The California Court of Appeal has held that a contractual indemnity clause required a subcontractor to “defend” a developer against claims involving the subcontractor’s work, even though the subcontractor was later found not negligent and thus had no duty to “indemnify” the developer. (Crawford v. Weather Shield Mfg., Inc. (2006) 146 Cal.App.4th 304)
Facts
A developer entered into a subcontract with a window manufacturer pursuant to which the window manufacturer supplied windows for one of the developer’s residential housing projects. The written subcontract contained a clause which stated that the window manufacturer would “indemnify … [the developer] against all claims … growing out of execution of the work, and … defend any suit or action brought against [the developer] founded upon the claim of such damage.”
After the project was completed, about 200 homeowners filed a construction defect action against the developer, the window manufacturer and other parties. Among other things, the homeowners alleged that the window manufacturer had defectively designed and manufactured the windows, causing them to leak and fog.
The developer tendered its defense to the window manufacturer, but the window manufacturer refused to defend. The developer then filed a cross-complaint for contractual indemnity against the window manufacturer, seeking to recover the costs of any settlement or judgment in favor of the homeowners, as well as the costs of defending against the homeowners’ claims.
The homeowners settled their claims against the developer. A jury then heard the homeowners’ negligence claim against the window manufacturer. The jury also heard the developer’s contractual indemnity claim against the window manufacturer (but did not hear the developer’s claim for recovery of defense costs against the window manufacturer). The jury found in favor of the window manufacturer, both on the homeowners’ negligence claim and on the developer’s contractual indemnity claim.
In subsequent proceedings, the trial judge ruled that even though the window manufacturer had been found not negligent and thus had no duty to “indemnify” the developer for its settlement with the homeowners, the window manufacturer had a separate duty to “defend” the developer and thus had to pay the developer’s defense costs related to claims involving the windows. The window manufacturer appealed, asserting that because it was not negligent, it could not have any duty to pay the developer’s defense costs.
Holding
The Court of Appeal affirmed the trial court’s ruling requiring the window manufacturer to pay the developer’s defense costs related to window claims. The Court acknowledged that “non-insurance” indemnity clauses should be narrowly construed against the party seeking indemnification. However, the Court concluded that even construing the subject indemnity clause narrowly, the clause plainly and unambiguously required the window manufacturer to “defend” the developer against suits based upon “claims” of window problems.
Thus, the window manufacturer had an obligation to “defend” the developer against the window claims, even though the window manufacturer was ultimately found not negligent and thus had no duty to “indemnify” the developer for amounts paid in settlement of the window claims. According to the Court, prior California appellate decisions, when “properly read in context,” do not preclude this result.
Comment
This case is generating considerable discussion and controversy, particularly amongst construction defect litigants where the scope of “contractual indemnity” is often an issue. If this case stands, it will potentially give developer-indemnitees (and their insurers) significant leverage against subcontractor-indemnitors (and their insurers). Not surprisingly, the window manufacturer has filed a petition for review in the California Supreme Court, and at least one non-party has filed a request to have the case decertified. What action the Supreme Court will take remains to be seen.