Articles Posted in Indemnity and Defense

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question mark blue and white.jpgDefense

Continued from Part 1.

A duty to defend another is a separate part of an indemnity provision. It requires the person giving the indemnity (the indemnitor) to pay for an attorney to defend the person receiving the indemnity (the indemnitee). A defense provision is important because of the cost of litigating a lawsuit. Sometimes the ultimate settlement of a matter is less costly than the overall expense involved in litigating the case.

The Timing of the Duty to Defend is Critical

When negotiating a defense obligation, it is important to specify when the duty arises. As the party receiving the promise to defend, the indemnitee wants the duty to defend to arise at the inception of any claim or even with the threat of litigation. The indemnitee also wants the defense to apply as broadly as possible, not just to a narrow set of circumstances. The indemnitor, on the other hand, may want the duty to defend to arise only in certain circumstances.
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question mark blue and white.jpgIndemnity

Most contracts contain an indemnity provision. While indemnity is neither exciting nor easy to understand, recognizing how it will affect your promises and expectations is very important.

There are two major kinds of indemnity, express indemnity and implied indemnity. Express indemnity is a provision in a contract where the parties spell out who is responsible for what. Implied (or equitable) indemnity arises when there is no express indemnity provision. This blog deals with express indemnity.

Indemnity has been defined as “the obligation resting on one party to make good a loss or damage another party has incurred.” Rossmoor Sanitation v. Pylon (1975) 13 Cal. 3d 622, 628. “[T]he question whether an indemnity agreement covers a given case turns primarily on contractual interpretation, and it is the intent of the parties as expressed in the agreement that should control. When the parties knowingly bargain for the protection at issue, the protection should be afforded.” Id. at 633. The parties have great freedom to allocate responsibility in indemnity and defense provisions of their contract, as long as those arrangements do not violate public policy. E. L. White v. City of Huntington Beach (1978) 21 Cal. 3d 497, 507.
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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.
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