Filed: December 8, 1995
Anthony G. Halkias Robert S. Brams
Jeff Miller Gadsby & Hannah
Legal Division Washington D.C.
West Virginia Department of James K. Brown
Transportation Anthony J. Majestro
Charleston, West Virginia Jackson & Kelly
Attorneys for the Appellee Charleston, West Virginia
Attorneys for Appellants
RETIRED JUSTICE MILLER, sitting by temporary assignment, delivered the Opinion of
JUSTICE ALBRIGHT did not participate.
1. "'A circuit court's entry of summary judgment is reviewed de novo.' Syl. pt. 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994)." Syl. pt. 1, Jones v. Wesbanco Bank Parkersburg, _____ W. Va._____, 460 S.E.2d 627 (1995).
2. "'"'A motion for summary judgment should be granted only when it is
clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not
desirable to clarify the application of the law.' Syllabus Point 3, Aetna Casualty & Surety Co.
v. Federal Insurance Co. of New York, 148 W. Va. 160, 133 S.E.2d 770 (1963)." Syllabus
Point 1, Andrick v. Town of Buckhannon, 187 W. Va. 706, 421 S.E.2d 247 (1992).' Syl. pt.
2, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994)." Syl. pt. 2, Jones v. Wesbanco
Bank Parkersburg, _____ W. Va._____, 460 S.E.2d 627 (1995).
3. A liquidated damage clause for delay in completing contract work does
not preclude an injured party from recovering compensatory damages under the contract
unless the liquidated damage clause expressly limits the right to such other damages.
4. In construing the language of an express indemnity contract, the
ordinary rules of contract construction apply.
5. "A valid written instrument which expresses the intent of the parties in
plain and unambiguous language is not subject to judicial construction or interpretation but
will be applied and enforced according to such intent." Syl. pt. 1, Cotiga Development Co.
v. United Fuel Gas Co., 147 W. Va. 484, 128 S.E.2d 626 (1962).
6. Where an indemnitor is given reasonable notice by the indemnitee of
a claim that is covered by the indemnity agreement and is afforded an opportunity to defend
the claim and fails to do so, the indemnitor is then bound by the judgment against the
indemnitee if it was rendered without collusion on the part of the indemnitee.
7. When the State or one of its agencies is sued in the Court of Claims and
the State has an indemnity agreement with a third party indemnitor, upon reasonable notice
by the State or its agency to defend under the indemnity agreement, the indemnitor must
either defend the suit or intervene under Rule 24(a)(2) of the West Virginia Rules of Civil
Procedure and assert any defenses it claims would enable it to avoid the duty to defend the
indemnitee under the indemnity agreement. The failure to take either step forecloses the
indemnitor from contesting the validity of the judgment rendered against the indemnitee on
any grounds except a claim that the indemnitee allowed the judgment to be obtained by
collusion in the Court of Claims.
Green Construction Company (Green), an Iowa corporation, and The American
Insurance Company (American), a Nebraska corporation, appeal from an order of the Circuit
Court of Kanawha County, entered August 23, 1994, granting summary judgment to Fred
VanKirk, West Virginia Commissioner of Highways (DOH). DOH filed a declaratory
judgment action in the circuit court contending that Green, under its contract, and American,
under its bond, were required to indemnify DOH for the amount awarded by the Court of
Claims against DOH in favor of Elmo Greer and Sons, Inc. (Greer). The Court of Claims
recommended and the West Virginia Legislature awarded compensation to Greer in the
amount of $1,214,088.68. The circuit court found that Green and American had a duty to
indemnify DOH for the amount awarded against it by the Court of Claims.
Green and American assert several errors. The first is the claim that the circuit
court erred in granting res judicata or collateral estoppel to the Court of Claims' judgment.
In addition, they assert such action violated their due process rights because they were not
parties to the Court of Claims proceedings. Complaint also is made that the circuit court
erred in finding that the indemnity contract with DOH required Green and American to
indemnify DOH for the negligence. Upon review, we affirm the judgment of the circuit
On May 14, 1984, DOH entered into a contract with Green for the construction of 27,551 linear feet of Interstate Route 64 in the area of the Bragg Interchange. On May 22, 1984, DOH entered into a contract with Greer for the construction of 12,899 linear feet of Interstate Route 64 from east of Glade Creek to the Bragg Interchange. Green's worksite overlapped with Greer's worksite for 1,050 linear feet. Green was to install a box culvert and perform special embankment work with a completion date of October 31, 1984. Afterwards, Greer was to complete the fill work. Greer could not complete its project until Green's work was complete.
As the result of delays, DOH asked Green several times to comply with its
contractual obligations. DOH granted deadline extensions to Green that were not met. Greer
then agreed to help Green complete Green's job. Green's delays caused Greer to incur
additional construction costs which became the subject of the underlying Court of Claims
case. Moreover, Greer discovered several construction errors made by Green when Greer
began its project. As a result, Greer had to correct those errors before it could proceed. This
caused additional construction costs to Greer.
On January 6, 1987, Greer submitted a claim to DOH alleging damages in the
amount of $3,211,602.59. These damages were described by Greer as "monetary losses
stemming from, and directly attributable to the delay in the completion of the box culvert and
special embankment . . . by Green[.]" On January 16, 1987, DOH forwarded Greer's claim letter to Green, stating the claim was due to Green's "failure to meet the contract completion
date for specific work on your project."
