Tuesday, July 22, 2008
Court: Indemnitor’s Duty to Defend Separate From Issue of Indemnification
By SHERRI M. OKAMOTO, Staff Writer
An indemnitor’s duty to defend arises when a claim against an indemnitee is made and tendered and does not depend on the outcome of the litigation defended, the California Supreme Court held yesterday.
The unanimous court concluded that the provisions of a residential construction subcontract between Weather Shield Manufacturing Co. Inc. and J.M. Peters Co. required Weather Shield to defend J. M. Peters from any claims arising from Weather Shield’s negligent performance regardless of whether it was ultimately determined that Weather Shield was actually negligent.
The justices affirmed the similar decision by the Fourth District Court of Appeal, Div. Three.
J.M. Peters was the developer, builder, and general contractor of a large residential construction project in Huntington Beach. It contracted with Weather Shield to manufacture and supply wood-framed windows for the project.
The contract provided that Weather Shield would indemnify J. M. Peters from “all claims for damages to persons or to property and claims for loss, damage and/or theft…growing out of the execution of [Weather Shield’s] work,” and a separate specific promise to “defend any suit or action brought against [J.M. Peters] founded upon the claim of such damage…loss,…or theft” at Weather Shield’s own expense.
Homeowners in the project later sued J.M. Peters, Weather Shield, and other participants in the project’s construction, alleging numerous construction defects and asserting in part that windows in the homes supplied by Weather Shield leaked and fogged, causing extensive damage.
J.M. Peters cross-complained against Weather Shield and all the other project subcontractors sued by the homeowners claiming that the subcontractors owed it a duty of indemnity and defense and seeking declaratory relief with respect to those indemnity and defense rights.
A jury later returned a general verdict in favor of Weather Shield, and J.M. Peters’ cross-complaint against Weather Shield was separately tried before Orange Superior Court Judge Raymond J. Ikola, now a justice in Div. Three.
Ikola determined the jury’s verdict absolved Weather Shield of indemnity liability, but that Weather Shield was responsible for J. M. Peters’ legal defense against the homeowners’ claims insofar as those claims concerned the windows supplied by Weather Shield, regardless of whether Weather Shield was ultimately found negligent.
Following entry of judgment, the California Supreme Court decided Jimenez v. Superior Court (2002) 29 Cal.4th 473, which held that the manufacturer or supplier of a component part installed in a mass-produced home may be held strictly liable when a defect in the component causes damage to other parts of the structure.
After the homeowners successfully moved for a new trial against Weather Shield on the issue of strict liability, Weather Shield appealed the new trial order and the declaratory relief judgment insofar as it required Weather Shield to reimburse J. M. Peters’ expense of defending the homeowners’ action and prosecuting J. M. Peters’ cross-complaint.
A divided appellate court affirmed. Presiding Justice David G. Sills, joined by Justice Richard M. Aronson, concluded that Weather Shield’s promise “to defend” contemplated an immediate duty which arose at the time the homeowners’ suit was filed and a defense was needed, and did not depend on the outcome of the issue litigated in the action Weather Shield was obliged to defend.
Justice Kathleen O’Leary dissented in part, opining that the contract language did not compel the majority’s interpretation of Weather Shield’s duty to defend and that a builder or developer with superior bargaining power should not, as a matter of policy, be allowed to impose contractual defense obligations on a non-negligent subcontractor.
Writing for the state high court, Justice Marvin R. Baxter explained that where an indemnity contract specifies an indemnitor’s duty “to defend” an indemnitee upon the latter’s request, it places a duty on the indemnitor to assume the indemnitee’s defense, if tendered, against all claims “embraced by the indemnity,” unless the agreement provides otherwise.
However, Baxter noted, this duty is “distinct and separate from the contractual obligation to pay an indemnitee’s defense costs, after the fact, as part of any indemnity owed under the agreement,” and arises before the litigation to be defended has determined whether indemnity is actually owed.
Accordingly, under the language of the subcontract at issue, Baxter reasoned the duty to defend arose as soon as the homeowners’ suit was brought and did not require a final determination of the issues, including the issue of Weather Shield’s negligence, before Weather Shield was required to mount and finance a defense on J. M. Peters’ behalf.
“Weather Shield could not avoid this duty on the ground that the very litigation to be defended might later result in a finding Weather Shield was, in fact, not negligent,” Baxter wrote, disapproving Regan Roofing Co. v. Superior Court (1994) 24 Cal.App.4th 425, insofar as that decision suggested that a contractual duty to defend specified classes of claims necessarily depended on the promisor’s ultimate liability for indemnity on those claims.
While acknowledging the policy concerns addressed by O’Leary, Baxter noted Weather Shield did not allege that it naively signed the subcontract without understanding its terms, nor that the contract was unconscionable or the result of being overwhelmed by J. M. Peters’ superior bargaining power.
Regardless, he continued, the company’s “multistate scale of operations, and a consequent sophistication,” would undermine any such assertions, and he dismissed the arguments based on such policy issues raised by Weather Shield and its amici curiae, trade groups representing contractors and manufacturers.
Chief Justice Ronald M. George, and Justices Joyce L. Kennard, Kathryn Mickle Werdegar, Ming W. Chin, Carlos R. Moreno, and Carol A. Corrigan joined Baxter in his opinion.
The case is Crawford v. Weather Shield MFG. Inc., 08 S.O.S. 4289.
Copyright 2008, Metropolitan News Company