Key Points

  • The Supreme Court of Appeals of West Virginia held that the master services agreement's indemnity clause and the purchase order's indemnity clause are complementary and must be read together, reversing the Intermediate Court of Appeals' conclusion that they conflicted.
  • Under Pennsylvania law, attorneys' fees are implied in an indemnity obligation unless expressly excluded, and an exception for the indemnitee's willful misconduct is implied by public policy.
  • Both clauses are ambiguous as to whether IPI's mere presence at the plant, where its workers were injured through no fault of IPI, counts as performing services under the contracts.
  • The sole-negligence exception is ambiguous as to whether it compares fault only between Westlake and IPI or also between Westlake and third parties.
  • The court remanded to the Circuit Court of Marshall County for development of parol evidence on those ambiguities.

The Supreme Court of Appeals of West Virginia ruled on Nov. 12 that a painting contractor's promises to indemnify a New Martinsville chemical plant are ambiguous as applied to injuries the contractor and its president suffered, through no fault of the contractor, when a railcar ruptured and released chlorine gas across the plant. The court sent the plant owner's indemnity claims back to a trial court to hear evidence of what the parties meant.

Chief Justice Bunn wrote for the court, which denied Westlake Chlor-Vinyls Corp. and Westlake Natrium LLC the outright win they sought on counterclaims against IPI Inc. and its president, Matthew Joseph Taylor. The court affirmed in part and reversed in part a ruling of the state's Intermediate Court of Appeals and remanded the case to the Circuit Court of Marshall County with directions.

The decision leaves unresolved whether broad indemnity language covering "any and all claims" reaches harm a contractor suffers simply by being present on a hazardous worksite. The court held that the answer turns on the parties' intent, which must be developed through parol evidence. Pennsylvania law governs the contracts under a choice-of-law clause.

IPI workers and Taylor were painting and power washing a large chemical storage tank at the plant on Aug. 27, 2016, when a railcar recently returned to service ruptured in a different area and released toxic chlorine gas. Taylor testified that he saw the green cloud from atop a manlift and put on his escape respirator, removing it long enough to warn other workers. He contended that no siren sounded and that a locked gate prolonged the workers' exposure. Taylor was airlifted to a Morgantown hospital for chlorine gas poisoning, and IPI contends the gas oxidized its equipment.

IPI and Taylor sued in January 2018 for personal injuries and property damage. Westlake counterclaimed for breach of contract and express indemnity, contending that IPI owed it indemnity for Taylor's claims and had breached the parties' agreements by filing and pursuing the suit. Westlake also alleged that it did nothing to cause the release.

Two clauses were at issue. The master services agreement, called the Agreement for Onsite Services, covers claims "arising out of this Agreement and/or the Services" and excepts Westlake's sole negligence or willful misconduct. The purchase order's terms and conditions cover claims "arising or allegedly arising from or related to the subject matter of this Purchase Order," expressly include attorneys' fees and except only Westlake's sole negligence.

The circuit court granted Westlake partial summary judgment in September 2022, finding that the damages arose from IPI's services and that the railcar rupture was a "failure of or defect in any equipment" under the master agreement. The intermediate court vacated that ruling in part. It held that the two clauses conflicted, applied only the master agreement under a priorities clause and sent the case back for fuller analysis.

The Supreme Court held that the intermediate court erred in finding a conflict. Pennsylvania law implies attorneys' fees in indemnity obligations unless a contract excludes them, the court said, and public policy bars indemnity for a party's own willful conduct. "The AOS explicitly contains the public-policy-enforced exception, but the T&C contains that same exception by operation of law," Chief Justice Bunn wrote. The provisions, the opinion said, are meant to be read "as complementary to one another, not tortured for 'arguable' inconsistencies or conflicts based on hypothetical scenarios." Both sides conceded at oral argument that the choice of clause made no real difference.

The court held that the dispute turned instead on an ambiguity common to both clauses as applied to "circumstances where, by mere presence at the Natrium plant, IPI and Mr. Taylor were injured through no fault of IPI." The clauses speak of "performing" a service, which the court said "has the practical connotation of an activity," but they also required IPI to work at a chemical plant and to carry insurance. "Notably, the worksite at issue—a chemical plant—had the potential for danger and volatility by the very nature of the business," the opinion said.

The court listed facts still unknown: what injuries the parties contemplated in agreeing to indemnity for "on site services," whether IPI was compensated for assuming the risk of working there, and why the parties required IPI to maintain insurance as a condition of payment.

The court found a second ambiguity in the sole-negligence exception. Westlake argued it could not be solely negligent because a Pennsylvania jury had attributed fault to third parties, and because IPI could not say who caused the release. IPI argued that third parties' fault was irrelevant because IPI itself was not negligent at all. The court held the term could reasonably mean either "an assessment of blame as between the parties to the agreement (Westlake and IPI) or shared negligence as between Westlake and any other third party."

The court agreed with the lower courts that the clauses satisfy Pennsylvania's Perry-Ruzzi rule, which enforces an agreement to indemnify a party against its own negligence only if the agreement says so clearly and unequivocally. But in a footnote the court said it had "not been directed to any case applying the Perry-Ruzzi rule" that resolves, as a matter of law, how a sole-negligence clause applies when the indemnitee and third parties, not the indemnitor, were at fault.

The court declined to settle the ambiguities by construing the contracts against the drafter. Quoting the Pennsylvania Supreme Court, the opinion said that rule "is not intended as a talismanic solution to the construction of ambiguous language" and applies only when an inquiry into the circumstances of the agreement fails to clarify its meaning.

Lawyers for Westlake included Amy Smith of Steptoe & Johnson PLLC; IPI and Taylor were represented by Zachary J. Rosencrance of Bowles Rice LLP.

The case now returns to the Marshall County circuit court, which the Supreme Court directed to take parol evidence on the two ambiguities it identified. The court reversed the intermediate court's instruction to apply the master agreement alone on remand. It otherwise affirmed the intermediate court's partial vacatur of the September 2022 summary judgment, as modified by the opinion's directions.