On October 27, 1987, Greer filed a claim against DOH in the Court of Claims.
DOH's contract with Green included several save harmless clauses. Furthermore, American
issued a contract bond which Green signed as principal and American as surety. It also
provided they would save and keep harmless DOH from all losses caused by Green in the
construction of the highway project.
On October 30, 1987, by certified mail, DOH provided Green and American
with a copy of the complaint Greer filed in the Court of Claims. DOH informed both Green
and American it was holding them responsible for any damages awarded to Greer. DOH
communicated its expectation to be indemnified pursuant to Green's contract and the contract
bond. Green was given thirty days to advise DOH regarding Green's desire to cooperate.
American responded by letter dated November 18, 1987, advising DOH it had investigated
the claim with its principal (Green). American indicated it would "coordinate future
involvement through them. Preliminarily, they have indicated an interest in assisting your
department in the defense of this matter."
On July 5, 1988, Greer filed a complaint against Green in the United States
District Court for the Southern District of West Virginia. In the federal complaint, Greer requested damages premised on three separate counts: (1) Greer claimed to be a third-party
beneficiary of Green's contract; (2) Greer claimed Green breached an express agreement
made with Greer; and (3) Greer claimed Green was liable to Greer based on promissory
estoppel. Green filed a motion for summary judgment on each count, which the District
Court granted by order dated May 9, 1990. The United States Court of Appeals for the
Fourth Circuit affirmed the District Court's decision on September 10, 1991 in an
This federal court action appears to have delayed any substantial activity in the
Court of Claims case filed by Greer in October, 1987. On April 15, 1991, Green's attorney
sent a letter to DOH confirming a telephone conversation of that date. That letter
acknowledged that Green did want to play a part in the conduct of DOH's defense in the
Court of Claims. It concluded nothing would be done until the appeal in the Fourth Circuit
Court of Appeals was decided. DOH's attorney wrote Green's attorney on April 24, 1991,
reiterating that Green and American had contractual indemnity obligations with DOH on the
Greer case in the Court of Claims and suggesting they assume DOH's defense. On July 22,
1991, Green's attorney responded, stating: "At this time, Green neither accepts the [DOH's]
invitation to defend against the claim, nor admits any obligations to the Division of
Further contact ensued between DOH and Green about DOH's proposed filing
of a declaratory judgment action against Green to determine Green's indemnity obligation
to defend DOH. On October 25, 1991, Green's attorney wrote DOH in an attempt to
dissuade it from filing suit. This action was followed by correspondence regarding a
possible legal defense to be made by DOH in Greer's case in the Court of Claims. In
September, 1992, the Court of Claims conducted a hearing in this matter with no
participation by Green or American. The Court of Claims issued its opinion on December
11, 1992, and granted an award of $1,214,088.68 against DOH.
On March 16, 1992, DOH filed a complaint for declaratory judgment relief in
the circuit court seeking to have the judgment of the Court of Claims imposed on Green and
American. This action was based on the written indemnity agreements. On June 2, 1992,
DOH filed a motion for summary judgment. The circuit court entered its final order on
August 23, 1994, and granted the motion for summary judgment against Green and American
in the amount of $1,214,088.68. It is from this final order that Green and American appeal.
We begin by recognizing that our standard of review for a circuit court's granting of summary judgment is set out in Syllabus Points 1 and 2 of Jones v. Wesbanco Bank Parkersburg, _____ W. Va._____, 460 S.E.2d 627 (1995):
"1. 'A circuit court's entry of summary judgment is reviewed de novo.' Syl. pt. 1, Painter v. Peavy, 192 W. Va. 189, 451 S.E.2d 755 (1994).
"2. '"'A motion for summary judgment should
be granted only when it is clear that there is no genuine issue of
fact to be tried and inquiry concerning the facts is not desirable
to clarify the application of the law.' Syllabus Point 3, Aetna
Casualty & Surety Co. v. Federal Insurance Co. of New York,
148 W. Va. 160, 133 S.E.2d 770 (1963)." Syllabus Point 1,
Andrick v. Town of Buckhannon, 187 W. Va. 706, 421 S.E.2d
247 (1992).' Syl. pt. 2, Painter v. Peavy, 192 W. Va. 189, 451
S.E.2d 755 (1994)."
