Subcontractors can still owe indemnity to general contractors even when the general is found liable for active negligence or willful misconduct. Oltmans.

Issue By: Charles S. Redfield

Oltmans Construction Co. v. Bayside Interiors, Inc.

Court of Appeal, First Appellate District, 10 Cal.App.5th 355 (March 30, 2017)

Civil Code § 2782.05 renders an indemnity provision in a contract void and unenforceable “to the extent the claims arise out of, pertain to, or relate to the active negligence or willful misconduct of” a general contractor. Does a finding of active negligence or willful misconduct against the general contractor preclude the general contractor from recovering any indemnity, or does Civil Code § 2782.05 limit recovery to the portion of liability attributable to the negligence of others? The Court held that a general contractor can still be indemnified for the portion of liability attributable to the fault of others even if the general contractor is found liable for active negligence or willful misconduct.

Plaintiff Gerardo Escobar was an employee of O’Donnell Plastering, Inc., which was a subcontractor of Bayside Interiors, Inc., which was a subcontractor of Oltmans Construction Co., the general contractor. Escobar fell through an unsecured opening on a roof and suffered injuries when installing scaffolding that O’Donnell had contracted with Bayside to erect. An Oltmans employee had cut the opening for the installation of a skylight. Escobar sued Oltmans, and Oltmans filed a cross-complaint against Bayside.

One of the causes of actions was for recovery of contractual indemnity based on the following provision in the contract between Bayside and Oltmans:

“[Bayside] shall, to the fullest extent permitted by law, indemnify, defend, protect and hold harmless [Oltmans] . . . from and against each and all of the following: [¶] (a) Any claims . . . arising out of (i) the scope of the work of [Bayside], or (ii) breach of the obligations of [Bayside] arising from the scope of work under this subcontract . . . , or (iv) any other act or omission arising out of the work of [Bayside or its] sub-subcontractors . . . resulting in or alleged to have resulted in . . . bodily injury . . . . The indemnification and defense required by this Paragraph 11(a) shall apply in all described matters herein except to the extent the claims arise out of, pertain to, or relate to the active negligence or willful misconduct of the contractor parties . . ., or to the extent such obligation is inconsistent with the provisions of California Civil Code 2782.05.” (Italics added.)

Bayside moved for summary judgment on Oltmans’ claim that it was entitled to receive express contractual indemnity through this indemnity provision. Bayside claimed that the undisputed facts established that Oltmans’ employee was actively negligent, which precluded Oltmans from obtaining any defense or indemnity under the terms of this indemnity provision. Oltmans argued that there was a material disputed fact as to its alleged active negligence and that, even if actively negligent, Oltmans was entitled to be indemnified for the portion of any liability incurred as a result of the negligence of others. The trial court granted Bayside’s motion for summary judgment, and Oltmans appealed.

After the parties had submitted all of their briefs to the Appellate Court, the parties advised the Court that they had reached a settlement and requested dismissal of the appeal. The Court agreed to dismiss the appeal pursuant to the stipulation of the parties, but it decided to issue this published decision anyway.

The Appellate Court held that the trial court had improperly granted the motion for summary judgment, finding that Bayside may not have established Oltmans’ active negligence as a matter of law. While that finding alone may have been enough to reverse the trial court’s decision, the Appellate Court found that the trial court’s incorrect interpretation of the indemnity provision of the subcontract was “a more fundamental error in the premise on which summary judgment was granted.”

The Appellate Court decided that the language in the indemnity provision stating that the provision “shall apply in all described matters herein except to the extent the claims arise out of, pertain to, or relate to the active negligence or willful misconduct of the contractor parties . . ., or to the extent such obligation is inconsistent with the provisions of California Civil Code 2782.05” should not be interpreted to preclude indemnity if Oltmans is found actively negligent or liable for intentional misconduct. Instead, the Court interpreted the language to mean that Oltmans was entitled to indemnification for a claim that arose out of its negligence that was not active negligence or its own willful misconduct. The Appellate Court found that the apparent intent of the indemnity provision was to apportion liability between Oltmans and Bayside based on the proportionate or comparative fault of the parties. Even if Oltmans’ active negligence was one cause of Escobar’s injury, Oltmans could still be entitled to indemnification from Bayside for the portion of any liability it incurs attributable to O’Donnell or others.

The Appellate Court found that Civil Code § 2782.05 should be interpreted similarly. Civil Code § 2782.05(a) applies to any construction contract provision in which a subcontractor agrees to insure or indemnify a general contractor against liability for claims of death or bodily injury. Civil Code § 2782.05(a) states that these provisions are void and unenforceable to the extent the claims arise out of, pertain to, or relate to the active negligence or willful misconduct of that general contractor. The Court of Appeal analyzed the history of the bill to support its interpretation of the statute that the purpose of the new provision of Civil Code § 2782.05 was to apportion liability on an equitable basis in proportion to the fault of the various parties.

COMMENT

This case interprets the terms “except to the extent” contained in an indemnity provision in a contract and “to the extent” contained in Civil Code § 2782.05 not as a bar to indemnity but as a qualification of the extent of the indemnitor’s obligation or the extent of the indemnitee’s entitlement. A general contractor’s active negligence or willful misconduct will no longer be a complete bar to contractual indemnity, but rather, will be a consideration in the apportionment of fault of the parties. A subcontractor’s potential indemnification obligation is greatly expanded by this decision.

For a copy of the complete decision, see: Oltmans Construction v. Bayside Interiors

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