American Safety v. City of Olympia

In American Safety Cas. Ins. Co. v. City of Olympia, ___ Wn. App. ___, ___ P.3d ____ (June 27, 2006), the Division II Court of Appeals addressed the issue of an owner’s waiver of contractual notice and suit limitation contract clauses. The suit arose out of the LOTT Southern Connection Pipeline public works project for the City of Olympia. The general contractor, Katspan, contracted with the City of Olympia to build a system of sewer lines in downtown Olympia.

The contract required Katspan to follow a set of specific procedures in order to make a claim for extra compensation. In addition, the contract stated that Katspan had 180 day from final acceptance of the project to file a lawsuit against the City. While the project was ongoing a dispute arose between the City and Katspan regarding whether Katspan should be entitled to additional time and compensation on the project. Katspan sent letters to the City notifying it that Katspan intended to seek additional time and money for its work on the project. None of Katspan’s letters complied with the claim procedure in the contract.

Katspan completed the project and assigned its rights to American Safety pursuant to an indemnity agreement. The City accepted the contract as complete on September 10, 2001. Katspan then had until March 9, 2002 to file a lawsuit against the City, per its contract. In November 2001, American Safety made a request for equitable adjustment to the City. The City did not respond. In March 2002, American Safety contacted the City and the City’s attorney requested addition information. The City stated that it would negotiate the claim if it had adequate backup from American Safety. In May 2002, American Safety provided more documents to the City, and the City requested more information. In January 2003, American Safety provided more information, which the City stated was inadequate. The City gave American Safety a deadline of May 2003 to provide the information requested by the City, or the claim would be denied. American Safety failed to meet the deadline.

In July 2003, American Safety, through its consultant, contacted the City regarding the information the City was seeking. The City’s consultant stated that he had been given the authority to discuss the claim. The consultants proceeded to discuss the claim. In May 2004, American Safety notified the City that the information requested by the City was available. The City denied the claim because the 180 day suit limitation period had expired. The key issues for the Court of Appeals were (1) whether the City had waived the 180 day suit limitation clause and (2) whether the City had waived the notice of claim procedure. The Court relied heavily on the waiver analysis in the Mike M. Johnson case but reached a different result. The Court distinguished the Mike M. Johnson case because in that case the owner had requested that the contractor follow the specific claim procedures when the contractor made a claim that was not in compliance with the contract. In addition, in Mike M. Johnson, the owner repeatedly referred to the contract’s provisions and repeatedly asserted its rights under the contract. By contrast, the City of Olympia did not repeatedly reserve its rights to assert compliance with the contract claim procedures. The City of Olympia also proceeded to negotiation the claim well after the 180 suit limitation period had expired, without reserving its right to assert compliance with the suit limiation clause. Due to this conduct, the Court held that a reasonable person could conclude that that the City had waived its right to assert compliance with the notice and suit limitation provisions of the contract.

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