We initially address the indemnity language in order to determine if an indemnity obligation exists. Obviously, if none exists, there would be no need to discuss the other alleged errors. In Green's contract with DOH, there are several provisions that contain indemnification language.See footnote 1
In General Provision 107.14 of the standard specifications, which is a part of
the contract, there also is language which requires Green to indemnify DOH against any
claims or suits arising because of injuries or damage to any persons or property on account of the operations of the contractor. There is further language for indemnity against suits
"because of any act or omission, neglect, or misconduct of the Contractor."See footnote 2
Furthermore, the contract bond signed by Green as principal and American as
surety, which binds them to the State of West Virginia (DOH) in the amount of
$8,844,869.70, contains indemnity language. It requires Green and American to truly
comply with the terms and conditions "of the road contract" and to "save harmless [DOH]
from any expense incurred through the failure of said contractor . . . to complete the work
as specified, and for any damages growing out of the carelessness or negligence of said
contractor . . . [and] from all losses to it . . . from any cause whatever . . . in the manner of
constructing said Road[.]"See footnote 3 This indemnity language, particularly the last portion providing "from all losses to it . . . from any cause whatever" in Green's construction of the road,
undoubtedly is broader than the other two provisions cited above.See footnote 4
Several points are argued by Green and American to avoid the express
indemnity language. One argument is that there was a provision for liquidated damages of
$300 a day for failure to complete the project by the contract due date which Green and
American claim limits their liability to this amount.See footnote 5 However, there is no language in this provision which states it is to be the exclusive remedy for all damage claims arising from
Green's construction contract. It is obvious that the liquidated damage provision was for any
delay by Green in finishing the project by the contract completion date. We believe the
liquidated damage clause was entirely separate from the claim made by Greer against DOH
that Green's delay in completing its contract caused Greer to suffer substantial costs over and
above its contract price. It generally is held that a liquidated damage clause for delay in
completing contract work does not preclude the injured party from recovering compensatory
damages under the contract unless the liquidated damage clause expressly limits the right to
such other damages. As explained in Meyer v. Hansen, 373 N.W.2d 392, 395 (N.D. 1985),
"[a] provision for liquidated damages will not prevent recovery for actual damages for events
which are not covered by the liquidated damages clause, unless the contract expressly
provides that damages other than those enumerated shall not be recovered." (Citations
omitted). See also Lawson v. Durant, 213 Kan. 772, 518 P.2d 549 (1974); Spinella v. B-
Neva Inc., 580 P.2d 945 (Nev. 1978). See generally 25 C.J.S. Damages § 114 (1966).
Green also argues as a defense that its contract (as well as Greer's contract)
included General Provision 105.7 which dealt with cooperation among contractors. Under
this provision, each contractor agreed to "protect and save harmless [DOH] from any and all damages or claims that may arise because of inconvenience, delay, or loss experienced by
him because of the presence and operations of other contractors working within the limits
of the same project."See footnote 6 Green contends this clause should have exonerated DOH in the Court
of Claims and prevented Greer's recovery for excess costs attributed to Green's work. In its
brief, DOH claims that it did assert the language of General Provision 105.7 in the Court of
Claims as a defense, but the Court refused to consider it as a bar to Greer's claim.
Green and American do not controvert DOH's assertion, but contend that DOH
had reservations about the efficacy of this defense. Therefore, Green and American argue
a conflict was created between its position that General Provision 105.7 was a bar to Greer's
suit in the Court of Claims and DOH's reservations as to the bar. Green and American now
claim this alleged conflict of interest precluded their representation of DOH from an ethical standpoint. We reject this argument on several grounds. First, there is nothing in the
correspondence by Green and American that ever advised DOH it was on this basis that they
declined to indemnify it. Second, DOH did assert this provision in the Court of Claims.
Green and American do not claim that DOH's defense of the suit was collusive.
Finally, Green asserts that the indemnity language is only for liability arising
from damages or losses through injury to persons or property. As support, Green cites two
cases where courts held the involved indemnity language was not sufficient to cover
economic losses. E.g., Fairbanks North Star Borough v. Roen Design Assocs., Inc., 727 P.2d
758 (Alaska 1986),See footnote 7 and Friedman, Alschuler and Sincere v. Arlington Structural Steel Co.,
Inc., 140 Ill. App. 3d 556, 95 Ill. Dec. 87, 489 N.E.2d 308 (1985).See footnote 8
In Fairbanks North Star Borough, the borough entered into a design contract
with Roen for the layout of a subdivision. However, when work was started by a contractor
to build roads in the subdivision, design defects were encountered. The contractor sued the
borough and Roen. The borough, in turn, sought to obtain indemnification from Roen. The
Alaska court found the indemnity language focused only on "'injuries or damages to persons
or property,'" which it concluded "limit[ed] indemnification to claims and liability based on
physical injury or damage to persons or tangible property." 727 P.2d at 760. (Emphasis
The Illinois court in Friedman, Alschuler and Sincere, supra, came to much the
same conclusion where an architectural firm sought to obtain indemnity from subcontractors
who installed defective material in a building, causing it to partially collapse. The
architectural firm settled with the building's owner and pursued indemnity under its contract
as the general construction manager of the building. The court focused on the indemnity
language against loss and damage "'on account of death, injuries, damages, or loss to persons
. . . or property.'" 140 Ill. App. 3d at 559, 95 Ill. Dec. at 88, 489 N.E.2d at 309. It found this language "limit[ed] indemnification to personal and property damages, the economic
damages alleged by [the architectural firm] are not recoverable here[.]" 140 Ill. App. 3rd
at 559, 95 Ill. Dec. at 89, 489 N.E.2d at 310.
It may well be that if the only indemnity language that DOH had to rely upon
was that contained in paragraph 4,See footnote 9 it would not be able to recover under its indemnity
agreement. However, the broader indemnity language contained in General Provision 107.14
and that of the contract bond is not limited to injuries to the persons or property. In
construing the language of an express indemnity contract, our ordinary rules of contract
construction apply. Sellers v. Owens-Illinois Glass Co., 156 W. Va. 87, 92-93, 191 S.E.2d
166, 169 (1972). See generally 41 Am. Jur. 2d Indemnity § 12 (1995).
