14.8 A Question of Ethics. King County, Washington, hired Frank Coluccio Construction Co. (FCCC) to act as general contractor for a public works project involving the construction of a small utility tunnel under the Duwamish Waterway. FCCC hired Donald B. Murphy Contractors, Inc. (DBM), as a subcontractor. DBM was responsible for constructing an access shaft at the eastern end of the tunnel. Problems arose during construction, including a “blow-in” of the access shaft when it filled with water, soil, and debris. FCCC and DBM incurred substantial expenses from the repairs and delays. Under the project contract, King County was supposed to buy an insurance policy to “insure against physical loss or damage by perils included under an ‘All Risk’ Builder’s Risk policy.” Any claim under this policy was to be filed through the insured. King County, which had general property damage insurance, did not obtain an all-risk builder’s risk policy. For the losses attributable to the blow-in, FCCC and DBM submitted builder’s risk claims, which the county denied. FCCC filed a suit in a Washington state court against King County, alleging, among other claims, breach of contract. [Frank Coluccio Construction Co. v. King County, 136 Wash.App. 751, 150 P.3d 1147 (Div. 1 2007)]

1 King County’s property damage policy specifically excluded, at the county’s request, coverage of tunnels. The county drafted its contract with FCCC to require the allrisk builder’s risk policy and authorize itself to “sponsor” claims. When FCCC and DBM filed their claims, the county secretly colluded with its property damage insurer to deny payment. What do these facts indicate about the county’s ethics and legal liability in this situation? 2 Could DBM, as a third party to the contract between King County and FCCC, maintain an action on the contract against King County? Discuss. 3 All-risk insurance is a promise to pay on the “fortuitous” happening of a loss or damage from any cause except those that are specifically excluded. Payment is not usually made on a loss that, at the time the insurance was obtained, the claimant subjectively knew would occur. If a loss results from faulty workmanship on the part of a contractor, should the obligation to pay under an all-risk policy be discharged? Explain.