BILL REQ. #:  H-1397.1 

Read first time 02/08/2005.   Referred to Committee on Judiciary.

     AN ACT Relating to managing construction defect disputes involving multiunit residential buildings; amending RCW 64.34.100; adding new sections to chapter 64.34 RCW; adding a new chapter to Title 64 RCW; creating a new section; providing an effective date; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   DEFINITIONS. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
     (1) "Building enclosure" means that part of any building, above or below grade, that physically separates the outside or exterior environment from interior environments. Interior environments consist of both heated and unheated enclosed spaces, and also include, but are not limited to balconies, decks, guardwalls, balcony support columns, chimneys, garages, and other structures that interface with the building.
     (2) "Building enclosure design documents" means plans, details, and specifications for the building enclosure that have been stamped by a licensed engineer or architect.
     (3) "Developer" means an individual, group of individuals, partnership, corporation, association, municipal corporation, state agency, or other person and their successors and assigns undertaking the construction or reconstruction of a multiunit residential building.
     (4) "Dwelling unit" means a suite operated as a housing unit, used or intended to be used as a residence or usually containing cooking, eating, living, sleeping, and sanitary facilities.
     (5) "Multiunit residential building" means a residential building containing more than two dwelling units, including a residential condominium under chapter 64.34 RCW, but excluding the following classes of buildings:
     (a) Hotels and motels;
     (b) Dormitories;
     (c) Care facilities;
     (d) Floating homes;
     (e) Any multiunit building in which all of the dwelling units are held under one ownership and constructed for rental purposes, if the building is subject to a covenant restricting the sale or other disposition of individual dwelling units for ten years or more from the date of first occupancy.
     (6) "Stamped" means bearing the stamp and signature of the responsible registered architect or engineer on the title page and every sheet of the documents, drawings, or specifications, including modifications to the documents, drawings, and specifications that become part of change orders or addenda to alter those documents, drawings, or specifications.

NEW SECTION.  Sec. 2   INSPECTIONS. All multiunit residential building enclosures for which building permits are issued after the effective date of this act shall be inspected by a qualified inspector during the course of construction, whether the permits are for initial construction or rehabilitative construction of the building enclosure.

NEW SECTION.  Sec. 3   DESIGN DOCUMENTS. (1) Any person applying for a building permit subject to section 2 of this act shall submit building enclosure design documents to the appropriate building department for filing prior to the start of construction of the building enclosure. The design documents shall be stamped and shall contain an appropriate level of information to allow construction of the building enclosure. The submitted documents shall be updated to reflect changes made to the design during construction. Such updates shall be stamped and may be provided through individual updates, cumulative updates, or as-built updates.
     (2) The signature and stamp of a registered architect or engineer constitute a certification that the document, drawing, or specification was prepared by the registered architect or engineer or under the supervision and control of that architect or engineer. Nothing in this section requires a building department to review, approve, or disapprove enclosure design documents.
     (3) If the appropriate building department has not instituted necessary filing requirements and procedures, a declarant under chapter 64.34 RCW or a developer may nonetheless be deemed to have complied with applicable course of construction inspection requirements, so long as the declarant or developer has satisfied all other requirements of this chapter. If a dispute arises about compliance with the inspection requirements, an arbitrator appointed pursuant to section 10 of this act shall determine whether the declarant or developer has complied. If such a dispute arises and an arbitrator has not been appointed, the court shall determine such compliance.

NEW SECTION.   4   INSPECTORS--QUALIFICATIONS--INDEPENDENCE. (1) For purposes of section 2 of this act, a qualified building enclosure inspector:
     (a) Must be either: (i) A licensed architect or engineer with verifiable training and experience in building enclosure design and construction; or (ii) any person with verifiable training and experience in building enclosure design and construction; and
     (b) Shall be free from any interference or influence relating to the inspections. The qualified inspector may not be an employee or subsidiary of, nor have any pecuniary interest in, the declarant or developer of the project in question or any party providing services or materials for the project, except that the qualified inspector may be the architect or engineer who approved the building enclosure design documents or the architect or engineer of record. The qualified inspector may, but is not required to, assist with the preparation of such design documents.
     (2) Nothing in this section alters requirements for licensure of any architect, engineer, or other professional, or alters the jurisdiction, authority, or scope of practice of architects, engineers, other professionals, or general contractors.