We find the indemnity language in question to be sufficiently plain,
unambiguous, and broad to cover the losses incurred by Greer as a result of the delay,
neglect, and omissions of Green. The indemnity language in General Provision 107.14 is
"from all suits, actions, or claims of any character" arising "on account of the operations of
the Contractor[.]"See footnote 10 Moreover, the contract bond indemnity language is even broader, covering losses to DOH from any cause whatsoever from the construction of the road.See footnote 11
There is no limitation in the indemnity language to damages arising for personal injuries and
property damage. This indemnity language is sufficiently plain to meet the requirements of
Syllabus Point 1 of Cotiga Development Co. v. United Fuel Gas Co., 147 W. Va. 484, 128
S.E.2d 626 (1962):
"A valid written instrument which expresses the intent of the parties in plain and unambiguous language is not subject to judicial construction or interpretation but will be applied and enforced according to such intent."
See also Fraley v. Family Dollar Stores of Marlinton, W. Va., Inc., 188 W. Va. 35, 422
S.E.2d 512 (1992); Kanawha Valley Power Co. v. Justice, 181 W. Va. 509, 383 S.E.2d 313
Green and American claim their due process rights were violated when the circuit court gave res judicata effect to the Court of Claims judgment when they were not parties to and did not appear in the Court of Claims action filed by Greer. In indemnity cases, we recognize the distinction between express indemnity and implied indemnity. See Syl. pt. 1, Valloric v. Dravo Corp., 178 W. Va. 14, 357 S.E.2d 207 (1987).See footnote 12
In this case, we deal with an express indemnity agreement. Moreover, under
our indemnity law, where indemnitors (such as Green and American) are given reasonable
notice by the indemnitee of a claim that is covered by the indemnity agreement and are
afforded an opportunity to defend the claim and fail to do so, the indemnitors are then bound
by the judgment against the indemnitee if it was rendered without collusion on the part of
the indemnitee. We spoke to this point in Hill v. Joseph T. Ryerson & Son, Inc., 165 W. Va.
22, 28, 268 S.E.2d 296, 302 (1980), where we quoted Section 32a(2) from 42 C.J.S.
Indemnity (1944). Similar language now is found in Section 56a of 42 C.J.S. Indemnity
(1991), which states:
"Where the indemnitor is notified of the pendency of an action against the indemnitee in reference to the subject matter of the indemnity and is given an opportunity to defend such action, the judgment in such action, if obtained without fraud and collusion, is conclusive on the indemnitor as to all questions determined therein which are material to a recovery against him in an action for indemnity brought by the indemnitee; and it is not open to collateral attack by the indemnitor, and the judgment is conclusive against the indemnitor whether or not he appears and defends." (Footnotes omitted).
See also Valloric, supra.
Our indemnity law is consistent with that of other jurisdictions where courts
hold that an indemnitor given reasonable notice by the indemnitee is obligated to assume the
defense and, if the indemnitor does not, then it is bound by the judgment. See, e.g., D.G.
Shelter Prods. Co. v. Moduline Indus., Inc., 684 P.2d 839 (Alaska 1984); Litton Systems,
Inc. v. Shaw's Sales and Servs., Ltd., 119 Ariz. 10, 579 P.2d 48 (1978); Trustees of New
York, New Haven & Hartford R.R. Co. v. Tileston & Hollingsworth Co., 189 N.E.2d 522
(Mass. 1963); Liberty Mut. Ins. Co. v. J. R. Clark Co., 239 Minn. 511, 59 N.W.2d 899
(1953); City of Columbus v. Alden E. Stilson & Assoc., 90 Ohio App. 3rd 608, 630 N.E.2d
59 (1993); Southern Ry. Co. v. Arlen Realty and Dev. Corp., 220 Va. 291, 257 S.E.2d 841
(1979). Both Litton Systems, Inc., supra, and Liberty Mutual Insurance Co., supra,
specifically discuss due process. The Arizona court in Litton Systems, Inc., made this
summary: "Binding the indemnitor to a judgment against the indemnitee, where the
indemnitor has received due notice of the pending litigation, is not a denial of due process."
119 Ariz. at 14, 579 P.2d. at 52. (Citation omitted).See footnote 13
Green and American cite cases that speak to due process concerns in other than
indemnity situations. While we agree with the principles they espouse, under the particular
facts, we find them not to be helpful in this case.See footnote 14 Green and American cite both Valloric,
supra, and Hill, supra, but fail to acknowledge the language in these cases that provides that
if reasonable notice is given to the indemnitor and it refuses to honor the indemnity
agreement, it is bound by the judgment. Instead, Green and American quote language from
both cases referring to an indemnitor who received no notice of its duty to indemnify.
We also find Green's and American's citation to several other cases not to be
helpful to their position. For instance, Chicago Title Insurance Co. v. IMG Exeter Associates
Ltd. Partnership, 985 F.2d 553 (4th Cir. 1993), is an unpublished disposition. Under the
Internal Operating Procedures (I.O.P.) of the United States Court of Appeals for the Fourth
Circuit, the court "will not cite an unpublished disposition in any of its published or
unpublished dispositions." I.O.P. 36.6. Consequently, we decline to consider this case.
