In a stirring victory for developers and general contractors in construction defect
cases, the California Supreme Court has ruled that the duty to defend arising from a
standard construction subcontractor indemnity agreement triggers an immediate duty to
defend under Civil Code (section 2778(4) and remains in effect even where the
subcontractor is later adjudicated to be not negligent by the trier of fact.
The California Supreme Courf s decision was issued on July 21,2008in the matter of
Crawford v. Weather Shield Manufacturing Inc. (2008) Westlaw 2789215 (herein,
IICrawfordll case). Given the ten year statute of limitations period for latent construction
defects provided under Code of Civil Procedure section 337.15, the Crawford case will
impact a broad array of existing and future cases even though, as discussed below,
indemnity and defense obligations in favor of residential developers and general
contractors have been limited by statute for developer construction contracts entered into
after January 1, 2006 and general contractor construction contracts entered into after
January 1, 2008under recently amended Civil Code section 2782. Therefore, the Courfs
holding fn the Crawford case will be a necessary component in determining indemnity
rights in construction defect cases for some time to come.
The Crawford case presented fairly routine facts. The case arose from a lawsuit by
220 homeowners of 122 finished homes in a residential project located in Huntington
Beach,California. Suit was filed in 1999by the homeowners against developer, builder and
general contractor, J.M. Peters CO. (JMP") as well as, among others, Weather Shield
Manufacturing Inc. (Weather Shield") and Darrow the Framing Corporation (Darrow'}
Weather Shield had contracted with JMP to manufacture and supply windows for the
. project. Darrow contracted to act as the framer. The construction subcontracts contained
typical indemnity provisions whereby, in the case of Weather Shield, it promised to:
(1) II to indemnify and save UMP] harmless against all claims for
damages .. .loss,... and/ or theft ... growing out of the execution of [Weather
Shield's] work," and
(2) "at [its] own expense to defend any suit or action brought against
UMP] founded upon the claim of such damage[,] .. .loss or theft."
The plaintiffs' complaint alleged a variety oeconstruction defects including
improper design, manufacture and installation of windows. In 2000,JMP filed a crosscomplaint
against, among others, Weather Shield and Darrow. JMP and all of the
subcontractors, except for Darrow and Weather Shield, settled before trial. As relevant
here, the window leak and framing issues went to trial in 2002 and the jury returned a
verdict in favor of Weather Shield but awarded the homeowners approximately $1,000,000
against Darrow, who later settled.
In 2003,JMP's cross-complaint against'Weather Shield was tried separately to the
Trial Court. The Trial Court ruled that the jury's finding of no liability against Weather
Shield absolved it of any express contractual indemnity liability to JMP. However, the
Court ruled that JMPwas entitled to recover attorneys' fees against Weather Shield in spite
of the fact that Weather Shield was found to be free of negligence. After apportioning
attorneys' fees incurred by JMP, the Court awarded JMP $131,274 in damages against
Weather Shield and another $46,734in attorneys' fees incurred by JMP in prosecuting its
cross-complaint against Weather Shield (presumably on the basis that it was a prevailing
party under Civil Code section 1717).
As relevant here, Weather Shield appealed the declaratory reliefjudgment insofar as
it required Weather Shield to reimburse JMPfor the attorneys' fees it incurred in defending
the construction defect case and in pursuing the JMP cross-complaint1. In a divided
decision, the Court of Appeal affirmed the award of attorneys' fees in favor of JMP. In a
dissenting opinion, Justice O'Leary stated that the award of attorneys' fees should not
stand on the basis that the subject contract was not specific enough in its language to
impose a defense obligation where the subcontractor was found to be not negligent,
stressing that noninsurance indemnity contracts, unlike liability insurance policies, are
construed to limit the obligations imposed on the indemnitor.
Weather Shield then sought review from the California Supreme Court. The
California Supreme Court then granted limited review on the sole question of whether, in
the context of a garden variety indemnity contract whereby the subcontractor agreed" to
defend any suit dr action" against a developer" founded upon" any claim" growing out of
the execution of the work", the subcontractor is obligated to provide a defense to the
developer even though it is found to be free of negligence.
1 Weather Shield also appealed ihe Trial Court's grant of a new trial to the plaintiff homeowners on a
previously dismissed strict products liability cause of action. The Trial Court had dismissed the strict products
. liability cause of action before the jury trial on the basis of the decisions in Casey v. Overhead Door Corporation
(1999) 74 Cal.App.4th 112 and La Jolla Village Homeowners' Association v. Superior Court (1989) 212 Cal.App.3d
1131, which decisions were superseded by the California Supreme Court decision in Jimenez v. Superior Court
(2002) 29 Ca1.4th 473.