NEW SECTION.  Sec. 5   SCOPE OF INSPECTION. Any inspection required by section 2 of this act shall include at a minimum the following:
     (1) Water penetration resistance testing of a representative sample of windows and window installations. Such tests shall be conducted according to industry standards. Where appropriate, tests shall be conducted with an induced air pressure difference across the window and window installation. Testing is not required if the same assembly has previously been tested in situ in the project under construction by the builder, by another member of the construction team such as an architect or engineer, or by an independent testing laboratory; and
     (2) An independent periodic review of building enclosure construction activities during the course of construction to ascertain whether the multiunit residential building has been constructed in general compliance with the building enclosure design documents.

NEW SECTION.  Sec. 6   CERTIFICATION. Upon completion of an inspection required by section 2 of this act, the qualified inspector shall prepare a letter certifying that the building enclosure has been inspected during the course of construction and has been constructed in substantial compliance with the building enclosure design documents, as updated pursuant to section 3 of this act. The letter of inspection shall be provided to the appropriate building department prior to issuance of a certificate of occupancy or other similar final acceptance by the building department.

NEW SECTION.  Sec. 7   LIABILITY. With respect to an inspection performed pursuant to section 2 of this act, a qualified inspector is immune from liability to anyone other than the declarant or developer of the project inspected. The qualified inspector and the declarant or developer may contractually agree to limit the qualified inspector's liability to the fee or contract price actually paid, or to limit or modify such liability in such other manner as they agree to.

NEW SECTION.  Sec. 8   NO EVIDENTIARY PRESUMPTION--ADMISSIBILITY. A qualified inspector's report or testimony regarding an inspection conducted pursuant to section 2 of this act is not entitled to any evidentiary presumption in any arbitration or court proceeding. Nothing in this act restricts the admissibility of such a report or testimony, and questions of the admissibility of such a report or testimony shall be determined under the rules of evidence.

Sec. 9   RCW 64.34.100 and 2004 c 201 s 2 are each amended to read as follows:
     (1) The remedies provided by this chapter shall be liberally administered to the end that the aggrieved party is put in as good a position as if the other party had fully performed. However, consequential, special, or punitive damages may not be awarded except as specifically provided in this chapter or by other rule of law.
     (2) Except as otherwise provided in sections 10 through 17 of this act or in chapter 64.35 RCW, any right or obligation declared by this chapter is enforceable by judicial proceeding.

NEW SECTION.  Sec. 10   ARBITRATION--ELECTION--NUMBER OF ARBITRATORS--QUALIFICATIONS--TRIAL DE NOVO. (1) A court shall refer a dispute involving a residential condominium under this chapter for arbitration if:
     (a) A complaint has been served or filed that alleges a breach of an implied or express warranty under this chapter, or that seeks relief that could be awarded for such a breach under this chapter, regardless of the legal theory pled; and
     (b) A demand for arbitration is made by a party within ninety days after filing of the complaint.
     (2) Unless otherwise agreed by the parties, claims for less than one million dollars shall be heard by a single arbitrator and all other claims shall be heard by three arbitrators.
     (3) Unless otherwise agreed by the parties, the court shall appoint all arbitrators. Any arbitrator shall be an attorney with experience as an attorney, judge, arbitrator, or mediator in construction defect disputes.
     (4) Following an arbitration hearing conducted in accordance with rules prescribed pursuant to section 11 of this act, the arbitrator shall file the decision and award with the clerk of the superior court, together with proof of service thereof on the parties. Within twenty days after the filing of the decision and award, any aggrieved party may file with the clerk a written notice of appeal and demand for a trial de novo in the superior court on all issues of law and fact. Upon such a demand, a trial de novo shall be held. The right to a trial de novo includes the right to a jury, if demanded. The court shall give priority to the trial date for the trial de novo. Except as otherwise provided for in section 16 of this act, if the judgment in the trial de novo is not more favorable to the appealing party than the arbitration award, the appealing party shall pay any nonappealing party's costs and fees, including reasonable attorneys' fees, incurred after the filing of the appeal.

NEW SECTION.  Sec. 11   RULES OF PROCEDURE. The supreme court shall by rule adopt procedures to implement arbitration, mediation, and the use of neutral experts under sections 10 through 17 of this act.
     (1) The legislature respectfully requests that those rules provide for:
     (a) As expedited a process in both arbitration and court proceedings as possible, including commencement of mediation within six months, and arbitration or trial within twelve months, following filing of the complaint; and
     (b) Sanctions against a party who fails to meet a deadline imposed by the rules.
     (2) The rules should also include, but need not be limited to, provisions for a case plan schedule with deadlines regarding:
     (a) Joining additional parties in the claim;
     (b) Referring a case to arbitration and the appointment of arbitrators;
     (c) Selection of mediators;
     (d) Completion of a claimant's investigation;
     (e) Completion of a defendant's investigation;
     (f) Disclosure of each party's lists of defects and proposed scope of repair;
     (g) Requesting the use of a neutral expert, assigning a neutral expert, and receiving the report of a neutral expert;
     (h) Disclosure by each party of estimated costs of repair;
     (i) Claimant's settlement demand;
     (j) Defendant's response to the settlement demand;
     (k) Defendant's demands on other parties and responses by those parties;
     (l) Submission of mediation materials; and
     (m) Submission by each party of a declaration that:
     (i) A decision maker with authority will be available for the duration of any mediation; and
     (ii) The decision maker has been provided with and reviewed the requisite mediation materials provided by its own counsel, as well as the materials submitted by the opposing parties.