According to Green and American, Chicago Title Insurance Co., supra, cited
Jennings v. United States, 374 F.2d 983 (4th Cir. 1967). However, Jennings also recognizes
the rule "that where an indemnitor is notified and can take part in--indeed may control--the
litigation, he is precluded from contesting the indemnitee's liability in the subsequent
indemnity action." 374 F.2d at 986. This same proposition was acknowledged in another
case cited by Green and American, Southern Railway Co. v. Arlen Realty and Development
Corp., 220 Va. at 295, 257 S.E.2d at 844: "[A] judgment entered in favor of a third party
against the indemnitee is not conclusive upon the indemnitor unless the indemnitee gave the
indemnitor notice of and an opportunity to defend the prior suit." See generally Annot., 73
A.L.R.2d 504 (1960).
The factual record in this case is clear. Green and American did receive
adequate notice of Greer's claim against DOH and had an opportunity to defend. By a letter
dated January 16, 1987, DOH forwarded to Green and American the itemized damage claim it received from Greer, which asserted these damages were a result of Green's delays. On
October 30, 1987, DOH transmitted to Green and American, by certified mail, a copy of the
complaint filed against it on October 27, 1987, in the Court of Claims. In its letter, DOH
advised both parties that it expected to be indemnified by them. As stated more fully in Part
I, supra, both Green and American acknowledged these letters and were aware of Greer's suit
in the Court of Claims. Ultimately, they did not assume defense of DOH in the Court of
Both Hill, supra, and Valloric, supra, indicate the judgment rendered against
an indemnitee has a res judicata or collateral estoppel effect when a suit is filed against the
indemnitor to collect the judgment.See footnote 15 This precludes the indemnitor from relitigating issues,
such as the indemnitee's liability to the injured party or the amount of damages awarded.
Also foreclosed are other issues that were litigated in the former action defended by the
indemnitee. This rule is tempered by the ability of the indemnitor to show the judgment
against the indemnitee was collusively obtained, as set out in Hill, 165 W. Va. at 28-29, 268
S.E.2d at 302, quoting 42 C.J.S. Indemnity § 32a (1944). See also Uniroyal, Inc. v.
Chambers Gasket & Mfg. Co., 177 Ind. App. 508, 380 N.E.2d 571 (1978); Globe & Republic Ins. Co. v. Independent Trucking Co., 387 P.2d 644 (Okla. 1963); City of Burns
v. Northwestern Mut. Ins. Co., 248 Or. 364, 434 P.2d 465 (1967); Shamrock Homebuilders,
Inc. v. Cherokee Ins. Co., 225 Tenn. 236, 466 S.W.2d 204 (1971), appeal after remand, 486
S.W.2d 548 (Tenn. App. 1972).
Green and American do not assert that DOH's defense in the Court of Claims
was collusive as to Greer's claim. We discussed in Part III the several claims made by Green
and American of a valid defense to avoid the indemnity agreements. We rejected them and
need not go over them in detail. It is sufficient to state that none of their claims reached the
level where it can be said the judgment was collusive. For future guidance of the parties, we
adopt the positions taken by the Ohio court in City of Columbus v. Alden E. Stilson &
Associates, supra. There, Stilson claimed it could not honor its indemnity agreement with
the City because of a conflict in another case. The court rejected this claim by holding such
matters were required to be litigated in the original action:
"Moreover, even if we were to find, as Stilson urges in the arguments set forth above, that a conflict existed, the Ohio Supreme Court has expressly held that where an indemnitor believes that its interest does not coincide with that of the indemnitee, it must enter the case nonetheless, if necessary as a third party defendant:
"'It is this opportunity that must be seized.
Otherwise, whether seized or not, the opportunity
to litigate in the original action will preclude
relitigation of liability in the supplemental
Howell v. Richardson,
Under Howell, the time has passed at which Stilson could
properly have asserted its right to a judicial determination of its
obligation to defend under the indemnity clause. The rule set
forth in Howell appears to promote judicial economy by
preventing relitigation of previously decided issues, while
preserving the indemnitor's right to establish either a conflict of
interest or non-applicability of an indemnity provision." 90
Ohio App. 3d at 616, 630 N.E.2d at 64-65.
We address Green's and American's argument that they could not appear in the
Court of Claims as there is no procedure for a third party to come into an action in the Court
of Claims. Such a third-party practice, according to Green and American, is not
contemplated under the statute creating the Court of Claims. W. Va. Code, 14-2-1, et seq.
This claim is based on Green's and American's misunderstanding of Mellon-Stuart Co. v.
Hall, 178 W. Va. 291, 302, 359 S.E.2d 124, 135 (1987). Green and American contend that
in Mellon-Stuart we held the adoption of the West Virginia Rules of Civil Procedure by the
Court of Claims was inconsistent with the statutory restrictions. They fail to recognize that
Mellon-Stuart dealt with the limited question of whether Rule 13(a) of the West Virginia
Rules of Civil Procedure on compulsory counterclaims applied to the State when it was sued
in the Court of Claims.
