MECHANIC’S LIEN BASICS

The statutory provisions of W.Va. Code §§38-2-1 et seq. govern mechanic’s liens in West Virginia and establish the lien rights and procedures applicable to: general contractors; all levels of subordinate contractors (“subcontractors”); materialmen (whether furnishing to the owner or to contractors and/or subcontractors); mechanics or laborers (whether furnishing to the owner or to contractors and/or subcontractors); and architects, surveyors, engineers, and landscape architects.

Requirements

Notice of Mechanic’s Lien

Mechanic’s lien rights are initially perfected and preserved by a Notice of Mechanic’s Lien.

Recordation & Service

A Notice of Mechanic’s Lien must be recorded in the office of the clerk of the county commission of the county where the property subject to the lien is situated, within one hundred (100) days of the: (i) completion of the contract; (ii) last day of work; or (iii) last day of furnishing of supplies, as applicable[1]. In most cases, the Notice of Mechanic’s Lien must also be served upon the property owner[2] (by any means provided by law for the service of a legal notice or summons) within the same one hundred (100) day period.  It is recommended that, in all cases, the Notice of Mechanic’s Lien be recorded with the county and served upon the owner, applicable tenant(s), record lienholders, superior contractors, and any other party to whom the lienholder is providing goods or services in connection with the improvement of the property to which the lien applies.

Form of Notice

The Notice of Mechanic’s Lien must be in writing, and the statute provides recommended forms to use.  Unlike the law of many other states, West Virginia law requires that the description of the property in the Notice of Mechanic’s Lien be an “adequate,” “definite,” and “ascertainable” description.[3]  It is therefore recommended that a legal description be placed in the Notice of Mechanic’s Lien and not simply a street address.  A description of the building or improvement for which the lienholder performed or provided labor or materials is also required. Finally, a dollar amount of the claim (together with a list of invoices or other detail) is also to be included in the Notice of Mechanic’s Lien.

Enforcement and Foreclosure

A lienholder must file suit to enforce the lien (perfected by the Notice of Mechanic’s Lien) within six (6) months after the filing of such Notice in the county clerk’s office.  Failure to file suit timely will result in the discharge of the lien.[4]  The remedy sought by the suit is to have the court order the sale of the property (or a portion thereof) to satisfy valid liens unless the liens are first paid.[5]

The West Virginia Supreme Court held in Hanover Resources, LLC v. LML Properties, LLC, that a contractor cannot enforce a mechanic’s lien against the interest of the fee estate property owner upon which property the services were performed in circumstances in which the contractor’s contract was with the sublessee of the property and for coal mining services provided to that sublessee.  The holding in this Opinion relies in part upon the conclusion that West Virginia has not established a mechanic’s lien statute specific to mines or mining operations, nor has the West Virginia Legislature enacted mechanic’s lien law that would construe the or construct an agency relationship between the lessee of mineral property conducting active mining and the landowning lessor.[6]

Ability to Waive and Limitations on Lien Rights 

Release of Lien

When a debt secured by a mechanic’s lien is fully paid, a release or discharge of the lien must be recorded in the county clerk’s office.[7]

Tenant Leases.

When work is performed for a tenant and not the property owner, special care must be taken to determine what ownership interest (i.e., the owner’s fee interest, the tenant’s leasehold interest, or both) is properly subject to the lien. Improper attachment of a lien may subject the lienholder to a claim of slander of title.[8]

Owner’s Ability to Limit Liability.

The owner may limit liability with respect to potential mechanic’s liens against property to the sum agreed to be paid under the applicable construction contract if, prior to the beginning of construction, the owner records such contract with the clerk of the county commission of the county in which the property is located together with a payment bond (in a penal amount equal to the contract price) given by the applicable contractor.[9]  If the owner does not so record his, her, or its contract and bond, then the owner shall be liable and subject to all perfected liens, even if the aggregate amount of the liens exceed the owner’s contract price.

