Supreme Court Holds That Defense Obligation In Indemnity Agreement Is Separate From Indemnity Obligation
On a more serious note than clapping jurors (see previous post), the Supreme Court published its ruling in Crawford v. Weather Shield Mfg., Inc. yesterday, explaining that, in the context of indemnity agreements, a contractual duty to defend may be separate and distinct from the duty to indemnify.
Previously, in Regan Roofing Co. v. Superior Court (2004) 24 Cal.App.4th 425, the court held that a contractor’s duty to defend pursuant to an indemnity agreement only arose if the indemnity obligation was triggered. So, for example, if the indemnity agreement required that a subcontractor be found negligent in order for its indemnity obligation to be triggered – its defense duty was not triggered either until such showing.
Not so says the Supreme Court. Where an indemnity agreement provides a “duty to defend” rather than a mere promise to pay defense costs as part and parcel of its indemnity obligation, the duty is triggered upon the making of allegations that fall within the indemnity obligation. More importantly, the Court held that this duty to defend is implied in every indemnity agreement pursuant to Civil Code Section 2778. So if parties do not intend to be liable for providing a defense before their own indemnity obligation is triggered, the contract must specifically state as much.
Now, I am not an expert in construction defect litigation by any means. However, it seems to me that the indemnity cross-complaints that begin to fly as soon as a construction defect action is filed against a general contractor may be better suited to separate claims for declaratory relief on the duty to defend in light of this ruling. Moreover, who gets to control the defense? What if there are fifty subs who all owe a duty to defend the general and they can’t agree on a lawyer? Through years of trial and error (and a lot of litigation), liability insurers have had lots of practice nailing down the boundaries of their defense obligations. Contractors, at least in my limited experience, have paid less attention to the terms of the indemnity agreements in a standard construction contract. Looks like that may need to change, and quick.
So how does this apply to "pay and chase" scenarios where the developer/GC funds its own defense and settles with plaintiff? This arises when the developer/GC later sue the subs for contractual indemnity for settlement monies and for their defense fees in defending against plaintiffs' claims?