No Bond, No Recovery: WA Contractors Must Comply with WA Statutory Requirements or Risk Being Barred from Recovery if their Client Refuses to Pay

The risk that a contractor’s client may refuse to pay the full contract balance is a day-to-day reality for every contractor.  That risk – and the stress it causes in the mind of any contractor – is tempered by the knowledge that Washington statutes provide contractors with ready access to the courts to file a lawsuit and be fully compensated for the work performed.  But a recent case provides a grim reminder that the same statutes that giveth court access can also taketh away.

Washington’s Contractor Registration Act (“WCRA”)[1] requires every contractor engaging or offering to engage in services in Washington to register with the Department of Labor and Industries (”L&I”). In order to sue to collect compensation for work or to enforce a contract, a contractor must prove that he/she “was a duly registered contractor and held a current and valid certificate of registration at the time he or she contracted for the performance of such work or entered into such contract.”[2] In order to conclude that a contractor has substantially comply with these requirements, a court must find that:

(1) The department has on file the information required by RCW 18.27.030; (2) the contractor has at all times had in force a current bond or other security as required by RCW 18.27.040; and (3) the contractor has at all times had in force current insurance as required by RCW 18.27.050.[3]

Courts also consider the length of time during which the contractor did not hold a valid certificate of registration.[4] Significantly, Contractors are presumed to know these requirements.[5]

These statutes were addressed by the Washington Court of Appeals in an unpublished case from April 2018:  HNS, Inc. v. Eagle Rock Quarry.[6]  HNS, Inc. (HNS), an Oregon contractor, agreed to blast, crush, and stockpile more than 200,000 tons of rock for Eagle Rock Quarry, Inc. (Eagle Rock) at Eagle Rock’s quarry in Mesa, Washington.  Although Eagle Rock made multiple payments to HNS, it stopped paying in September 2015. In January 2016, HNS sued Eagle Rock and its principals for the unpaid contract balance of $241,372.88.

Eagle Rock moved to dismiss the lawsuit.  It argued that HNS was a contractor doing business in Washington but was not registered under the WCRA—a prerequisite for filing suit. Records from L&I indicated that HNS was a construction contractor and had formerly been licensed in Washington from 1999 through 2010, but did not renew its license in 2010. HNS remained in suspended status since July 28, 2010, the date its certificate of general liability insurance expired or was cancelled. L&I’s records also indicate that HNS had no current surety bond or insurance account. HNS resisted the dismissal, arguing it had substantially complied with Washington’s financial responsibility requirements because L&I still had accurate corporate information based on its registration years earlier, and because, for purposes of its Oregon licensing, it had maintained a surety bond and commercial general liability coverage in amounts that exceeded Washington’s requirements. Although expressing some sympathy for HNS, the trial court concluded that HNS had not substantially complied with the law’s requirements and dismissed HNS’ lawsuit. HNS appealed.

But the Court of Appeals agreed with the trial court, concluding that HNS’ surety bond did not substantially comply with WCRA requirements because it did not benefit Washington State, and that HNS had failed to provide sufficient evidence that its insurance coverage was in force and covered its operations in Mesa.[7]  While the Court of Appeals shared the trial court’s sympathy for HNS, it too held that HNS had not “substantially compl[ied] in the manner required to enjoy access to Washington courts” and affirmed the trial court’s dismissal of HNS’ lawsuit.[8]

COMMENT: This case serves a harsh reminder—especially for out-of-state contractors doing business in Washington—that all contractors must remain in compliance with the WCRA’s requirements at all times or otherwise risk being similarly barred from recovery if their client refuses to pay in full.

[1] Chapter 18.27 RCW

[2] RCW 18.27.080

[3] Id.

[4] See id.

[5] RCW 18.27.005

[6] 3 Wn. App.2d 1009, 2018 WL 1617071 (Div. 3 Apr. 3, 2018).

[7] 2018 WL 1617071 at *2

[8] Id.

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