Although surety companies are generally not liable for tort damages to a third party, Washington’s legislature has carved out a limited exception for the setting up and sitting of mobile homes. The Revised Code of Washington (RCW) establishes a per se violation of the Consumer Protection Act in situations where a bonding company does not perform a reasonable investigation to resolve the claims of third parties who have sustained injuries or other damages as a result of a faulty set-up of a mobile home. However, to access this exception, the injured party must make a claim against the bond by filing a lawsuit in superior court. A surety’s duty to investigate and resolve the claim is not triggered until such suit is filed.
Joann Caskey purchased a mobile home and hired a bonded contractor, Bud & Doug’s Mobile Home Service, to install it on her property in Kettle Falls. The contractor was registered with the Department of Labor & Industries and bonded through Old Republic Surety Co. Caskey claimed that the install work was done incorrectly, resulting in damages. Due to the contractor’s faulty installation of the mobile home, it failed review and she was denied occupancy. The contractor offered to complete repairs in exchange for further payment, but Caskey hired an alternate contractor to finish the installation. At no time did Caskey file a lawsuit against Bud & Doug’s.
Approximately one year after the contractor stopped work on the home, Caskey’s attorney sent a demand letter to Old Republic — the surety company that issued the contractor’s licensing bond — requesting the bond proceeds. Old Republic responded by stating that any claims against the bond must be brought by lawsuit filed in the superior court pursuant to RCW 18.27.040. Caskey did not file a lawsuit in superior court against either the contractor or the bond. Instead two and a half years after the contractor had stopped work at her home, she filed a claim against Old Republic alleging violations of the Washington Insurance Fair Conduct Act (IFCA), RCW 48.30.010-.015, and the Consumer Protection Act (CPA). She claimed to be the obligor of the surety as a first party claimant. The superior court dismissed all of Caskey’s claims on summary judgment. The Court of Appeals affirmed that decision.
The Registration of Contractor’s Act & Licensing Bonds
The Registration of Contractor’s Act (RCA) regulates contractor business practices. Its purpose is to “afford protection to the public from unreliable, fraudulent, financially irresponsible, or incompetent contractors.” RCW 18.27.140. The RCA requires that contractors register with the Department of Insurance (Department). The statute also requires contractors to maintain a surety bond. In Washington, a licensing bond contains several conditions including the requirement that contractors will pay all amounts adjudged against them due to any breach of contract or faulty work. A surety’s liability is limited to the amount of damages covered by the bond.
RCW 18.27.040(1) requires a noncontractual license bond, which is characterized as a performance bond. A licensing bond creates a “tripartite relationship between the surety, principal (contractor) and the obligee.” Colorado Structures, Inc. v. Ins. Co. of the W., 161 Wn.2d 577, 605 n.15, 167 P.3d 1125 (2007). The obligee of this type of license bond is the State of Washington under the provisions of this statute.
Performance bonds are similar, but not identical, to insurance policies. “While Washington recognizes that insurance companies have a good faith obligation to investigate and handle claims of their insureds, this duty of good faith has never been extended to sureties.” Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 394, 715 P.2d 1133 (1986). In the case at hand, Old Republic is a surety, not an insurance company. Because Caskey is not a party to the bond, normally her case would be dismissed outright. However, because the Washington legislature carved out an exception for mobile home set-up, further examination of her particular circumstances were warranted.
Statutory Carve-Out for Mobile Homes
Generally, sureties are not responsible for tort damages claimed by third parties, but Washington’s legislature has codified an exception for mobile homes. In RCW 18.27.117, the legislature declared that the “setting up and siting mobile/manufactured homes must be done properly for the health, safety, and enjoyment of the occupants:” Therefore, when any of the following cause a health and safety risk to the occupants of a mobile/manufactured home, or severely hinder the use and enjoyment of the mobile/manufactured home, a violation of RCW 19.86.020 shall have occurred:
- The mobile/manufactured home has been improperly installed by a contractor registered or a mobile/manufactured dealer or licensed manufacturer.
- A warranty given has not been fulfilled by the person or business giving the warranty.
- A bonding company that issues a bond does not reasonably and professionally investigate and resolve claims made by injured parties.
May Caskey Assert a Private Cause of Action?
To determine whether the plaintiff in this case has a private cause of action, the court will look to the legislature’s intent in crafting the statute and employ the following three-part test:
- Is the plaintiff within the class for whose “especial” benefit the statute was enacted?
- Does explicit or implicit legislative intent support creating or denying a remedy?
- Would implying a remedy be consistent with the legislation’s underlying purpose ?
