In Edifice Constr. Co., Inc. v. Arrow Insulation, Inc., No. 79407-8-1, 2020 Wash App. LEXIS 359, the Court of Appeals of Washington considered whether subcontractors could be bound by the arbitration clause in a contract between an owner and a general contractor. In determining that the subcontractors were not bound by the arbitration clause in the prime contract, the court found that the general contractor failed to meet its burden of showing that the subcontractors were on notice of the specific terms of the prime contract.

In Edifice Constr., the general contractor, Edifice Construction (Edifice), entered into a contract to construct a residential building in Seattle in 2010. In 2018, the building owner sent a Notice of Intent to Arbitrate to Edifice. Edifice, in turn, sent a Notice of Intent to Arbitrate to numerous subcontractors. Edifice also filed suit against those subcontractors. Subsequent to filing suit, Edifice filed a motion to compel arbitration with the trial court. The trial court denied Edifice’s motion and Edifice appealed the decision.

Washington’s Court of Appeals upheld the trial court’s denial by finding that Edifice failed to show that any of the subcontractors were aware of the terms of the prime contract. The appellate court determined that the mere incorporation of a prime contract is insufficient to establish that subcontractors are aware of the terms of the prime contract.

In this case, Edifice made no attempt to establish that the subcontractors were aware of the incorporated terms, such as by establishing that the contract forms incorporated were standard within the industry and, thus, the subcontractors were aware of their terms. As the court determined that Edifice failed to establish that the subcontractors were aware of the arbitration terms in the prime contract, it found that the subcontractors could not be bound by those terms.

This case serves as a good reminder that when dealing with a construction loss, a subrogation professional should review the specific language of any incorporation clause in a subcontract as well as the potential attachments to the subcontract. In addition, subrogation professionals in Washington should ensure that subcontractors are aware of contract terms purportedly incorporated. As Edifice Constr. establishes, the mere presence of a waiver of subrogation clause and/or any other limiting language within the prime contract may not necessary apply to a subcontractor.