Article by: Charles S. Redfield
Since the California Supreme Court issued its decision in Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541, general contractors and their insurers have been able to force subcontractors to participate in the defense of general contractors through Type I indemnity agreements without needing to establish the subcontractor’s liability. If the subcontractor’s insurer has not accepted the general contractor’s tender of defense and indemnity through an additional insured endorsement, the subcontractor inevitably faces a general contractor’s or its insurer’s motion for summary adjudication well before trial to force the subcontractor (and hopefully its insurer) to pay for the general contractor’s defense. Because the Crawford holding favors the indemnitees seeking to force subcontractors to contribute to the defense of the indemnitees, subcontractors and their insurers have had a difficult time defeating these motions for summary adjudication. This article provides suggestions for arguments to defeat the Crawford motion for summary adjudication.
The first step in preparing an opposition to a Crawford motion for summaryf adjudication is to analyze the language of the contract. If the indemnity clause contained in the contract is not a Type I indemnity agreement that is similar to the language in the agreements contained in the Crawford and UDC-Universal Development v. CH2M Hill (2010) 181 Cal.App.4th 10 decisions, then the court may not grant a general contractor’s or developer’s motion for summary adjudication to recover defense costs through the indemnity clause. In both the Crawford and UDC decisions, the indemnity agreements required the subcontractors to indemnify and defend the general contractor and the developer for any claims related to the subcontractor’s work. The indemnity agreements omitted any language requiring a finding of fault against the subcontractor before an obligation to defend has been triggered. In Crawford and UDC, juries had found the subcontractors not negligent, but the Crawford and UDC courts held that the exoneration of the subcontractors was irrelevant for the determination that the subcontractors owed a duty to defend the general contractor and developer as a result of the language in the indemnity agreement requiring the subcontractor to defend the general contractor and developer for any suit, claim, etc. growing out of the subcontractor’s work. Yet, if the language in an indemnity agreement is different from the language contained in the indemnity agreements in the Crawford and UDC cases, a court may decide that the language in the agreement does not warrant a granting of a motion for summary adjudication filed by a general contractor or a developer.
For example, the Crawford court distinguished the case of Mel Clayton Ford v. Ford Motor Co. (2002) 104 Cal.App.4th 46, in which the indemnity agreement between the Ford retail dealer and the vehicle manufacturer required the manufacturer to defend and indemnify the dealer against any third party suits, complaints or claims caused “solely by” a manufacturing or design defect in a vehicle supplied to the dealer by the manufacturer. So, the manufacturer had no duty to undertake the dealer’s defense when the plaintiff’s claims related to the dealer’s direct or active negligence in the maintenance of the vehicle and the product liability claim was only one of the allegations of the underlying complaint. Id. at pp. 50 and 55. Similarly, a subcontractor should attempt to determine whether language in the indemnity agreement with a general contractor somehow limits the extent of the subcontractor’s liability. On the other hand, our experience has been that courts will still grant motions for summary adjudication even when indemnity agreements state that a subcontractor has no obligation to indemnify and defend the general contractor for claims arising out of the sole negligence of the general contractor.
Low, Ball & Lynch has had success in defeating Crawford motions for summary adjudication when the indemnification provisions require a subcontractor to defend all claims that may be brought by third persons. In those cases, because the plaintiff is typically not a “third person,” the indemnity language in the contract does not require the subcontractor to defend a general contractor in the typical case in which the owner is suing the general contractor and the general contractor cross-complains against subcontractors. If the indemnity agreement only requires a duty to defend claims that may be brought or instituted by third persons, the court may deny the general contractor’s motion for summary adjudication on the grounds that the language of the indemnity agreement does not require the subcontractor to participate in the defense of the general contractor.
Even if the language in the indemnity agreement specifies that a subcontractor has to indemnify and defend the general contractor and the developer for any claims related to the subcontractor’s work, the general contractor or developer (the indemnitee) still must present admissible evidence in support of its motion for summary adjudication demonstrating that the general contractor or developer has had to defend claims related to the subcontractor’s work. General allegations in a complaint or cross-complaint which do not specify the subcontractor’s specific scope of work would appear to be inadequate to trigger a subcontractor’s duty to defend. If a general contractor or developer does not set forth admissible evidence specifying why it has had to defend a claim related to the subcontractor’s work, a court should deny the motion for summary adjudication. Of course, this denial of the motion for summary adjudication will probably not preclude the general contractor or the developer from providing this admissible evidence at trial to obtain the same relief which it sought to receive through its motion for summary adjudication.
If a general contractor or developer has had its defense paid by its insurer, the subcontractor should be able to successfully contend that the general contractor has no damages and cannot receive a double recovery. In Bramalea California, Inc. v. Reliable Interiors, Inc. (2004) 119 Cal.App.4th 468, the indemnity agreement between the developer and the subcontractors required the subcontractors to pay the developer’s attorney’s fees arising out of the contract or out of the work performed by a subcontractor. Yet, the developer’s attorney’s fees were paid by its insurer. Pursuant to the case of Patent Scaffolding v. William Simpson Constr. (1967) 256 Cal.App.2nd 506, an insured could not recover money from the tortfeasor because the insured’s attorney’s fees had been fully compensated by its own insurer. In the Crawford and UDC cases, there was no mention of the general contractor’s or developer’s attorney’s fees being paid by an insurer.