Bennett v. Hardy, 113 Wn.2d 912, 920-21, 784 P.2d 1258 (1990).
Although one section of the RCW clearly states that it meant to benefit persons living in mobile and manufactured housing, another section also states that surety bonds shall not be liable for violations of the statute. Old Republic asserts that third party torts against an insurance company or surety in Washington are not permitted. Looking to the Tank case, Old Republic relied upon the holding in the Tank case, which found that, “Under common law, third party claimants may not sue an insurance company directly for alleged breach of duty of good faith under a liability policy.” 105 Wn.2d at 391. However, Tank was decided in 1986, a year before the statute at issue was enacted.
Is Caskey Entitled to Bring a Private Cause of Action for a CPA violation?
It is a per se violation of the CPA when, “a bonding company that issues a bond under chapter 18.27 RCW or chapter 46.70 RCW does not reasonably and professionally investigate and resolve claims made by injured parties.” Here Old Republic contends that even if the statute creates a private cause of action, Caskey’s lawsuit cannot proceed because she failed to make a claim against the bond. Old Republic was the surety in this case who issued the contractor’s licensing bond. In its role as the surety, Old Republic was not required to investigate Caskey’s claim, or resolve any issues against the contractor that the bond did not cover. Old Republic’s only obligation to investigate arises from claims made against the bond.
How is a Claim Against the Bond Made?
A claim by a plaintiff against a licensing bond must be made pursuant to the procedures set forth in RCW 18.27.040 and requires the plaintiff to file a lawsuit. Licensing bonds are in place to protect the public from wayward contractors not a specific obligee. The statute seeks to accomplish this purpose by requiring claimants to provide the Department of Insurance with a means to supervise a contractor’s registration as well as notifying the public of claims against the contractor or the bond.
The RCA requires contractors to register with the Department and provide proof of securing a bond. The bond’s obligee is the State of Washington. RCW 18.27.040(3) The bond is a guarantee that if the contractor fails to pay an adjudicated claim, the bond can be applied toward the judgment amount. When a lawsuit is filed directly against the surety against the bond, service of process is completed though the Department, which serves both the contractor and the surety. “Unless the suit is filed in superior court, the Department will not be able to direct payment on an unsatisfied final judgment against a secured contractor.” WAC 296-200A-080(1). “In Washington, the only way to bring an action upon a bond is to file a lawsuit in superior court, naming the principal contractor and the surety.” RCW 18.27.40
Did Caskey’s Demand Letter Suffice as a Claim Against the Bond?
Caskey asserts that she effectively filed against the bond by sending a demand letter to Old Republic. Her main argument on this front stems from the statute’s use of the word “may”, which she takes to mean that filing a lawsuit in superior court is an option, but not a mandatory action that a plaintiff must take in this situation. Old Republic and briefs filed by amicus curie, state that the word “may” actually refers to venue selection and not to the procedure required to make a claim against the bond. The court looked to precedent found in Stenge v. Clark, 89 Wn.2d 23, 28, 569 P.2d 60(1977), which held that “the word ‘may’ merely permits the petitioner to make a choice of forum because a prospective litigant may always choose whether or not to pursue a civil action.” Based on this opinion, the court found that the word “may” here did not refer to how to an action against a bond can be brought, but rather applied to venue issues. It was therefore, unpersuaded by Caskey’s argument.
The court also found fault with Caskey’s argument that her demand letter sufficed as a claim against the bond. It noted that without a formal lawsuit being filed in superior court, the statute’s procedures are not triggered and the State of Washington is unable to direct any funds to the claimant. Cutting the Department out of the process, also prevents it from suspending the contractor’s license or informing the public of any issues in regard to that contractor, which goes against the law’s purpose.
Court of Appeals Conclusions
RCW 18.27.117(3) creates a derivative cause of action for a consumer protection violation claim against a surety separate from the bond, but a claim against the bond requires that a lawsuit be filed in superior court. After the Department has successfully served the surety, then the obligation to investigate and resolve the claims falls to the surety. Since Caskey never filed a claim against the bond in court, Old Republic’s duty to investigate her claim against the contractor was never triggered.
The court affirmed the superior court’s dismissal of all of Caskey’s claims against Old Republic. Caskey failed to properly file a lawsuit against the bond, which is statutorily required to trigger Old Republic’s duty to investigate and resolve the claim. In addition, Caskey’s CPA claim, based on Old Republic’s response letter, was not misleading or an unfair or deceptive trade practice. Therefore, the trial court was correct in its determination.