We found Rule 13(a) did not apply to the State because W. Va. Code, 14-2-
13(2) (1967), provided that the Court of Claims was authorized to hear matters "which may
be asserted in the nature of a setoff or counterclaim on the part of the State or any state
agency." The critical point made was that the word "may" used in the statute gave the State
an option to assert a setoff or counterclaim, which overrode the mandatory language of Rule
We did not hold in Mellon-Stuart that the West Virginia Rules of Civil
Procedure could not be adopted by the Court of Claims. Indeed, in 1967 the Legislature
authorized the Court of Claims to adopt rules of procedure. W. Va. Code, 14-2-15 (1967).See footnote 16
The Court of Claims has adopted such rules under Rule 18 of the Rules of Practice and
Procedure of the Court of Claims.See footnote 17
There is no statutory provision applicable to the Court of Claims which
forecloses an indemnitor from intervening under Rule 24(a)(2) of the West Virginia Rules of Civil Procedure.See footnote 18 This intervention procedure enables an indemnitor to have a
determination as to whether under the express indemnity language a defense is required of
the state agency which has been sued in the Court of Claims. We deem this type of
intervention to be one of right where an intervenor has been put on notice by the indemnitee
that it should assume the defense in the Court of Claims as occurred here. We have already
pointed out that the failure to assume the defense after reasonable notice will result in a res
judicata application of the judgment against the indemnitor. The federal courts, applying the
substantially similar provisions of Rule 24(a)(2) of the Federal Rules of Civil Procedure,
hold that, where res judicata principles will be applied in a subsequent proceeding,
intervention of right is appropriate under Rule 24(a)(2). See generally, 74 A.L.R. Fed. 632
The Ohio court's reasoning in City of Columbus, supra, is consistent with our
line of cases that permits parties to bring in insurance carriers to determine whether a duty
to defend is owed under an insurance policy. For example, in Christian v. Sizemore, 181 W. Va. 628, 383 S.E.2d 810 (1989), we authorized a plaintiff in conjunction with a civil
action for personal injuries to include a count for declaratory judgment to determine if the
tortfeasor's insurance carrier has coverage.See footnote 19 More recently, in State ex rel. State Farm Fire
& Casualty Co. v. Madden, 192 W. Va. 155, 451 S.E.2d 721 (1994), we authorized the
joining of the insurer as a defendant by the injured party where there is a claim that the
insurer acted in bad faith or was guilty of unfair insurance practices.See footnote 20
Finally, and somewhat more relevant to the facts of this case, we held in State
ex rel. Allstate Insurance Co. v. Karl, 190 W. Va. 176, 437 S.E.2d 749 (1993), cert. denied,
___ U.S. ___, 114 S. Ct. 1302, 127 L.Ed.2d 653 (1994), that an uninsured or underinsured
motorist carrier could under W. Va. Code, 33-6-31(d) (1988), file a response to the plaintiffs'
action and raise policy defenses that it may have.See footnote 21 The public policy behind these
procedural rules is to obtain in one suit a decision on all the various issues that may exist in
the underlying claim. This results in judicial economy, thereby reducing costs to the
litigants. It prevents a multiplicity of actions, which may result in inconsistent verdicts. This
public policy is echoed in Rule 1 of the West Virginia Rules of Civil Procedure, which states
that the civil rules "shall be construed to secure the just, speedy, and inexpensive
determination of every action."
Consequently, we hold that when the State or one of its agencies is sued in the
Court of Claims and the State has an indemnity agreement with a third party indemnitor,
upon reasonable notice by the State or its agency to defend under the indemnity agreement, the indemnitor must either defend the suit or intervene under Rule 24(a)(2) of the West
Virginia Rules of Civil Procedure and assert any defenses it claims would enable it to avoid
the duty to defend the indemnitee under the indemnity agreement. The failure to take either
step forecloses the indemnitor from contesting the validity of the judgment rendered against
the indemnitee on any grounds except a claim that the indemnitee allowed the judgment to
be obtained by collusion in the Court of Claims.
Independent of the foregoing intervention procedure, we find Green and
American were given reasonable notice of the claim by Greer, they were covered under the
indemnity language in the contract, and they were offered the right to defend the claim.
Under settled principles of res judicata and collateral estoppel, as outlined in Syllabus Points 3 and 4 of Mellon-Stuart, supra,See footnote 22 Green and American were bound in the declaratory
judgment action by the judgment rendered against DOH in the Court of Claims:
"3. An assessment of three factors is ordinarily made in determining whether res judicata and collateral estoppel may be applied to a hearing body: (1) whether the body acts in a judicial capacity; (2) whether the parties were afforded a full and fair opportunity to litigate the matters in dispute; and (3) whether applying the doctrines is consistent with the express or implied policy in the legislation which created the body.
"4. Res judicata or collateral estoppel effect
may be given to matters litigated in the court of claims."
See also Vest v. Board of Educ. of the County of Nicholas, 193 W. Va. 222, 455 S.E.2d 781
(1995)See footnote 23; Central W. Va. Refuse, Inc. v. Public Serv. Comm'n of W. Va., 190 W. Va. 416,
438 S.E.2d 596 (1993); Jones v. Glenville State College, 189 W. Va. 546, 433 S.E.2d 49
In closing, we wish to make it clear that in affirming the judgment of the Circuit Court of Kanawha County, we find there exists no genuine issue of fact to be tried. The express indemnity language is found to be clear and unambiguous. Our existing indemnity law contained in Hill, supra, and Valloric, supra, requires the imposition against Green and American of the noncollusive Court of Claims judgment against DOH. While we recognize the right of an indemnitor to intervene under Rule 24(a)(2) in a suit brought against the State or one of its agencies in the Court of Claims, this right is not essential to our decision. Green and American failed to demonstrate that their alleged defenses were sufficiently viable to defeat the imposition of the judgment in the Circuit Court of Kanawha County. For the foregoing reasons, we affirm the judgment of the Circuit Court of Kanawha County.
