Yes you can. The only exception would be if the contractor can show that he did not take on other work, as a result of this contract, and this contractor could therefore make a claim for lost profit on the job. These claims are rare and difficult to prove (for the contractor). The contractor would have to demonstrate that it could have obtained other jobs (not speculative, but actual).
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There is a great case right on point, which stands for the proposition that the breaching party cannot stand on the contract and seek to enforce it. The case is called Parsons Supply, Inc. v. Smith, 22 Wn.App. 520, 523 (1979). The facts are different, but the premise is the same. When is the last time you have notified your "employer" that you have not been paid. This will be a factor if the case is litigated. Good luck.
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I agree with the answer already posted (i.e. filing suit where the defendant is located or where the "action" occurred. However, if you are able to serve your "friend" (past tense I'm sure), you can sue him in Washington. You will have to establish to the court, if your "friend" does not file an Answer, that venue and jurisdiction is proper here. This can be demonstrated if you can prove that your "friend" availed himself of Washington law by, i.e., reaching out to you here, or having other...
It sounds like you are on solid ground here. At the very least you have a fraud claim (fraud in the inducement). It would obviously be a lot easier to "fight" if you knew exactly what the changes were (i.e. do you have a journal with notes), but you will have to prove that you are not making up the additional terms either; the burden will be on you in this regard.
This response is only to the construction portion. I think the first question is this: do you have a direct contract with the contractor? It sounds like the insurance company does. This will make it interesting regarding collection of attorney fees. Regardless, you need to file suit to make a claim on the bond. Service is through Labor & Industries. The process is fairly simple, but it will be helpful if you can get an accurate assessment of damages (a remedial repair bid). That way you can...