Supreme Court of Appeals of West Virginia Rules on ‘Duty to Defend’ in Contractual Indemnification Provisions

On June 12, 2023, the Supreme Court of Appeals of West Virginia held in WW Consultants, Inc. v. Pocahontas County Public Service District and A-3 USA, Inc., Orders Construction Company, Inc., and Pipe Plus, Inc., No. 21-0485, that (1) claims for indemnity may be brought before they are technically ripe, (2) claims for contribution that fall outside West Virginia Code §§ 55-7-13a to 13d are abolished, and (3) a contractual agreement to indemnify does not include a duty to defend unless the contractual language explicitly provides for such defense.

WW Consultants, Inc. (WWC) contracted with the Pocahontas County Public Service District (the PSD) to serve as lead engineer and provide design services for the PSD’s construction of a new wastewater plant. WWC also oversaw the bidding process for the project, which was divided into separate phases, with separate contracts for each. Pipe Plus, Inc. (Pipe Plus) and Orders Construction Company, Inc. (Orders) (collectively, the subcontractors) won the contracts with the PSD. Notably, the contracts between the PSD and the subcontractors required the subcontractors to indemnify both the PSD and its engineer, WWC.

After several delays in the project, WWC filed suit in Kanawha County, alleging that several factors, including the delays, required WWC to perform additional work beyond its obligations under its contract with the PSD. The PSD counterclaimed, asserting claims of professional negligence and breach of contract against WWC. WWC also filed a third-party complaint against the subcontractors, seeking a defense, indemnification, and contribution from the subcontractors pursuant to their contracts with the PSD. WWC also filed a third-party complaint against a material supplier, A-3 USA, asserting claims for implied indemnity and contribution. The lower court ultimately dismissed WWC’s contractual indemnity and contribution claims against the subcontractors and A-3 USA without much explanation; WWC appealed.

On appeal, WWC sought a reversal of the lower court’s dismissal of its contractual indemnity contribution claims against the subcontractors and A-3 USA. WWC argued that any damages suffered by the PSD were the result of the subcontractors’ faulty construction and/or A-3 USA’s defective pipe rather than WWC’s design. The Court agreed that this allegation was sufficient to survive a motion to dismiss and created a genuine issue of material fact, thereby precluding summary judgment. Addressing WWC’s claim for indemnification, the Court provided a new syllabus point, holding that even though a claim for indemnity does not technically arise until the primary obligation to pay has been established, such claims may be brought by way of third-party practice before they are technically ripe in order to serve the interests of fairness and judicial economy. Consequently, the Court held that although WWC had not yet proven that the subcontractors were obligated to pay, WWC’s indemnification claim was ripe for determination.

The Court then addressed the lower court’s dismissal of WWC’s claim for contribution against A-3 USA. The Court provided a new syllabus point holding that contribution claims are governed by West Virginia’s comparative fault statutes, W. Va. Code §§ 55-7-13a to 13d, which abolished claims for contribution that fall outside the statute or its exceptions. Because it did not fall within one of the exceptions to the comparative fault statute, the court held that the lower court correctly dismissed WWC’s contribution claim against A-3 USA.

The Court then turned to the issue of the duty to defend. Although it did not issue any new syllabus points on the issue, the court clarified that in commercial transactions not involving insurance law, the duty to defend is exclusively determined by the language of the parties’ contract. The Court held that because the indemnification clause in the contract between the PSD and the subcontractors did not contain explicit language obligating any entity to provide a defense to WWC, dismissal of WWC’s claim for a defense was proper.

There are three clear takeaways from this ruling. First, companies that seek to bring their indemnification claim and any demand for a defense can now rest assured that the Court will have the subject matter jurisdiction to hear the claim, regardless of whether the duty to indemnify has actually arisen because of an adverse judgment. Second, companies seeking contribution must ensure that such claims fall within West Virginia’s contributory fault statutes or one of its explicit exceptions. Third, companies seeking indemnification and defense should ensure that their contract contains explicit, unambiguous language obligating the indemnitor to provide a defense. Furthermore, to the extent a company can influence the language of contracts between the party with whom it contracts and third parties whose acts the company could become liable for, it should request that clear language be added to those contracts providing not just indemnification but also a defense. Finally, it is also recommended that companies consistently review contracts to which they are parties to better understand any obligation that they may have to provide a defense and indemnification.

For assistance or if you have questions concerning this legal insight, please contact the authors or any member of the Steptoe & Johnson Litigation Team.