West Virginia Court Holds That Absence of Privity Does Not Bar Suit Against Engineer for Negligence or for Breach of Implied Warranty of Plans and Specifications

Eastern Steel Constructors, Inc. v. The City of Salem
209 W.Va. 392, 549 S.E.2d 266 (2001)

The City of Salem entered into a contract with Kanakanui Associates (“Kanakanui”) pursuant to which Kanakanui agreed to provide engineering and architectural services for improvements to Salem’s existing sewer system. Kanakanui prepared the plans and specifications for the Project. Relying on these plans and specifications, Eastern Constructors, Inc. (“Eastern”) submitted a bid to construct one of the sewer lines planned as part of the improvements. Eastern’s bid was accepted, and it was awarded the contract.

Soon after it commenced performance, Eastern encountered substantial delays caused by subsurface conditions that had not been disclosed in the documents prepared by Kanakanui. It subsequently filed actions in tort against both Salem and Kanakanui for economic losses incurred as a result of the delays. Eastern claimed (1) that Kanakanui had been negligent in its provision of services; and (2) that both Salem and Kanakanui breached an implied warranty of plans and specifications. Eastern also claimed that it was entitled to damages as a third-party beneficiary to the contract between Salem and Kanakanui. The trial court granted summary judgment in favor of Kanakanui on all three claims.

Upon review, the Supreme Court of Appeals reversed the trial court’s conclusion that, as a matter of law, Eastern could not maintain a negligence action for purely economic losses. Relying on the Court’s decision in Aikens v. Debow, 208 W. Va. 486, 541 S.E.2d 576 (2000) and authority from other jurisdictions, the Court concluded 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 to the owner, notwithstanding the absence of privity” between the design professional and the contractor. The Court reached such a conclusion because of the special relationship that it deemed existed between the two parties. Accordingly, Eastern could maintain its tort action against Kanakanui for purely economic losses.

The Supreme Court of Appeals also reversed the trial court’s conclusion that Eastern, as a matter of law, could not maintain an action for breach of an implied warranty of plans and specifications. The Court noted that earlier West Virginia precedent abolished the requirement of privity of contract in an action for breach of an express or implied warranty in the context of products liability actions. In light of the special relationship which the Court deemed existed between the design professional and the contractor, the Court had little difficulty extending its previous holding to the present case. Accordingly, Eastern could maintain an action for breach of implied warranty of plans and specifications against Kanakanui.

Finally, the Supreme Court of Appeals agreed that Eastern failed to demonstrate it was a third-party beneficiary to the contract between Salem and Kanakanui. Eastern presented no evidence of an express declaration that Salem and Kanakanui intended Eastern to be a beneficiary to their agreement. Nor did it present any evidence tantamount to such a declaration. Consequently, the appellate court affirmed the trial court’s award of summary judgment on Eastern’s third-party beneficiary claim.

For full text of decision, click here.

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