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An Immediate Duty to Defend in a Construction Contract, Even When there is No Fault

blue shield.jpgThe California Supreme Court issued an important decision about the duty to indemnify and defend arising out of a construction contract. In Crawford v. Weather Shield, (decided 7/2008) Weather Shield (WS) manufactured and supplied windows on a large residential construction project to developer / general contractor, J.M. Peters (JMP).

The subcontract between WS and JMP provided two important and distinct rights, indemnity and defense. WS owed JMP indemnity that obligated it to repay JMP if WS’s work was defective. WS also owed JMP a defense against lawsuits “founded upon…[a] claim of such damage…growing out of the execution of [WS’s] work.”

The homeowners in a large residential project sued JMP, alleging among other things, defects in the design, manufacture, and installation of the windows. Thus, as the window manufacturer and supplier, WS’s work was directly implicated in the homeowners’ complaint. JMP cross-complained against and tendered its defense and indemnity to WS.

WS refused to defend or indemnify JMP. WS contended that its windows were not defective and therefore it did not owe JMP a duty to defend it in the underlying lawsuit. After some of the parties settled, the remainder of the case went to trial.

At trial, the jury found that WS was not negligent in the defects. After that result, one would think that WS was justified in its refusal to defend JMP. However, as it turned out, they were not.

The case relating to whether WS owed JMP a duty to defend it was then tried by the judge because it was a matter of legal interpretation. The judge found that WS breached its contract by refusing to defend JMP, even though its windows were not determined to be responsible for the problems alleged by the homeowners.

The California Supreme Court upheld the decision of the trial court. It ruled that WS owed JMP an immediate duty to defend JMP because of the specific language in the subcontract. The Court analyzed Civil Code 2778 and the duties arising from an indemnity agreement. It found that the duty to defend was not dependent upon a finding that WS was liable for the construction defects. Instead, because the parties tied the duty to defend “founded upon” a claim relating to WS’s work, their agreement contemplated an immediate duty to defend when JMP was sued. The Court disapproved other court decisions that gave WS good reason to believe it did not have an immediate duty to defend.

A similar result was reached in UDC-Universal Development v. CH2M Hill (decided 1/2010). The subcontractor there was also determined not to be negligent, but was still found to be in breach of contract for not defending the general contractor.

Indemnity and defense duties are complex and fact specific. There are also particular restrictions on what kind of indemnity can be given in construction agreements. The points described here are general and should not be applied to your situation without consulting an attorney. Contact this office to discuss the meaning and scope of indemnity provisions in your contracts.

This information is provided for informational purposes only and should not be construed as legal advice. It should not be acted upon without consulting a licensed California attorney about the facts, particular needs and questions of the person or entity considering these issues. Contact our office for assistance negotiating indemnity and defense obligations.