PUBLIC PROJECT CLAIMS

In West Virginia, mechanic’s liens cannot be filed against public buildings or structures.[10]

State and Local Public Work

On public projects, West Virginia law requires a payment bond.  A contractor awarded or otherwise entering into a contract for public work is required to furnish a payment bond equal at least to the reasonable costs of materials, machinery, equipment, and labor that are required for the completion of the contract.[11]  The bond must be executed in one of the following two ways. The bond can be obtained from an incorporated bonding and/or surety company that is authorized to carry on business in West Virginia.  In the alternative, the contractor may deposit as security for such bond with the state commissioner of public institutions, county court, board of education, board of trustees, or other legal body having authority to so contract a sum in cash or bonds and securities of the United States of America or of the State of West Virginia. [12]

Notices and Enforcement

A key enforcement issue in West Virginia is who is entitled to make a claim against the bond.  The general rule, as announced by the Supreme Court of Appeals of West Virginia in Marsh v. Rothey, is that a contractor or subcontractor who furnishes necessary material for, or performs necessary labor on, a public structure under a contract is entitled to make a claim against the bond.  However, persons supplying material to, or performing labor for, a furnisher of material on a public structure cannot make a claim against the bond. Such persons are referred to as “materialmen.”[13]

In Preussag International Steel Corp. v. March-Westin Co., the Supreme Court of Appeals of West Virginia provided further guidance as to how courts should differentiate between subcontractors and materialmen. The Court ruled that a party need not necessarily perform work at the construction job site itself in order to be considered a subcontractor for purposes of the public construction bond statute.[14]  The Court stated that the core inquiry in making a determination whether a party that furnishes labor or materials for a project should be classified as a subcontractor or as a materialman is “whether the party in question takes from the prime contractor a specific and substantial part of the labor or material requirements of the original contract, thus excluding ordinary laborers and materialmen.”[15]

Claims to Public Funds

The West Virginia Code states that the public construction bond statute should not be construed as permitting the giving of liens upon a public building or improvement.[16]

STATUTES OF LIMITATION AND REPOSE

Statutes of Limitation and Limitation on Application of Statutes

There is a two-year statute of limitations applicable to a cause of action involving tort liability, as more specifically set forth in W.Va. Code §55-2-12:

Every personal action for which no limitation is otherwise prescribed shall be brought: (a) within two years next after the right to bring the same shall have accrued, if it be for damage to property; (b) within two years next after the right to bring the same shall have accrued if it be for damages for personal injuries; and (c) within one year next after the right to bring the same shall have accrued if it be for any other matter of such nature that, in case a party die, it could not have been brought at common law by or against his personal representative.[17]

With respect to contract claims, West Virginia recognizes limitation periods of ten years for actions arising out of a written contract, and five years for other contracts.[18]

The applicable statute of limitations in actions for breach of the warranties of merchantability and fitness for a particular purpose is set forth in W.Va. Code §46-2-725. An action must be commenced within four (4) years after the sale of the subject goods.  However, the Supreme Court of Appeals of West Virginia has held that W.Va. Code §46-2-725 is, in essence, a statute of repose, because the limitation period begins to run when the product is delivered—regardless of when the damages are incurred.[19]

In Taylor v. Ford Motor Co., the Supreme Court of Appeals of West Virginia ruled that “where a person suffers personal injuries as a result of a defective product and seeks to recover damages for these personal injuries based on a breach of express or implied warranties, the applicable statute of limitations is the two-year provision contained in W.Va. Code §55-2-12, rather than the four-year provision contained in our Uniform Commercial Code, W.Va. Code §46-2-725.”[20]

Finally, when a cause of action is based upon tort or on a claim of fraud, the statute of limitations does not begin to run until the injured person knows, or by the exercise of reasonable diligence should know, of the nature of his injury, and determining that point in time is a question of fact to be answered by the jury.[21]

