West Virginia Supreme Court Allows Contractor to Sue Engineer for Negligence and Breach of Warranty, but Not as Third-party Beneficiary

Eastern Steel Constructors, Inc. v. City of Salem,
No. 28202, 2001 W. Va. LEXIS 3 (W. Va. Feb. 9, 2001)

The City of Salem, West Virginia, entered into a contract with Kanakanui Associates pursuant to which Kanakanui was to provide engineering and architectural services for improvements to Salem’s existing sewer system. Kanakanui produced plans and specifications to be used to solicit bids for the improvements. Eastern Steel Constructors, Inc. bid on a portion of the project relying on the plans provided by Kanakanui and was awarded the contract.

During construction, Eastern experienced delays caused by sub-surface conditions not disclosed by Kanakanui’s plans. Eastern also alleged that it incurred further damages caused by Kanakanui’s failure to manage the project properly. Eastern filed tort actions against Kanakanui alleging the following: (1) negligent performance of construction services; (2) breach of implied warranty of the plans and specifications; and (3) that Eastern was entitled to damages as a third-party beneficiary to the contract between Salem & Kanakanui.

The circuit court granted Kanakanui’s motion for summary judgment on all three theories. The Supreme Court of Appeals of West Virginia reversed the summary judgment on the first two counts, but affirmed the summary judgment on the third count.

The Court held that a design professional “owes a duty of care to a contractor who has been employed by the same project owner as the design professional and who has relied upon the design professional’s work product in carrying out his or her obligations for the owner, notwithstanding the absence of privity of contract between the contractor and the design professional, due to the special relationship that exists between the two.”

In determining whether a “special relationship” exists sufficient to impose a duty of care, the Court explained that each case must be determined on its own facts and that such a determination will depend heavily on “the extent to which the particular plaintiff is affected differently from society in general.” If, however, a special relationship is found to exist, purely economic damages may be recovered.

The Court recognized that other jurisdictions do not permit recovery for purely economic damages in negligence. The court, however, declined to adopt this rule and instead, set forth its approach allowing recovery of purely economic damages in cases of professional negligence. The Court justified its position on the grounds that: (1) the duty is owed only to a limited class; (2) a successful bidder is a foreseeable victim of any negligence; and (3) allowing recovery places the duty of care on the party who is in the best position to protect against damages resulting from design negligence.

The Court held that due to the existence of the special relationship between a design professional and contractor, a design professional impliedly warrants that his or her plans or specifications “have been prepared with the ordinary skills, care and diligence commensurate with that rendered by members of his or her profession” because the contractor must reply on the design documents during both the bidding and the construction phases. Accordingly, a contractor may bring a claim against the design professional for breach of this implied warranty.

In affirming the lower court’s grant of summary on Eastern’s claim that it was a third-party beneficiary to the contract between Kanakanui and Salem, the Court relied on a West Virginia statute (W. Va. Code § 55-8-12) requiring that, in order to support such an action, the contract need be made for the “sole benefit” of the claimant. In making the determination as to whether the contract was made for the “sole benefit” of the claimant, in the absence of an express contractual provision, the presumption is against allowing a third-party beneficiary action. Eastern offered no evidence efficient to overcome this presumption.

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