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Pursuant to the indemnification clause of a subcontract, the subcontractor owed its prime contractor a duty to defend against a third party negligence claim. The duty arose when the claim was made. Citing the important case precedent of Crawford v. Weather Shield, the appellate court held that summary declaration should have been granted to enforce the duty to defend because, “the duty to defend arose immediately upon the proper tender of defense of a claim embraced by the indemnity agreement.” “Where the plaintiff’s complaint alleges facts embraced by the indemnity agreement, the indemnitor has a duty to defend throughout the underlying tort action unless it can conclusively show by undisputed facts that plaintiff’s action is not covered by the agreement.” Centex Homes v. R-Help Construction Co., Inc., 32 Cal. App. 5th 1230 (2019).

The subcontractor in this case attempted to show that the plaintiff’s personal injury action was not covered by the indemnity agreement. It maintained that the utility box, which the plaintiff claimed was improperly installed and thereby caused the injury, was not within the subcontract scope of work. The appellate court held that credible expert evidence attested that the defective utility box was within the scope of the subcontractor’s work, and it found, “None of the evidence … definitively shows the box was not within [Subcontractor’s scope of work or that [Subcontractor] did not install the box.” For these reasons the court found found that the subcontractor failed to overcome its duties under the indemnification clause of the subcontract.

The court concluded, “Under Crawford, the duty to defend arises as a matter of law from the mere allegation in the underlying tort action that plaintiff’s injuries arose out of [Subcontractor’s] work.” In this matter, the underlying tort case was resolved by settlement and the prime contractor sought recovery from the subcontractor for its legal defense costs and the damages paid. The court concluded, “In any event, it is too late to challenge the duty to defend after the underlying tort case has been resolved.” Citing a court decision involving an insurance carrier’s duty to defend, the court quoted, “When the duty [to defend], having arisen, is extinguished by having a showing that no claim can in fact be covered, ‘it is extinguished only prospectively and not retroactively.’” The court goes on to state that while it recognizes that particular decision was an insurance case, and there are some differences in treatment between insurance policies and other indemnity agreement, no authority was cited for why the principal of law should not apply to this case. In other words, a subcontractor would still be responsible for the attorneys fees under the “duty to defend” even if the underlying claim is ultimately determined to be meritless and no damages are owed under the indemnification aspect of the contract clause.

Comment: When we review design professional contracts for projects in California, we recommend adding wording to specifically state that there will be no duty to defend an Indemnitee against professional liability claims.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 21, No. 6 (July 2019).

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