NEW SECTION.  Sec. 12   MANDATORY MEDIATION. (1) Any dispute that involves an alleged breach of an implied or express warranty involving a residential condominium under this chapter, or that seeks relief that could be awarded for such a breach under this chapter, regardless of the legal theory pled, shall be submitted to mediation. If the dispute has been referred to arbitration under section 10 of this act, and unless otherwise agreed by the parties, the mediator shall be appointed by the arbitrator. If the dispute has not been referred for arbitration under section 10 of this act, and unless otherwise agreed by the parties, the mediator shall be appointed by the court.
     (2) The parties and their experts are required to meet and confer in an attempt to resolve or narrow the scope of the disputed issues. The parties' obligations to mediate and meet and confer are governed by this chapter and the rules adopted pursuant to section 11 of this act.
     (3) Completion of mediation occurs upon notice from one party to the other terminating mediation.

NEW SECTION.  Sec. 13   NEUTRAL EXPERT. (1) If, after meeting and conferring under section 12 of this act, disputed issues remain with respect to a residential condominium, a party may request the appointment of a neutral expert. Upon such a request, if the dispute has not been referred for arbitration under section 10 of this act, the court shall decide whether or not to appoint a neutral expert. If the dispute has been referred to arbitration under section 10 of this act, the arbitrator shall decide whether or not to appoint a neutral expert.
     (2) The neutral expert shall be a licensed architect or engineer with substantial experience in the disputed issue or shall have other suitable experience and training. The neutral expert shall not have been employed as an expert by a party to the present dispute within three years before the commencement of the present dispute, unless the parties agree otherwise.
     (3) All parties shall be given an opportunity to recommend neutral experts to the court or arbitrator and shall have input regarding the appointment of a neutral expert.
     (4) Unless the parties agree on the following matters, the court or arbitrator shall determine:
     (a) Who shall serve as the neutral expert;
     (b) Subject to subsection (5) of this section, the scope of the neutral expert's duties;
     (c) The number and timing of inspections of the property;
     (d) Coordination of inspection activities with the parties' experts;
     (e) The neutral expert's access to the work product of the parties' experts;
     (f) The product to be prepared by the neutral expert;
     (g) Whether the neutral expert should participate personally in the parties' mediation; and
     (h) Other matters relevant to the neutral expert's assignment.
     (5) If the parties fail to agree otherwise, the neutral expert shall not make findings regarding the amount of damages to be awarded or cost of repair. However, the parties may agree that the neutral expert is to make such findings in addition to other findings, or may agree that the neutral expert's findings are to be limited to the amount of damages to be awarded or cost of repair.
     (6) A party may, by motion to the court or arbitrator, object to the individual appointed to serve as the neutral expert and to determinations regarding the neutral expert's assignment.
     (7) The neutral expert has no obligation to participate in the repairs recommended by the neutral expert. The claimants have no obligation to accept any low bid submitted as part of the determination of damages. The neutral expert has no liability to the parties for the performance of his or her duties.
     (8) Except as otherwise agreed by the parties, the parties have a right to review and comment on the neutral expert's report before it is made final.
     (9) A neutral expert's report or testimony regarding the report is not entitled to any evidentiary presumption in any arbitration or court proceeding. Nothing in this act restricts the admissibility of such a report or testimony, and questions of the admissibility of such a report or testimony shall be determined under the rules of evidence.
     (10) The court or arbitrator shall determine the significance of the neutral expert's report and testimony with respect to parties joined after the neutral expert's appointment and shall determine whether additional neutral experts should be appointed or other measures should be taken to protect such joined parties from undue prejudice.

