Contractual Duty to Defend Is Independent of Jury Findings

WEDNESDAY, FEBRUARY 22, 2006 Vol. 119. No. 35 SINCE 1888 OFFICIAL NEWSPAPER OF THE LOS ANGELES SUPERIOR COURT AND UNITED STATES SOUTHERN DISTRICT COURT Focus Contractual Duty to Defend Is Independent of Jury Findings

By Thomas B. Snyder obligated to defend the developer and principles that the majority and dissent part therefore pay a percentage of the defense ways. For the majority, the contractual n Crawford v. Weather Shield costs the developer had incurred in language cited above provides for a Manufacturing Inc., a subcontractor litigating the case. The window disjunctive obligation to indemnify on the I was held liable for providing and manufacturer was ordered to pay a total of one hand and to defend on the other. The paying for a defense to claims against a $131,274 toward the defense costs the majority found that the phrase “and at his developer, even though it was ultimately developer had incurred. own expense to defend any suit or action found to be not negligent with respect to Because the decision rests so heavily on brought against [o]wner founded upon the the work in question. the particular language of the contract, it is claim of such damage loss of theft” that The appellate court upheld the decision helpful to cite that language at the outset. grows “out of the execution of the work” that the subcontractor, based on the The contract provided that: required the subcontractor to provide a language of the contract, had a separate and “Contractor does agree to independent duty to defend against the indemnify and save Owner The primary thrust of the majority’s claims raised, regardless of whether there harmless against all claims for was a finding of negligence. This decision damages to persons or to reasoning seems to be directed at emphasizes what is sure to be fertile ground property and claims for loss, the temporal concept of providing a for litigation in years to come. damage and/or theft of defense to a “claim.” The lawsuit originated as a construction homeowner’s personal property defect lawsuit against a developer, the growing out of the execution of the work, defense regardless of negligence. window manufacturer and the window and at his own expense to defend any suit The primary thrust of the majority’s framer. The defense of the case was tendered or action brought against Owner founded reasoning seems to be directed at the by the developer to both the window upon the claim of such damage loss of theft.” temporal concept of providing a defense to manufacturer and the window framer. Both The appellate court started with the a “claim.” The language cited above, rejected the tender. common principle that an indemnity according to the majority, supports the The developer filed a cross-complaint provision in a construction contract, unlike argument that any claim that arises out of asserting its contractual defense and an insurance contract, must be interpreted or grows out of the subcontractor’s work indemnity rights. The developer then so as to limit the scope of the indemnity required a defense, regardless of how the settled with the homeowners and the case obligation. There is no indemnity merits of that claim are ultimately proceeded to trial solely against the window obligation unless there is clear language in adjudicated. manufacturer and the window framer. After the agreement that provides for that In other words, if the claim relates to the trial, the jury found that the window obligation. subcontractor’s work, the subcontractor manufacturer was not negligent. Both opinions cite to the number of cases must defend immediately. The majority In light of the jury’s verdict, the that stand for the proposition that an found that the term “defend” carried with it developer’s cross-complaint for contractual indemnity provision will not be interpreted a temporal meaning that did not allow the indemnity against the window manufac- to require indemnity without the subcontractor to sit back, wait to see how turer was dismissed. However, the trial court indemnitor’s negligence only when that the case resolved and then “reimburse” the found that the window manufacturer was requirement is expressly set forth in the developer for the attorney fees incurred if responsible for the defense of the claims, agreement. “[H]ad the parties intended to some negligence is later found. notwithstanding the finding of no include an indemnity provision that would There is some appeal to the notion that a negligence. apply regardless of the subcontractor’s subcontractor should not be allowed to sit The trial court reasoned that the defense negligence, they would have had to use back, refuse to defend a claim relating to obligation was not dependent upon a specific, unequivocal contractual language its work, and then escape any liability if finding of negligence and therefore despite to that effect.” Citing to Heppler v. JM the developer’s hard work in litigation the absence of any negligence on the part Peters Co., 73 Cal.App.4th 1265 (1999). results in a finding of no negligence. The of the window manufacturer, it was It is in the application of these basic developer or owner is forced to bear the majority of the risk and all of the up front effect must be drafted as well to avoid the closely tied to the language of the contract expenses, while the subcontractor waits in implication found by the Crawford court. before it. While the court’s interpretation the wings. Such a result would potentially Another issue worth consideration is the of prior cases is of some interest, the result in an unwarranted windfall for the recent revision to Civil Code Section 2782. resolution of the case ultimately turned on subcontractor who disregards his or her That revision specifically voids any the language of the contract. The pre- contractual obligations. contract provision that would require a cedential value of the case may be further For the dissent, the references to defense subcontractor, in residential construction, limited by the actual language used in the and indemnity above were simply two sides to be required to defend or indemnify a contract. It would be foolhardy to rely of the same coin. The indemnity provision general contractor for the negligence of the on the language similar to the contract at does not require the subcontractor to general contractor or its subcontractors. issue in Crawford to define their respective indemnify without negligence. However, That provision would seem to envision defense and indemnity obligations. the obligation to defend, which is found in that with respect to residential construction The true value in the Crawford opinion the same sentence, specifically refers back contracts executed after Jan. 1, 2006, a may lie in the fact that it highlights the to the indemnity obligation by reference provision that purports to require a separate substantial gray area between the to “such claims.” defense obligation without the necessity obligation to defend and the obligation to In other words, the duty to defend only of a finding of fault against the sub- indemnify. This gray area can be sub- applied to those claims embraced by the contractor, would be void. To put it another stantially clarified with a little careful indemnity. Because the indemnity did not way, a subcontractor who is ultimately thought and negotiation during contract require indemnity without negligence, found to be not negligent cannot be formation. neither did the duty to defend. required to defend or indemnify a general If a developer desires a separate and First, it is a very close question whether contractor because, by definition, the independent obligation to defend from its the language at issue in the contract before finding of no negligence means that the contractors, regardless of whether those the court was sufficiently “unequivocal” damages were caused by the negligence of contractors are found to be negligent, it to support a finding that there was a duty to the general and/or his other subs. would be well served to draft much more defend without negligence. The majority’s However, Section 2782 also provides that specific language than that found in effort to find a current duty to defend by it does not preclude an agreement as to the Crawford. Ultimately, this is an issue that incorporating a temporal concept into the timing or immediacy of the indemnity the industry is sure to see more of in the definition of defending against a claim is obligation. Thus, a subcontractor and future. Whether the parties wish to have arguably too slender a reed to overcome general could conceivably draft a provision defense and indemnity obligations that are the presumption against coverage that that required an immediate defense by the coextensive or not, due consideration must applies to indemnity contracts. subcontractor regardless of fault, which at be given to defining not only indemnity Parties would be well advised not to rely that time is unknown. The subcontractor obligations, but also the scope of any on such language to clarify their respective provides its portion of the defense and, if obligation to defend. obligations. Nevertheless, language strong the subcontractor were ultimately found to enough to establish a duty to defend be not negligent, the subcontractor would Thomas B. Snyder is an associate in the without negligence can be drafted. Indeed, have a claim for reimbursement from the construction, environmental, real estate and if a subcontractor wants to be assured that general. land use litigation practice group in there is no defense obligation without The Crawford opinion itself may be of Sheppard, Mullin, Richter & Hampton’s Del negligence, then specific language to that little precedential value given that it is so Mar Heights office.