Statutes of Repose and Limitation on Application of Statutes

In West Virginia, the statute of repose for improvements to real property is set forth in W.Va. Code §55-2-6a.  This statute provides that “[n]o action, whether in contract or in tort . . . to recover damages for any deficiency in the planning, design, surveying, observation or supervision of any construction or the actual construction of any improvement to real property . . . may be brought more than ten years after the performance or furnishing of such services or construction.”  Moreover, the period of limitation commences when the real property has been occupied or accepted by the owner, which ever event occurs first.[22] It should be noted that the Supreme Court of Appeals of West Virginia has specifically held the statute of repose to be constitutional.[23]

The Supreme Court of Appeals of West Virginia has also held that this code section only protects those named in it.  It does not protect all defendants who perform the services listed in the statute.[24]  In Stone v. United Engineering, Inc., the Court held that “our statute of repose contains the following critical language which indicates that it is not intended to protect every defendant that performs or furnishes the activities listed [in the statute]: ‘The period of limitation provided in this section shall not commence until the improvement to the real property in question has been occupied or accepted by the owner of real property, whichever occurs first.’”[25]

The Court in Stone also explained how a trial court should determine whether an improvement has taken place: “[W]hen determining whether an item is an improvement to real property . . . a court must consider the enhanced value created when the item is put to its intended use, the level of integration of the item within any manufacturing system, whether the item is an essential component of the system, and the item’s permanence.  These factors should be considered in making the case-by-case determination of whether an item is an improvement to real property under W.Va. Code, 55-2-6a (1983).”[26]

PRE-SUIT NOTICE OF CLAIM AND OPPORTUNITY TO CURE

Under West Virginia law, the owner, claiming breach of warranty or defective workmanship in any given project, is not required to give a contractor or material supplier a notice of claim or an opportunity to cure the alleged defects prior to initiating litigation.

INSURANCE COVERAGE AND ALLOCATION ISSUES

General Coverage Issues

In West Virginia a standard commercial general liability (“CGL”) policy covers those amounts the insured is liable to pay because of property damage that occurs during the policy period.

Trigger of Coverage

In 2013, the Supreme Court of Appeals of West Virginia significantly revised what a CGL policy does and does not cover.  In Cherrington v. Erie Insurance Property and Casualty Company, the Court held that “defective workmanship causing bodily injury or property damage is an ‘occurrence’ under a policy of commercial general liability insurance.”[27]  Prior to its decision in Cherrington, the Court did not recognize CGL policies as covering poor workmanship.[28]

Allocation Among Insurers

In State v. Janicki, the Supreme Court of Appeals of West Virginia resolved a dispute between two insurance carriers as to their respective liability for a physician’s malpractice.  The Court noted that “other insurance” clauses in insurance policies are only implicated when the policies cover the same risk.  Ambiguity is resolved in favor of the insured, whose reasonable expectations determine the carriers’ liability.[29]

Issues with Additional Insurance

The Supreme Court of Appeals of West Virginia addressed additional insurance in Gauze v. Reed.  The Court determined that when an insurance company (a) issues a primary liability insurance policy; and (b) has contracted for and received a premium for a risk as though it were a primary insurer; but (c) the insurance company has become a secondary insurer by operation of an “other insurance” clause in the policy and the existence of another primary insurance carrier, then if that other insurance carrier is declared insolvent, the insurance company is responsible for coverage of the loss as though it were the sole primary liability insurer.[30]

CONTRACTUAL INDEMNIFICATION

West Virginia recognizes the rights of parties to enter into express indemnity agreements.[31]  However, W.Va. Code §55-8-14 precludes agreements relative to the construction, alteration, repair, addition to, subtraction from, improvement to or maintenance of any building, highway, road, railroad, water, sewer, electrical or gas distribution system, excavation or other structure, project, development or improvement attached to real estate, including any moving and demolition in connection therewith, purporting to indemnify against liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of the indemnitee, his agents or employees . . . .[32]

Such agreements are “against public policy and are void and unenforceable.”[33]

