Construction Case Alert: Appellate Court Confirms Engineer's Duty to Defend Developer Arises Upon Tender Of Indemnity Claim

In the recent case of UDC-Universal Development, L.P. v. CH2M Hill, 2010 Cal.App.LEXIS 47 (filed January 15, 2010), the Sixth District Court of Appeal provided a stunning illustration of the far-reaching effects of the California Supreme Court’s holding in Crawford v. Weather Shield Manufacturing Inc. (2008) 44 Cal.4th 541. In Crawford, the Court held the duty to defend under an indemnity agreement arose upon the mere tender of defense of a claim covered by the indemnity.

In the UDC case, CH2M Hill provided engineering and environmental planning services to developer UDC on a project that ultimately wound up in a construction defect lawsuit by the homeowners’ association (“HOA”). UDC tendered its defense to CH2M Hill, the tender was rejected, and UDC filed a cross-complaint for negligence, breach of contract and indemnity against CH2M Hill and others. After the HOA’s construction defect claims were settled, UDC proceeded to trial against CH2M Hill. The jury found in favor of CH2M Hill on the claims for negligence and breach of contract. At the request of the parties prior to trial, the trial court ruled on the application of the indemnity agreement in light of Crawford  and, in so doing, found that the defense obligation arose upon the tender and that CH2M Hill breached that duty despite the jury finding in favor of CH2M Hill.

The Court of Appeal affirmed, noting that the defense obligation arose “as soon as the defense was tendered and did not depend on the outcome of the litigation,” and that the HOA’s general description of the defects along with an allegation that “Doe” engineers were negligent triggered the duty to defend.

Although this case did not expand the crushing impact of Crawford’s holding, it is a reminder that all parties in the construction process can be ensnared by this type of indemnity agreement. While California has put the brakes on subcontractor indemnity requirements for residential construction (Civil Code §2782(c)), the defense obligation will still exist to the extent it is embraced by the indemnity agreement. As litigation increases against design professionals, such professionals should consider consulting with counsel to evaluate appropriate limitations on liability prior to the execution of a contract.

This alert is intended to provide you with general information about insurance law related issues. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact Steve Cvitanovic at 415-281-7608, or scvitanovic@hbblaw.com, or contact your preferred Haight Brown & Bonesteel, LLP attorney. This communication may be considered advertising in some jurisdictions.