In a unanimous decision, the Supreme Court affirmed the majority decision of the
Court of Appeal. In its ruling, the California Supreme Court noted that Civil Code section
2778(4) and decisional case law construe an "immediate" duty to defend an indemnitee
against all claims "embraced by the indemnity" agreement, see, Gribaldo, Jacobs, Jones &
Associates v. Agrippina Versicherunges A.G; (1970)3 Cal.3d 434, and commented that that
the duty to defend, therefore, is distinct from the duty to indemnify, is broader than the
duty to indemnify and cannot depend on the outcome of the litigation. In short, the
California Supreme Court ruled that, unless the indemnity agreement provides otherwise2,
the statutorily described duty to defend under Civil Code section 2778(4) extends to any
claims which allege facts which would give rise to a duty to indemnify, commences upon
the tender of defense and will remain in effect even if the subcontractor is later found to be
free of any negligence.
The California Supreme Court also distinguished the published opinions in Heppler
v. J.M. Peters Co. (1999) 73 Cal.App.3d 497 (commenting that the plaintiffs in that matter
did not contend that the duty of defense was broader than the duty to indemnify),
Goldman v. Ecco-Phoenix Electrical Corporation (1964) 62 Cal.2d 40 (commenting that the
Court only addressed the indemnitor's duties under the separate indemnity clause in that
case) and Mel Clayton Ford v. Ford Motor Company (2002) 104 Ca1.App.4th 46 ("Mel
Clayton Ford") (commenting that the indemnity contract in that case specifically limited
the indemnitor's obligations to claims caused solely by product defects). The California
Supreme Court also overruled the decision in Regan Roofing Co. v. Superior Court (1994)
24 Cal. App.4th 425 ("Regan Roofing"). As for the Regan Roofing decision, the California
Supreme Court acknowledged that the Court of Appeal in that case had ruled that the duty
to defend could not be determined until there had been a finding of indemnity liability and
. held that the Court of Appeal in "Regan Roofing was therefore mistaken".
The California Supreme Court noted the potential injustice given the often unequal
bargaining power of subcontractors but ruled that it would be left up to the subcontractor
to include limiting language in its indemnity contracts. The California Supreme Court
. further noted that the legislature had recently amended Civil Code section 2782, which
limits the scope of indemnity clauses in residential construction contracts so that
developers may not impose indemnity (and defense) obligations on subcontractors beyond
their scope of work for contracts entered into after January 1, 2006 and the same limitation
for general contractors for contracts entered into after January 1,2008. However, it should
be noted that the ten year statute of limitations period under Code of Civil Procedure
section 337.15 will mean that there will be many years of litigation before the benefits of
2 The California Supreme Court noted that parties to an indemnity contract may disclaim .
responsibility for the indemnitee's defense or can specify that the indemnitor's sole defense obligation
will be to reimburse the indemnitee for costs incurred for a particular type of claim, but the Weather
Shield contract (which contained typical "arising out of" language), contained no such limitations
amended Civil Code section 2782 will be felt by subcontractors (and that assumes no
further changes in Civil Code section 2782). Also, it should be noted that even the
amended version of Civil Code section 2782will not modify the all encompassing duty to
defend under an additional insured endorsement as provided under the decision in Presley
Homes, Inc. v. American States Insurance Company (2001)90 Cal.App.4th 571.
The Crawford case is certainly significant. It means that, for residential contracts
between developers and subcontractors entered into before January I, 2006andresidential
contracts between general contractors and subcontractors entered into before January I,
2008, mere allegations in a construction defect claim will trigger an immediate duty to
defend, irrespective of the negligence of the subcontractor. The only limitation to this
would be where there is a limitation in the indemnity contract itself to certain types of
claims, such as in Mel Clayton Ford, or where there is a limitation in the defense clause.
However, since such limitations clauses are quite rare in construction contracts, the
foregoing reasoning will likely apply to most construction contracts entered into either
before January I, 2006with developers and before January I, 2008with general contractors,
placing significant administrative and legal costs on subcontractors and their insurers.
About the Authors: Edward F. Morrison, Jr. is the founding partner and Christina S.
Karayan is a senior associate of The Morrison Law Group, a professional corporation.
Their biographies can be viewed at www.morrisonlawgroup.com.
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