West Virginia Supreme Court Offers Guidance on Contractual and Implied Indemnity Claims

The West Virginia Supreme Court of Appeals recently reversed, in part, and affirmed, in part, a lower court decision regarding dismissal of contractual indemnity and implied indemnity claims. WW Consultants was the design engineer on a wastewater treatment plant project for Pocahontas County Public Service District (“Pocahontas County”). Pocahontas County bid construction of the plant out to three separate construction contractors. WW Consultants brought a breach of contract claim against Pocahontas County alleging that WW Consultants incurred costs relating to project delays and extra work ordered by Pocahontas County. Pocahontas County counter-claimed for negligence and breach of contract alleging WW Consultants design work was defective.

In response to the counterclaims, WW Consultants filed a third-party complaint against the construction contractors alleging, in part, that the contractors were responsible for the costs and impacts alleged in Pocahontas County’ counterclaim under a theory of contractual and implied indemnity. The contractors responded by moving to dismiss the contractual indemnity claims and seeking summary judgment on the implied indemnity claims. The lower court granted the motion to dismiss the contractual indemnity claims finding that the contract barred indemnity for claims arising out of WW Consultants’ defective work. The clause in question read:

The indemnification obligations of Contractor under Paragraph 7.18.A shall not extend to the liability of Engineer and Engineer’s officers, directors, members, partners, employees, agents, consultants and subcontractors arising out of:

1. the preparation or approval of, or the failure to prepare or approve maps, Drawings, opinions, reports, surveys, Change Orders, designs, or Specifications; or
2. giving directions or instructions, or failing to give them if that is the primary cause of the injury or damage.

The lower court, likewise, granted summary judgment in favor of the contractors on WW Consultants’ implied indemnity claims because WW Consultants had not plead, or created a factual question regarding, the existence of any special relationship between WW Consultants and the contractors. WW Consultants appealed these and other findings of the lower court.

Addressing the contractual indemnity claims, the West Virginia Supreme Court reversed the lower court decision finding that the lower court misapplied the standards for dismissal to the facts of the case. The court concluded that whether the exceptions to the contractors’ indemnity obligations (described above) applied to WW Consultants’ indemnity claims created a factual question that precluded dismissal. There was also a question regarding the ripeness of the contractual indemnity claim, which did not technically mature until an obligation for WW Consultants to pay Pocahontas County arose. The West Virginia Supreme Court determined that “such claims may be brought by way of third-party practice before they are technically ripe to serve the interests of fairness and judicial economy.”

As to the implied indemnity claims, the West Virginia Supreme Court upheld the lower court’s decision. In West Virginia, the elements of an implied indemnity claim require a showing that “(1) an injury was sustained by a third party, (2) for which a putative indemnitee has become subject to liability because of a positive duty created by statute or common law, but whose independent actions did not contribute to the injury, and (3) for which a putative indemnitor should bear fault for causing because of the relationship the indemnitor and indemnitee share.” To satisfy the third element, a party must show a special relationship exists between the indemnitor and indemnitee. According to the West Virginia Supreme Court, a “special relationship” arises when a party is obligated to pay “because of its vicarious, constructive, derivative or technical liability for the wrongful acts of another” and where there was no actual fault on the part of the proposed indemnitee.

In upholding the lower court’s decision dismissing WW Consultants’ implied indemnity claims, the West Virginia Supreme Court found that WW Consultants had failed to allege that any wrongful act of the contractors was being imputed on WW Consultants by operation of law. Specifically, the court found WW Consultants’ third-party complaint contained “no facts about its relationship with [the contractors], much less one that gives rise to imputed or vicarious liability” and that Pocahontas County had not asserted any claims based on vicarious or imputed liability.

The WW Consultants case gives a glimpse of how courts evaluate indemnity claims and emphasizes the importance of having a lawyer examining and satisfying the statutory requirements to mount a successful claim for such indemnity. It is critical that she or he understands the requirements of a particular jurisdiction to enforce such a claim, and that you provide her or him with the requisite factual grounds, if any, supporting such a claim.