Footnote: 1 For example, paragraph 4 of the contract contains the following language: "CONTRACTOR agrees . . . to save the DEPARTMENT harmless from all liability for damage to persons or property that may accrue during and by reason of acts or negligence of the CONTRACTOR, his agents, employees, or subcontractors if there be such."
Footnote: 2 The relevant portion of General Provision 107.14 states:
"RESPONSIBILITY FOR DAMAGE CLAIMS:
"The Contractor shall indemnify and save harmless the Department, its officers and employees, from all suits, actions, or claims of any character brought because of any injuries or damage received or sustained by any person, persons, or property on account of the operations of the Contractor; . . . or because of any act or omission, neglect, or misconduct of the Contractor[.]"
Footnote: 3 More fully, the applicable language of indemnity in the contract bond is:
"shall save harmless the West Virginia Department of Highways
and the State of West Virginia from any expense incurred
through the failure of said contractor, including subcontractors,
to complete the work as specified, and for any damages growing out of the carelessness or negligence of said contractor, his, their or its servants, agents and employees, or his subcontractors, their agents, servants, and employees, and shall fully pay off and discharge and secure the release of any and all mechanics' liens which may be placed upon said property by any subcontractor, laborer or material men, and shall also save and keep harmless the West Virginia Department of Highways and the State of West Virginia from all losses to it or them from any cause whatever including patent, trade-mark, and copyright infringements in the manner of constructing said Road[.]" (Emphasis added).
Footnote: 4 It is generally recognized that under this type of bond both the principal (Green) and its surety (American) are bound to the State of West Virginia (DOH). As we explained in part of Syllabus Point 3 of United States Fidelity and Guaranty Co. v. Hathaway, 183 W. Va. 165, 394 S.E.2d 764 (1990): "There is a vital distinction between a contract of suretyship and a contract of indemnity. In a contract of suretyship the obligation of the principal and his surety is original, primary, and direct, and the surety is liable for the debt, default, or miscarriage of his principal[.]"
Footnote: 5 The relevant language of the liquidated damage paragraph from General Provision 108.7 of Green's contract states: "[DOH] will assess liquidated damages against the Contractor for each calendar day that any work remains uncompleted after the contract
time specified for completion of the work, subject to such extensions of contract time as may be allowed by 108.6."
Footnote: 6 More fully, the pertinent portion of General Provision 105.7 states:
"When separate Contracts are let within the limits
of any one project, each Contractor shall conduct his work so as
not to interfere with or hinder the progress or completion of the
work being performed by other contractors. Contractors
working on the same project shall cooperate with each other as
"Each Contractor involved shall assume all liability, financial or otherwise, in connection with his Contract and shall protect and save harmless [DOH] from any and all damages or claims that may arise because of inconvenience, delay, or loss experienced by him because of the presence and operations of other contractors working within the limits of the same project."
Footnote: 7 The pertinent indemnification language in Fairbanks North Star Borough, 727 P.2d at 759, is:
"'The Contractor shall save, hold harmless and indemnify the Borough from any liability, claims, suits or demands, including costs, expenses and reasonable attorney's fees, incurred for or on account of injuries or damages to persons or property as a result of any act or omission of the Contractor in the performances pursuant to this contract.'"
Footnote: 8 The relevant indemnity language in Friedman, Alschuler and Sincere, 140 Ill. App. 3d at 558-59, 95 Ill. Dec. at 88, 489 N.E.2d at 309, is:
"'To the extent permitted by applicable law, it is understood and
agreed that Subcontractor shall defend, indemnify and save
harmless Contractor, its officers, employees, agents and
servants, the Owner, and the Architect against all loss, damage
and expense, whether incurred or paid, on account of death, injuries, damages or loss to persons (including, without limiting the generality of the foregoing, employees of Subcontractor) or property, caused by or in any way arising directly or indirectly out of or connected with or incidental to the performance of the work by Subcontractor[.]'"
Footnote: 9 For the applicable language of paragraph 4, see note 1, supra.
Footnote: 10 For the applicable language of General Provision 107.14, see note 2, supra.
Footnote: 11 See note 3, supra, for the indemnity language of the contract bond.
Footnote: 12 Syllabus Point 1 of Valloric, supra, states:
"There are two basic types of indemnity: express indemnity, based on a written agreement, and implied indemnity, arising out of the relationship between the parties. One of the fundamental distinctions between express indemnity and implied indemnity is that an express indemnity agreement can provide the person having the benefit of the agreement, the indemnitee, indemnification even though the indemnitee is at fault. Such result is allowed because express indemnity agreements are based on contract principles. Courts have enforced indemnity contract rights so long as they are not unlawful."
