A California appellate court has broadly interpreted a subcontractor’s “duty to defend” a developer pursuant to the terms of an indemnity clause in the parties’ contract. (Centex Homes v. R-Help Construction Co., Inc. (2019) 32 Cal.App.5th 1230)
Facts
Centex Homes hired R-Help Construction Company, Inc. to trench, install and inspect all utility boxes and conduits for a residential construction project. The contract required R-Help to indemnify and defend Centex against all claims “to the extent such claims in whole or in part arise out of or relate to” R-Help’s work.
Matthias Wagener was injured at the project when he fell into a utility box that allegedly had an improperly-installed lid. Wagener subsequently sued Centex, R-Help and others, alleging that the defendants negligently maintained and inspected the utility box lid so as to create an unstable platform which resulted in Wagener’s fall. Centex tendered the complaint to R-Help for defense and indemnity, but R-Help did not respond to the tender. Centex then cross-complained against R-Help, alleging causes of action for breach of contract and declaratory relief. Throughout the litigation, Centex and R-Help disputed whether R-Help had actually worked on the utility box where Wagener was injured.
Eventually Wagener resolved his tort claims against all the defendants. However, Centex continued pursuing its cross-complaint against R-Help.
At trial, a jury concluded that R-Help did not actually work on the utility box where Wagener was injured, and that R-Help thus had no duty to defend Centex against Wagener’s tort claim. The trial court thus entered judgment in favor of R-Help. Centex appealed.
Holding
The appellate court reversed.
The appellate court began by holding that whether R-Help had a “duty to defend” Centex under the indemnity agreement presented a question of law for the trial court, not a question of fact for a jury. Thus, the trial court erred in submitting that issue to a jury.
The appellate court further held that pursuant to Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.App.4th 541, Wagener’s mere allegation that his injury arose out of R-Help’s work for Centex was sufficient to trigger R-Help’s duty to defend Centex against Wagener’s claim. Because Wagener had alleged facts “embraced by the indemnity agreement,” R-Help had a duty to defend Centex throughout the underlying tort action unless and until R-Help could conclusively show that Wagener’s claim against Centex was not covered by the indemnity agreement.
Here, during the pendency of the underlying tort action, R-Help did not conclusively show that Wagener’s claim against Centex was outside the scope of the indemnity agreement. Thus, as matter of law, R-Help had breached a duty to defend Centex against Wagener’s claim. The appellate court thus remanded the case to the trial court so that Centex could prove the amount of damages it had sustained as a result of R-Help’s breach.
Comment
The appellate court applied “duty to defend” principles from cases involving liability insurance policies to the present case involving a contractual indemnity provision. The court held that R-Help (the indemnitor) had an immediate duty to defend Centex (the indemnitee), despite R-Help’s claim that it did not actually have any duty to indemnify Centex. Because Wagener’s tort claim against Centex was “embraced by the indemnity agreement,” R-Help had a duty to defend unless and until it could conclusively prove that the tort claim was not covered by the indemnity agreement.
This case may significantly benefit parties (e.g., developers, landlords, etc.) who have contractual indemnity rights against other parties (e.g., subcontractors, tenants, etc.). If the indemnity clause is properly worded, the former may be able to completely transfer their costs of defense onto the latter, without regard to the presence of insurance.