The Subrogation Strategist

In Tadych v. Noble Ridge Constr., Inc., No. 100049-9, 2022 Wash. LEXIS 545, the Supreme Court of Washington (Supreme Court) considered whether the lower court erred in enforcing a one-year accelerated limitations period clause in a construction contract. The Supreme Court considered the extent to which the provision hindered the plaintiffs’ statutory rights - as set forth in Wash. Rev. Code § 4.16.310 - which provides homeowners with a six-year repose period for construction defect claims.  The court found that the contractual provision’s shortening of the time period from six years to one year was a gross deprivation of the plaintiffs’ statutory rights and was unfairly one-sided in favor of the defendant.  As such, the court held that the provision was substantively unconscionable and, thus, unenforceable.

The plaintiffs, Gregory and Sue Tadych, hired the defendant, Noble Ridge Construction, Inc. (Noble Ridge), to build a custom home.  Noble Ridge provided its standard contract, which included a warranty provision.  The provision stated that “any claim or cause of action arising under this Agreement, including under this warranty, must be filed in a court of competent jurisdiction within one year (or any longer period stated in any written warranty provided by the Contractor) from the date of Owner’s first occupancy of the Project or the date of completion. . . .”  The provision also stated that “any claim or cause of action not so filed within this period [was] conclusively considered waived.”

The plaintiffs occupied their new home in April 2014.  In April 2017, the plaintiffs hired construction experts who confirmed several construction defects in the home, including poor structural ventilation, water intrusion and code violations.  Shortly thereafter, roughly three years after the plaintiffs first occupied the home, they sued Noble Ridge.  Noble Ridge filed a motion for summary judgment based on the one-year limitations period in the contract.  The trial court agreed that the one-year limitation period in the contract barred the plaintiffs’ claims and dismissed the case.  The Court of Appeals for the State of Washington (Court of Appeals) affirmed.

As noted by the Supreme Court, the question of whether a contract is unconscionable is a question of law to be reviewed de novo.  Washington recognizes two categories of unconscionability: substantive or procedural, either one of which is sufficient to void a contract.    The court defined substantive unconscionability simply as “unfairness of the terms or results,” and focused its analysis on the effect the contractual provision had on existing statutory rights available to the plaintiffs.

Discussing Wash. Rev. Code § 4.16.310, the court noted that it provides homeowners a six-year statute of repose period to seek damages for construction defects, which begins to run at substantial completion or termination of construction services.  The court also noted that the public policy underlying the statute is to allow sufficient time to investigate a claim while protecting against defending stale claims.  The legislature balanced these two possible harms when it established the six-year statutory repose period.  Thus, the court found that the one-year limitations provision effectively abolished the plaintiffs’ statutory rights under § 4.16.310.  As stated by the court, the shortening of the limitations period from six years to one year was one-sided in favor of the defendant that the provision was unconscionable, and thus enforceable. Since the plaintiffs’ lawsuit was timely under the statute, the court reversed the Court of Appeal’s decision and reinstated the plaintiffs’ case.

The Noble Ridge case reminds us that Washington provides protections against unconscionable contract provisions, particularly those that significantly hinder a claimant’s statutory rights.  As such, subrogation professionals practicing in Washington should consider this decision when reviewing accelerated limitation provisions as there may be legitimate challenges to substantively unfair terms.