Footnote: 13 The rationale behind the indemnitor's liability is summarized in Section 57 of the Restatement (Second) of the Law of Judgments at 78 (1982):
"The existence of the right of defense is a basis for estoppel against the indemnitor if he fails to exercise it after having received notice of the action. Having had the opportunity to defend the action against the indemnitee, he may not dispute the correctness of the determinations arrived at in the action if he fails to exercise that opportunity. Had he taken over the defense of the indemnitee, he could have litigated the question of the indemnitee's liability and also the amount of recovery to which the injured person is entitled. The indemnitor's opportunity to litigate accordingly results in his being estopped to dispute the existence and extent of the indemnitee's liability to the injured person."
Footnote: 14 Most of the cases cited involve lack of notice or the refusal to allow a party to be heard before being deprived of a property interest. See, e.g., United States v. James Daniel Good Real Property, ___ U.S. ___, 114 S. Ct. 492, 126 L.Ed.2d 490 (1993) (forfeiture of real estate without hearing); Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 105 S. Ct. 1487, 84 L.Ed.2d 494 (1985) (discharge from job without hearing); Mullane v. Central Hanover Bank and Trust Co., 339 U.S. 306, 70 S. Ct. 652, 94 L.Ed. 865 (1950) (lack of adequate notice).
Footnote: 15 It generally is recognized that reasonable attorney's fees are also collectible by an indemnitee in defense of the suit. See State ex rel. Vapor Corp. v. Narick, 173 W. Va. 770, 775, 320 S.E.2d 345, 350 (1984). The right to collect interest on the judgment was approved in Valloric, 178 W. Va. at 22, 357 S.E.2d at 215-16.
Footnote: 16 The current version of the statute authorizes the Court of Claims to adopt Rules of Procedure: "The court shall adopt and may from time to time amend Rules of Procedure[.]" W. Va. Code, 14-2-15 (1994). Furthermore, this section specifically authorizes the use of discovery "conducted pursuant to the Rules of Civil Procedure for trial courts of record, Rules 26 through 36."
Footnote: 17 Rule 18 of the Rules of Practice and Procedure of the Court of Claims states: "The Rules of Civil Procedure will apply to the Court of Claims unless the Rules of Practice and Procedure of the Court of Claims are to the contrary."
Footnote: 18 Rule 24(a) of the Rules of Civil Procedure, states, in relevant part:
"Intervention of Right.--Upon timely application anyone shall be permitted to intervene in an action: . . . (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant's interest is adequately represented by existing parties."
Footnote: 19 Syllabus Points 3 and 4 of Christian, supra, state:
"3. An injured plaintiff may bring a declaratory
judgment action against the defendant's insurance carrier to
determine if there is policy coverage before obtaining a
judgment against the defendant in the personal injury action
where the defendant's insurer has denied coverage.
"4. A declaratory judgment claim with regard to the defendant's insurance coverage may be brought in the original personal injury suit rather than by way of a separate action."
Footnote: 20 Syllabus Points 1 and 2 of State ex rel. State Farm
v. Madden, supra, state:
"1. Under Rule 18(b), WVRCP , an
insurer may be joined as a defendant with the insured by an
injured plaintiff alleging various claims of bad faith and unfair
"2. Under [R]ule 18(b), WVRCP , as
long as the claims against the insurer are bifurcated from those
against the insured, and any discovery or proceedings against
the insurer are stayed pending resolution of the underlying claim
between the plaintiff and the insured, there is no undue
prejudicial impact on a jury of joining in an original pleading or
amending a pleading to assert bad faith or unfair insurance practices counts against an insurer in an original action against insured."
Footnote: 21 Syllabus Point 14 of State ex rel. Allstate Insurance Co. v. Karl, supra, states: "The language of W. Va. Code, 33-6-31(d) (1988), that allows an uninsured or underinsured motorist carrier to answer a complaint in its own name is primarily designed to enable the carrier to raise policy defenses it may have against the plaintiff under its uninsured or underinsured policy."
Footnote: 22 In Mellon-Stuart, 178 W. Va. at 298-99, 359 S.E.2d at 131-32, we made this summary of the principles of res judicata and collateral estoppel:
"Very broadly, res judicata is a doctrine which
bars the subsequent litigation of any cause of action which has
been previously tried on the merits by a court of competent
jurisdiction, and includes within its bar issues which might have
been tried. . . .
"Collateral estoppel is a related doctrine, which
applies to issues that were actually litigated in an earlier suit
even though the causes of action are different. Res judicata
focuses on whether the cause of action in the second suit is the
same as in the first suit. The central inquiry on collateral
estoppel is whether a given issue has been actually litigated by
the parties in the earlier suit." (Footnotes omitted).
See also State ex rel. Hamrick v. LCS Servs., Inc., 186 W. Va. 702, 414 S.E.2d 620 (1992).
Footnote: 23 In Syllabus Point 2 of Vest, supra, we expressed the standard for claim or issue preclusion as follows:
"2. For issue or claim preclusion to attach to quasi-judicial determinations of administrative agencies, at least where there is no statutory authority directing otherwise, the prior decision must be rendered pursuant to the agency's adjudicatory authority and the procedures employed by the agency must be substantially similar to those used in a court. In addition, the identicality of the issues litigated is a key component to the application of administrative res judicata or collateral estoppel."