BREAKING NEWS: California Supreme Court Decision Redefines Duty to Defend

OVERVIEW: On July 21, 2008, the California Supreme Court issued its ruling in Crawford et al. v. Weather Shield Mfg. Inc., stylized as case number S141541. In its decision, the California Supreme Court deals with the contractual duty to defend in a non-insurance context. The California Supreme Court summarized the issue as follows: "We consider whether, by their particular terms, the provisions of a pre-2006 residential construction subcontract obliged the subcontractor to defend its indemnitee — the developer-builder of the project — in lawsuits brought against both parties, insofar as the plaintiffs’ complaints alleged construction defects arising from the subcontractor’s negligence, even though (1) a jury ultimately found that the subcontractor was not negligent, and (2) the parties have accepted an interpretation of the subcontract that gave the builder no right of indemnity unless the subcontractor was negligent." More specifically, the California Supreme Court posed this question: "Did a contract under which a subcontractor agreed 'to defend any suit or action' against a developer 'founded upon' any claim 'growing out of the execution of the work' require the subcontractor to provide a defense to a suit against the developer even if the subcontractor was not negligent."

The California Supreme Court answered this question in the affirmative.

IMPACT: The California Supreme Court rules that the contractual defense obligation in an indemnity provision of a construction subcontract operates in the same manner as the defense obligation of a general liability policy. The contractual duty to defend is prospective or prophylactic in nature and arises on the tender of defense. Further, the duty to defend is triggered by allegations of damage embraced by the indemnity agreement, regardless of whether the subcontractor is ultimately found negligent. While acknowledging a general rule that such indemnity agreements can be construed against the developer, as the party with greater bargaining power, the California Supreme Court finds that the clear language of the agreement nonetheless creates a duty to defend. The California Supreme Court also rejects public policy and lack of availability of insurance as arguments. The California Supreme Court does note that subcontractors have some protection under Civil Code 2782(e), in that agreements to defend or indemnify in construction contracts are unenforceable to the extent that the claims arise out of the negligence of the general contractor or others, although the California Supreme Court also concedes that the code section is new, and does not apply to existing cases. Above all, the California Supreme Court stresses throughout that all of the foregoing is subject to the specific language of the indemnity provision at issue.

QUESTIONS: If you have any questions, about this holding and/or how it impacts you, please contact Gary A. Bague of Haight Brown & Bonesteel LLP at 310.215.7100.  For more information about Haight Brown & Bonesteel LLP and our Construction Defect Law Practice Group, please visit our website at www.hbblaw.com.

Please click here for a link to the entire decision.