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On October 14, the Washington Court of Appeals issued a published opinion in Reecer Creek Excavating, LLC v. SRI-Rochlin Constr. JV, LLC. This suit stemmed from a March 2020 excavation subcontract on a housing project in Ellensburg. The parties agreed to handle extra work on a time-and-materials basis, with written change-orders required. After a brief COVID pause, Reecer Creek resumed work, submitted "Application #15" (paid), and then submitted "Application #16" for change-order work (unpaid). Reecer Creek stopped work, SRI finished portions with other contractors, and Reecer Creek filed a lien for $201,831.98. In arbitration, the arbitrator found breaches by both sides, awarded Reecer Creek retention and most of Application #16, offset the award for completion, repair, and survey overbilling, and also ordered Reecer Creek to defend and indemnify SRI for future fire-suppression claims.
What are Consequential Damages?
The subcontract contained a mutual waiver of "consequential damages." Consequential damages are losses that arise indirectly from a contract breach, not those that flow directly and immediately from it, such as lost profits or rents tied to delay. The Court read the waiver to limit the arbitrator's authority to award any consequential damages under this subcontract.
Direct vs. Consequential: How the Court Drew the Line
The Court reviewed the itemized offsets and treated most as direct damages rather than consequential damages. For example, the Court identified bonding around liens, fencing, over-budget concrete completion, repair of defective work, and repayment of unnecessary survey charges as losses that flowed immediately from Reecer Creek's breaches, i.e. not consequential damages. The Court therefore allowed those offsets despite the waiver.
The One Item That Crossed the Line
The Court rejected the arbitrator's requirement that Reecer Creek defend, indemnify, and hold SRI harmless for future claims tied to the fire-suppression system. That obligation did not flow directly and immediately from the breach. The Court vacated that portion as beyond the arbitrator's authority under the consequential-damages waiver, and otherwise affirmed the Superior Court.
The Lesson
This opinion gives contractors and counsel a clear sorting rule. Costs to complete, cure, or correct work usually count as direct damages and remain available even when a contract waives consequential damages. Open-ended, future-facing risk shifting can appear consequential and fall outside an arbitrator's power when a waiver applies. Drafters should define consequential damages with examples, and align indemnity, delay, and change-order terms with any waiver to avoid surprises in arbitration.
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