By Brian K. Stewart, Esq. and Kevin J. Engelien, Esq.– Collins Collins Muir & Stewart, LLP.
The immediate contractual duty to defend, once thought by some to be isolated to the “not so golden anymore” state of California as a result of two important court decisions, one by the California Supreme Court in Crawford v. W eather Shield Manufacturing, Inc. (2008) 44 Cal.4th 541 and the other by the Court of Appeal in UDC-Universal Development, L.P. v. CH2M Hill (2010) 181 Cal. App. 4th 10, appears to have grown some traveling legs. Based on some cases, these legal issues and the problems related to them have spread from the west coast to the east coast.
A Refresher on the Duty to Defend
In both Crawford and CH2M Hill, the courts found that a contractual duty to defend arises immediately after the claim is made, and the defendant may owe all costs of defense, even if later found not liable for negligence at trial. At the time of these decisions, it was thought that maybe these rulings were the result of “bad facts make bad law” or simply wacky rulings by California judges. However, this appears to not be so. The rest of the country may be aligning with these decisions. Recently, in Massachusetts, two cases have been decided that have found that the duty to defend is immediate and not tied to the duty to indemnify.
The Massachusetts Courts Take on the Duty to Defend
In Siebe, Inc. v. Louis M. Gerson Co., Inc. (2009) 74 Mass. App. Ct. 544, the Court of Appeals found that Gerson ( a product manufacturer) owed Siebe (a product distributor) a contractual duty to defend and had to pay all of Siebe’s costs of defense, even if the underlying claim was later found to be without merit.
Likewise, just recently, in the case Siemens Industry, Inc., v. Eire Electrical Corp. (2012) U.S. Dist. LEXIS 168836, the defendant, Eire Electrical Corp. (subcontractor) was found not negligent. Regardless, the United States District Court for Massachusetts held that Eire owed a contractual duty to defend and pay the costs of defense to Siemens (general contractor).
In each of these cases, the courts’ rationale was the same; the term “claims” in a contract is synonymous with the term allegation. Applying this rationale to contracts which contain clauses that require a party to defend another for all “claims” arising from breach of the contract or negligent performance of services, a mere allegation of negligence or breach is sufficient to give rise to the duty to defend, even where the claim has no merit.
National Implications and What Appears to be a Trend
The decisions of Siebe and Siemens in many ways mirror the decisions by the California courts in Crawford and CH2M Hill. While these decisions in accordance with California and Massachusetts indemnity law and the even more important “duty to defend” issue may not exactly be sweeping the nation yet, there is at least some indication that there is a growing and negative trend with potentially disastrous results for design professionals. What these cases all have in common is some very unfavorable indemnity language that the courts have said is enforceable.
Don’t think that what you sign will not come back to haunt you like the ghost of Christmas past because it just might. The best advice is to remain vigilant, don’t sign unfair/unbalanced indemnity agreements and stay tuned….
For further information on this article or the issues discussed herein, please contact any of the Collin Collins Muir + Stewart offices in Northern and Southern California. Website: http://www.ccmslaw.com; 1100 El Centro Street South Pasadena, CA 91030 Phone: (626) 243-1100. bstewart@ccmslaw.com.
Brian K. Stewart, Esq. 1100 El Centro Street South Pasadena, CA 91030 Phone: (626) 243-1100
Fax: (626) 243-1111
bstewart@ccmslaw.com www.ccmslaw.com
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