, 516-18, 946 P.2d 760, (1977), the court had ruled that an indemnity cause of action accrued only where the party seeking indemnity had made payment or had been adjudged obligated to make payment.
In the Parkridge project, substantial completion had occurred in December of 1993, long after Coast's services had terminated. Now, nearly seven years later, Ledcor had not made payment or been legally obligated to do so. It seemed obvious that Ledcor's claim was barred.
We consequently prepared a draft motion for summary judgment based upon the above analysis, but Coast settled at mediation. We had, however, provided a copy of the motion to defense counsel for co-defendant Roy Freeman Roofing. Co-counsel liked the motion and used it. The trial court granted the motion and dismissed Ledcor's indemnity claims. Ledcor appealed.
The Washington Court of Appeals for Division One affirmed the trial court's ruling, holding that an indemnity claim does not accrue until "the party seeking indemnity pays, or is legally obligated to pay, damages to the a third party."
With the foregoing analysis now law in Washington, developers or general contractors in a suit where the project is nearing six years from substantial completion should beware. If you do not make payment or become adjudged obligated to pay, you risk losing your indemnity claim.