Washington Contractors Be Wary: One-Year Warranty Limitations Are Unconscionable
Wednesday, September 20, 2023
by: Natasha A. Khachatourians, Betts Patterson Mines, P.S.

Section: Summer 2023

In late October 2022, in a narrow 5-4 decision, Washington’s Supreme Court struck another blow to general contractors—this time hitting them with a ruling holding that a one-year limitation period to file a lawsuit under a residential construction contract is “substantively unconscionable” and “void and unenforceable.” 

In Tadych v. Noble Ridge Construction, Inc., et al., 200 Wn.2d 635, 519 P.3d 199 (2022), the plaintiffs entered into a written agreement with the defendant-general contractor for the construction of their personal residence.  The construction contract, like most agreements in this area, contained a warranty provision.  The warranty provision contained the following statement, in pertinent part:
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 as defined above, whichever comes first. Any claim or cause of action not so filed within this period is conclusively considered waived.
Id. at 638-39.  The plaintiffs reviewed the contract for a month before executing it without any evidence of objection to the warranty provision or the limitation period contained therein. 
Plaintiffs moved into the residence by April 2014.  Within 10 months, they experienced significant issues with their residence—so much so that they hired a construction expert to inspect the residence and who identified defects with the residence.  Over the next year and a half, plaintiffs submitted concerns with the residence to the contractor, who promised to make repairs, but none were made.  By April 2017, the plaintiffs had not heard from the contractor for several months, and they hired another construction expert, who opined that there were significant defects with the residence.

The plaintiffs filed suit against the contractor in August 2017—over three years after taking occupancy in the residence and over two years after initially discovering defects.  The contractor successfully dismissed the plaintiffs’ claims on summary judgment, which was affirmed at the appellate level.

In reversing the lower two courts, Washington’s Supreme Court acknowledged that Washington generally follows the “black letter law of contracts that parties to a contract shall be bound to a contract by its terms” but noted that contractual provisions “that are unconscionable are not enforceable.”  Id. at 641.  The factors analyzed for unconscionability included: “(1) the manner in which the contract was entered, (2) whether [the parties] had a reasonable opportunity to understand the terms of the contract, and (3) whether the important terms were hidden in a maze of fine print, to determine whether a party lacked a meaningful choice.” Id. at 635 (citing Burnett v. Pagliacci Pizza, Inc., 196 Wn.2d 38, 470 P.3d 486 (2020)). 

The Tadych court held that the one-year limitation in the warranty provision was substantively unconscionable because it deprived the plaintiffs of the six-year statute of repose under RCW 4.16.310.[1] 

In addition, the court considered the “expertise or sophistication of the parties, which party drafted the contract, and whether the term at issue was separately negotiated or bargained for.”  Id. at 645.  The court held that the limitation period appeared to benefit the contractor more than the plaintiffs, highlighting that the plaintiffs were laypersons.

That said, there is no indication from this opinion that all contractual limitation periods will be deemed unconscionable.  Moving forward, it would be prudent for contractors to ensure that limitation-periods are set out in bold with large writing and easily distinguishable from the other provisions of the contract.  Consider requiring a separate set of initials for the limitation provision.  Correlate the cost of the contract with the limitation provision to show that the provision was “bargained for.”  Most importantly, consider with whom you are entering the contract: is it an average individual?  If so, that alone may be enough to void the limitation provision, because lest we forget, the plaintiffs in Tadych had a month to review the contract, did not object to provisions, and hired experts early on to inspect their residence.  They were far more careful than the average “layperson,” and they were still able to convince the Washington Supremes that this limitation provision was unconscionable.

This article originally appeared in FDCC Insights magazine.

Natasha Khachatourians is a Director and a member of the Insurance Defense Practice group. For over a decade, Ms. Khachatourians’ practice has focused on complex civil litigation of various types, ranging from premises and products liability to construction defect and wrongful death matters. She has defended clients against claims for professional liability, including attorneys and real estate brokers. While she primarily engages in general liability defense, Ms. Khachatourians also has experience assisting clients with debt collection and real estate disputes.

[1] The court also indicated that a homeowner has a six-year period to discovery a defect and bring a claim under RCW 4.16.326(1)(g), but this is an affirmative defense for claims that did not accrue within the statute of repose or were not filed within the statute of limitations.