NEW SECTION.  Sec. 14   PAYMENT OF FEES OF ARBITRATORS, MEDIATORS, AND NEUTRAL EXPERTS. (1) A party who demands arbitration under section 10 of this act is responsible for advancing the fees of any appointed arbitrator and any mediator appointed under section 12 of this act. If an arbitrator has not been demanded, the court shall determine the responsibility for advancing fees for any such mediator. A party who requests the appointment of a neutral expert under section 13 of this act is responsible for advancing the fees of any appointed neutral expert.
     (2) With respect to a dispute that involves a residential condominium for which a building permit that authorized commencement of construction was issued on or after the effective date of this act:
     (a) That is referred to arbitration under section 10 of this act, the party who does not prevail in the arbitration is liable for the fees of any arbitrator, mediator, or neutral expert appointed in the arbitration; or
     (b) That is not referred to arbitration, the party who does not prevail at trial is liable for the fees of any mediator or neutral expert appointed in the trial.
     (3) With respect to a dispute that involves a residential condominium for which a building permit that authorized commencement of construction was issued before the effective date of this act:
     (a) If the dispute is referred to arbitration under section 10 of this act, a party who demands arbitration is liable for the fees of any appointed arbitrator and any mediator appointed under section 12 of this act;
     (b) If the dispute has not been referred to arbitration, the court shall determine liability for the fees of any mediator appointed under section 12 of this act; and
     (c) Whether or not the dispute is referred to arbitration, a party who requests a neutral expert under section 13 of this act is liable for the fees of any neutral expert appointed.

NEW SECTION.  Sec. 15   SUBCONTRACTORS. Upon the demand of a party to an arbitration conducted pursuant to section 10 of this act, any subcontractor or supplier against whom such party has a legal claim and whose work or performance becomes an issue in the arbitration shall join in and become a party to and be bound by the arbitration.

NEW SECTION.  Sec. 16   OFFERS OF JUDGMENT--COSTS AND FEES. (1) Either party may submit an offer of judgment to the court or arbitrator on or prior to the sixtieth day following completion of mediation under section 12 of this act. The offer of judgment shall specify the amount of damages, not including costs or fees, that the party is willing to pay or receive. The offer shall also indicate the party's willingness, where applicable, to pay costs and fees that may be awarded as provided in this section. There may be more than one offer of judgment submitted so long as each offer is timely made.
     (2) An offer by the defendant must include a demonstration of ability to pay both damages and costs and fees. If the parties dispute the adequacy of the defendant's demonstration of ability to pay, the court or arbitrator shall determine whether the defendant's demonstration of ability to pay is adequate.
     (3) If the claimant accepts the defendant's offer of judgment, the claimant is deemed the prevailing party for purposes of this section only and, in addition to recovery of the amount of the offer, is entitled to a costs and fees award, including reasonable attorneys' fees, in an amount to be determined by the court or arbitrator in accordance with applicable statutes and court rules.
     (4) If a final judgment on damages, not including costs or fees, is not more favorable to the party receiving the offer than is the offer of judgment, then the party making the offer is deemed the prevailing party for purposes of this section only and is entitled to a costs and fees award, including reasonable attorneys' fees. The award shall be for costs and fees, including reasonable attorneys' fees incurred after the date of the offer of judgment and shall be determined by the court or arbitrator in accordance with applicable statutes and court rules. The nonprevailing party shall not be entitled to receive any award of costs and fees, except as may be provided for in section 14 of this act.
     (5) If the final judgment on damages, not including costs or fees, is more favorable to the party receiving the offer than is the offer of judgment, then the court or arbitrator shall determine which party is the prevailing party and shall determine the amount of the costs and fees award, including reasonable attorneys' fees.
     (6) Notwithstanding any other provision in this section, the amount of defendant's costs and fees, including reasonable attorneys' fees, payable by the claimant pursuant to this section may not exceed five percent of the assessed value of the residential condominium project as a whole, and such costs and fees shall be allocated among unit owners in proportion to the assessed values of their individual units. If not all units in the project are involved in the dispute, such five percent costs and fees limit shall be calculated on the aggregate assessed value of those units that are involved, together with an allocable portion of the assessed value of the common areas of the project, and such costs and fees shall be allocated among unit owners in proportion to the assessed values of their individual units.
     (7) This section applies to any damages that could have been awarded for a breach of an express or implied warranty under this chapter, regardless of the legal theories pled.

NEW SECTION.  Sec. 17   APPLICATION OF SECTIONS 10 THROUGH 16 OF THIS ACT. Sections 10 through 16 of this act apply only to disputes in which a complaint is served or filed on or after July 1, 2005.

NEW SECTION.  Sec. 18   Sections 1 through 8 of this act constitute a new chapter in Title 64 RCW.

NEW SECTION.  Sec. 19   Sections 10 through 17 of this act are each added to chapter 64.34 RCW.

NEW SECTION.  Sec. 20   CAPTIONS. Captions used in this act are not any part of the law.

NEW SECTION.  Sec. 21   This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect July 1, 2005.