The Supreme Court of Appeals of West Virginia clarified the application of W.Va. Code §55-8-14 in Dalton v. Childress Service Corporation,[34] holding that the statute requires a court to void an indemnity agreement only if (1) the indemnitee is found by the trier-of-fact to be solely, i.e., 100%, negligent in causing the accident and (2) it cannot be inferred from the contract at issue that the parties had agreed to purchase insurance for the benefit of all concerned.[35]

CONTINGENT PAYMENT AGREEMENTS

Enforceability

The Supreme Court of Appeals of West Virginia has found contingent payment agreements enforceable as between contractors and subcontractors in public construction projects: “[I]n a public construction project, a pay-if paid condition precedent clause in a contract between a subcontractor and a contractor does not violate [West Virginia] public policy . . . found in the public bond statute, W.V. Code §38-2-39 (2004).”[36]

Requirements

In Wellington Power Corp. the Court did not set out specific requirements for the enforceability of contingent payment agreements.  However, the Court mentioned three particular factors that informed its ruling: that (1) “commercial entities” (2) “voluntarily agreed” (3) “to a clear, unambiguous pay-if-paid condition precedent.”[37]

SCOPE OF DAMAGE RECOVERY

Personal Injury Damages vs. Construction Defect Damages

Damages for personal injury are measured by fair compensation for the injury suffered, but their amount is left to the discretion of a jury.[38]  Regarding damages for construction defects, “the proper measure of damages . . . is the cost of repairing the defects or completing the work and placing the construction in the condition it should have been if properly done under the agreement contained in the building contract.”[39]

Attorney’s Fees Shifting and Limitations on Recovery

Attorney’s fees are recoverable only where a plaintiff shows by clear and convincing evidence that a defendant has engaged in fraudulent conduct.[40]

Consequential Damages

In addition to direct damages, a plaintiff may recover consequential damages for a breach of contract action only when it can be shown that the parties, at the time of the contract, could reasonably have anticipated that these damages would be a probable result of a breach.[41]

Delay and Disruption Damages

Specific penalties, such as delay and disruption damages, may be provided for in construction contracts in West Virginia.[42]  The Supreme Court of Appeals of West Virginia has held that a contractor is entitled to damages resulting from a delay by the owner in beginning or completing the work.[43]

Economic Loss Doctrine

Absent some special relationship, which will vary and must be reviewed on a case-by-case basis, there is no duty under West Virginia law to prevent purely economic loss.[44]  The Supreme Court of Appeals of West Virginia has articulated certain factors that inform what constitutes a special relationship.  These include: “the extent to which the particular plaintiff is affected differently from society in general”;[45] “the defendant’s knowledge or specific reason to know of the potential consequences of the wrongdoing”;[46] “evidence of foreseeability of the nature of the harm to be suffered by the particular plaintiff or an identifiable class”;[47] and “contractual privity or other close nexus.”[48]

The Court has considered whether special relationships exist in two particular areas of construction law[49]:  in interactions between contractors and design professionals[50] and in interactions between certain lenders (banks) and certain borrowers (homeowners or those having houses built).[51]  In Eastern Steel Constructors, Inc. v. City of Salem, the Court determined that a special relationship may exist between a design professional and a contractor.[52]  In interactions between lending banks and borrowing homeowners (or those who are having houses built) the Court has also reached the conclusion that a special relationship may exist between the bank and the borrower.  However, a special relationship will not exist between every lending bank and borrowing homeowner, but when the bank “maintain[s] oversight of, or interven[es] in, the construction process . . .”[53]

Interest

The Supreme Court of Appeals of West Virginia has ruled that West Virginia Code § 56-6-27 is the statute which addresses prejudgment interest in contract cases, not West Virginia Code § 56-6-31.  “In an action founded on contract, a claimant is entitled to have the jury instructed that interest may be allowed on the principal due . . . but is not entitled to the mandatory award of interest contemplated by W.Va. Code, 56-6-31 . . . since this statute does not apply where the rule concerning interest is otherwise provided by law.”[54]  When the finder of fact is the judge, such as during a bench trial or when the case is resolved on summary judgment, the awarding of prejudgment interest is a decision made by the judge.[55] Trial court determinations regarding prejudgment interest are reviewed under an abuse of discretion standard.[56]

