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Publications
Indemnity Clause Requires Defense As Soon As Suit Filed
Construction Practices Newsletter
Fall 2008
Under a typical "Type I" indemnity provision, does a subcontractor’s duty to defend an owner or general contractor kick in only after it has been established that the subcontractor actually was negligent? In Crawford v. Weather Shield Manufacturing, Inc. S141541 (July 23, 2008), the California Supreme Court finally put to rest this fundamental issue. It held that, under the provision at issue, where a claim implicates the subcontractor’s work, the subcontractor owes a duty to defend as soon as a suit is filed, regardless of whether it is ultimately determined that the subcontractor was negligent.
In Crawford, the project was a large residential development in Southern California. J.M. Peters Co. was the project’s owner and builder. Peters engaged many subcontractors, including Weather Shield, to manufacture and supply wood-framed windows for the project.
Peters drafted all the subcontracts, and each contained identical indemnification provisions. Each stated that the subcontractor promised to indemnify and hold Peters harmless "against all claims for damages [and] loss ... growing out of the execution of [the subcontractor’s] work." They further provided that each subcontractor would, at its own expense, "defend any suit or action brought against [Peters] founded upon the claim of such damage [or] loss."
After completion, about 200 homeowners sued Peters and certain subcontractors (including Weather Shield) for alleged construction defects under various theories. As to Weather Shield, the homeowners alleged that, due to improper design, manufacture and installation, Weather Shield’s windows fogged and leaked, causing extensive damage to their homes.
In turn, Peters cross-complained against the subcontractors, including Weather Shield. The cross-complaint asserted that under the identical indemnification provisions, the subcontractors owed Peters a duty of indemnity and a "present duty" of defense against the homeowners’ complaints.
Thereafter, the action was settled among the plaintiffs, Peters and all subcontractors except Weather Shield and one other. The window leak issues then went to trial against Weather Shield on the negligence and breach of warranty claims. The jury found in Weather Shield’s favor.
Peters’ cross-complaint was then separately tried. In addition to seeking indemnity for the amounts it paid in settlement with the homeowners, Peters also sought, under the duty-to-defend provision of its subcontract with Weather Shield, recovery of the attorneys fees’ and expenses incurred in defending itself against the homeowners’ suit.
The trial court denied Peters’ demand for indemnity, holding that the subcontract would have obliged Weather Shield to indemnify Peters only if Weather Shield had been found negligent.
With respect to defense costs demands, however, the trial court ruled in Peters’ favor. The lower court held that the subcontract language made Weather Shield immediately responsible for Peters’ legal defense against the homeowners’ claims against Weather Shield’s windows, regardless of whether Weather Shield was ultimately found to be negligent.
The appellate court affirmed, and the case then went to the Supreme Court, which again affirmed the trial judge’s rulings. In its analysis, the Court noted that under Civil Code section 2778(4), absent language showing a contrary intention, every indemnity agreement carries with it a duty to defend claims with respect to matters "embraced by the indemnity." The Court then held that this implied duty to defend is "distinct from, and broader than" an indemnitor’s duty to reimburse an indemnitee for defense costs for a claim for which indemnity is actually found to be owed. Specifically, the Court found implicit within this duty to defend that "the duty arises immediately upon a proper tender of defense by the indemnitee."
The Court then examined the language of Weather Shield’s subcontract and found that not only was there no language showing an intent to preclude a duty to defend, the subcontract language expressly confirmed this duty. The indemnity provision articulated two distinct obligations, namely, a duty to indemnify, and a separate and specific promise by Weather Shield "at [its] own expense to defend any suit or action ... founded upon the claim of such damage [or] loss." The Court held that this specific promise "to defend" another against specified claims "clearly connotes an obligation of active responsibility, from the outset, for the promisee’s defense against such claims," and that the duty promised "is to render, or fund, the service of providing a defense on the promisee’s behalf—a duty that necessarily arises as soon as such claims are made against the promisee, and may continue until they have been resolved."
Based on this analysis, the Court concluded that the subcontract language "expressly and unambiguously" obligated Weather Shield to defend, from the outset, any suit against Peters insofar as that suit was "founded upon" claims alleging damage or loss arising from Weather Shield’s negligent role in the project.
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