Why This Case is Important
The Spearin Doctrine dictates that a project owner impliedly warrants that the plans and specifications it provides are accurate and suitable, and can protect a contractor against liability. Must a contractor prove that all of the construction defects are attributable to the owner's defective plans and specifications to prevail on this affirmative defense? The Washington State Supreme Court in Lake Hills Investments, LLC v. Rushforth Construction Co., Inc. d/b/a AP Rushforth, et al. answers this question and provides guidance on the application of the Spearin Doctrine in defending construction defect claims.
Facts
Lake Hills Investments ("Lake Hills") was the developer of a mixed-use project in Bellevue, Washington, called Lake Hills Village and hired Rushforth Construction Co., Inc. d/b/a AP Rushforth ("AP") to build the project. The project was to be built in a series of phases. AP was the general contractor for certain phases, to be completed by certain dates.
Lake Hills claimed that AP was delayed in completing certain phases and that work was defective. AP responded that the delays and defects had resulted from faulty design specifications and plans provided by Lake Hills. Lake Hills withheld millions of dollars in progress payments and proceeded to file suit against AP for breach of contract. Soon after, AP stopped work on the project and counter claimed alleging failure to pay and defects in design specifications. AP argued that any construction defects were the result of Lake Hills providing "a sketch" or "a concept" instead of suitable plans and specifications.
At trial, AP asserted affirmative defenses, including that the Spearin Doctrine shielded it from liability for defects that arose from deficient plans and specifications supplied by Lake Hills. The jury worked from a special verdict form, which resulted in a mixed verdict, finding that the project was completed in each phase, primarily by the acts of Lake Hills. The jury also found that AP did not breach the contract by stopping work but that Lake Hills did by underpaying AP. The jury returned a mixed verdict with a net judgment award of more than $9 million for Lake Hills.
On appeal, the court found that the jury instruction for the affirmative defense of faulty plans or specifications was misstated and therefore, prejudiced Lake Hills. The question before the Washington Supreme Court was whether the use of the word "solely" in the Spearin Doctrine jury instruction was incorrect and unduly biased Lake Hills.
The Affirmative Defense
The implied warranty of design accuracy in construction contracts was first recognized in the State of Washington in the case of Ward v. Pantages, 73 Wash. 208, 211, 131 P. 642 (1913). It was then established nationally in United States v. Spearin, 248 U.S. 132. In that case, the court provided the following guiding principle: "Generally a party agreeing to perform a duty will not be excused simply because unforeseen difficulties are encountered, but a contractor is not responsible for damages when it was misled by erroneous statements in the specifications."
Lake Hills argued that a contractor must establish that the defect resulted “solely” from the defective or insufficient design, not from another contractor-created cause, for the Spearin Doctrine to shield liability. The Court of Appeals agreed.
The Supreme Court disagreed with the Court of Appeals. The Court recognized "some tension” in Washington case law and called the jury instruction “potentially misleading,” but found the error to be harmless because Lake Hills failed to show that it was prejudiced. The Court explained that the rationale for the Spearin Doctrine defense is “based on control” or lack thereof. Specifically, where an owner provides a defective design a contractor should not be responsible for damage caused thereby, as it was "not the source of the defects.” The Spearin Doctrine is a “complete defense” to design defect claims, which the defendant has the burden to prove, and only if the damage is “solely due” to the defective design. If the defect is not due solely to defective design it is not a complete defense and the jury must allocate between design and installation defects.