The Supreme Court of Appeals of West Virginia has opined, based on the general law in the United States, that “an award of prejudgment interest should be allowed only if the amount in question upon which the interest is to be determined is liquidated or if the amount upon which the interest is to be determined can be established or ascertained with reasonable certainty by ready calculation from known standards of value.”[57] Although the Court found in Clark that the contract damages at issue did meet the test articulated above, it stated that “this general law throws some question on the payment of prejudgment interest in actions where the amount of damages cannot be resolved except by a court or judicial process, or where the amount of damages depends on a judicial determination based on conflicting evidence and is not readily determinable by simple mathematical computation or ascertainable from established market prices or values . . . .”[58] The Court has not since revisited this issue.

Punitive Damages

Generally, absent an independent, intentional tort committed by the defendant, punitive damages are not available in an action for breach of contract.[59]

Liquidated Damages

A liquidated damages clause in a construction contract between the owner and contractor is generally permissible under West Virginia law.  The general rule that West Virginia courts have adopted is that parties may properly contract for liquidated damages where: (1) such damages are uncertain and not readily capable of ascertainment in amount by any known or safe rule, whether such uncertainty lies in the nature of the subject, or in the particular circumstances of the case; or (2) where from the nature of the case and tenor of the agreement, it is apparent that the damages have already been the subject of actual fair estimate and adjustment between the parties.[60]

However, the agreed upon amount of liquidated damages cannot be so large as to constitute a penalty.  If a court finds that a liquidated damages provision constitutes a penalty, the court will not enforce such a liquidated damages provision.  The test for determining whether any amount constitutes a penalty can be found in the Supreme Court of Appeals of West Virginia decision of Stonebreaker v. Zinn, where the Court ruled that “a clause for damages in a contract is a penalty rather than a liquidated damage provision when the amount is grossly disproportional in comparison to the damages actually incurred.”[61]  A court will use this test even if the contract explicitly designates the sum to be forfeited as liquidated damages.[62]

One type of provision in building contracts that has received unique treatment by West Virginia courts is a provision that requires the contractor to pay the owner a sum per day for delay in completion of the building.  No proof of actual damage due to the delay is required.[63] Such a provision will generally be upheld if reasonable in amount.[64]

Other Damage Limitations

West Virginia’s traditional comparative fault rule placed an additional limitation on damages.  “Under the comparative negligence doctrine, a plaintiff is not entitled to recover from a negligent tortfeasor if the plaintiff’s own contributory negligence equals or exceeds the combined negligence or fault of the other parties involved in the accident or occurrence.”^[65] This standard has now been codified by W.Va. Code §55-7-13c(c).

The legislature has further limited recovery of damages under a comparative fault theory in a specific context that may bear on construction law.  Pursuant to West Virginia’s smoke detector statute, violation of the statute “may not be considered to constitute evidence of negligence or contributory negligence or comparative negligence in any civil action or proceeding for damages.”^[66]

Another potential limitation is the “The Storm Scammer Consumer Protection Act.”[67]  The Act provides a consumer with the right to cancel a residential roofing contract where the contract is expected to be paid from a property and casualty insurance policy.  Under the Act, contractors cannot require advance payments when a payment is expected to be made from the proceeds of a property or casualty insurance policy until the statutory cancellation period has expired.  The statutory cancellation period is five days after the owner of the property receives notice from the insurer that all or part of the claim is not a covered loss.

CASE LAW AND LEGISLATIVE UPDATE

In the 2020 legislative session, the West Virginia Legislature repealed its prior smoke detector statute and replaced it with W.Va. Code §15A-10-12(m), which makes slight changes to the relevant language which forbid violations of the statute from being used as evidence of negligence in a civil action.  The relevant language is as follows:

(m) A violation of this section may not be considered to constitute evidence of negligence or contributory negligence or comparative negligence in any civil action or proceeding for damages.