The Bramalea decision mentions the potential that an insurer can make a subrogation claim to recover the money paid by the insurer to defend the general contractor. In Interstate Fire & Casualty Ins. Co. v. Cleveland Wrecking Co. (2010) 182 Cal.App.4th 23, the court allowed an insurer to maintain a subrogation action against a subcontractor for not defending the insurer’s insured who was the general contractor. In the underlying action, the subcontractor had successfully filed a motion for good faith settlement, but the Interstate Fire court ruled that the court’s granting of the subcontractor’s motion for good faith settlement did not bar the general contractor’s insurer’s subrogation action. Based upon the recent case of Searles Valley Minerals Operations, Inc. v. Ralph M. Parsons Service Co. (2011) 191 Cal.App.4th 1394, an insurer may also be able to make an indemnity claim through an assignment. So, to avoid the Bramalea and Patent Scaffolding decisions, general contractors’ insurers have frequently filed complaints-in-intervention or filed separate subrogation actions to attempt to recover their fees which they have spent to defend the general contractors who were their insureds.
For subcontractors the good news is that their successful lobbying efforts with the California Legislature have resulted in the enactment of recent Civil Code sections which may begin to limit the subcontractors’ exposure to Crawford Type I indemnity claims. Civil Code § 2782(d) states that all residential construction contracts “that purport to insure or indemnify, including the cost to defend, the builder . . . or the general contractor or contractor not affiliated with the builder . . . . by a subcontractor against liability for claims of construction defects are unenforceable to the extent the claims arise out of, pertain to, or relate to the negligence of the builder or contractor or tfhe builder’s or contractor’s other agents . . . or to the extent the claims do not arise out of, pertain to, or relate to the scope of work in the written agreement between the parties. This section shall not be waived or modified by contractual agreement, act, or omission of the parties.” Civil Code § 2782 (d) applies to construction contracts entered into after January 1, 2009, for residential construction. Civil Code § 2782 (e) specifically states that Civil Code § 2782 (d) does not prohibit a subcontractor and builder or general contractor from mutually agreeing to the timing or immediacy of the defense and provisions for reimbursement of defense fees and costs, so long as the agreement does not waive or modify the provisions of Civil Code § 2782 (d). Civil Code § 2782 (e) indicates that a general contractor’s tender of defense can include “a portion” of a claim for construction defects. No court has interpreted this new language in Civil Code §§ 2782 (d) and (e), but Civil Code § 2782 (d) appears to disallow any Type I indemnity clause which seeks to have a subcontractor indemnify a general contractor for the general contractor’s negligence. Previously, Type I indemnity clauses could not compel indemnity of a general contractor’s sole negligence, but otherwise allowed indemnity for the general contractor’s negligence in conjunction with the subcontractor’s negligence. With the inclusion of the language “including the cost to defend” in Civil Code § 2782 (d), subcontractors may be able to argue that a determination of a duty to defend or reimburse defense costs cannot be determined until the negligence of the general contractor has been determined.
Civil Code § 2782.05 contains many of the same provisions of Civil Code § 2782, but Civil Code § 2782.05 applies to “any construction contract” entered into on or after January 1, 2013. Civil Code § 2782.05 may apply to personal injury actions, as well. Civil Code § 2782.05(b)(1) states that it does not apply to contracts for residential construction. Civil Code § 2782.05 prohibits indemnity agreements, including the cost to defend, which indemnify the general contractor from its active negligence or willful misconduct. This language in Civil Code § 2782.05 appears to completely eliminate Type I indemnity clauses from non-residential construction contracts. In the future, a subcontractor may be able to successfully contend that it has no duty to defend until the general contractor has demonstrated that it was not actively negligent.
For subcontractors’ insurers who have provided additional insured protection to general contractors, Civil Code §§ 2782 and 2782.05 may not provide a change to their analysis as to whether they owe a defense to the general contractor. Both Civil Code §§ 2782(d) and 2782.05(a) state that the statutes do not affect the obligations of an insurer under the holding of Presley Homes, Inc. v. American States Insurance Company (2001) 90 Cal.App.4th 571.
For cases involving construction contracts that were entered into before the dates when Civil Code §§ 2782 and 2782.05 apply, the Crawford and UDC decisions will make opposing a general contractor’s or a developer’s motion for summary adjudication difficult for subcontractors. With no relevant published Appellate cases after the UDC decision, subcontractors have to rely upon various factual and contractual interpretation arguments to defeat the general contractor’s or developer’s motion for summary adjudication. Hopefully, this article has provided some helpful arguments to defeat the Crawford motion for summary adjudication.