Category: Indemnity and Defense

What Does Indemnity Mean? – Part 2

Post author By Mazzola Law Office P.C.
Post date January 28, 2013

Defense

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.

Inherent in an agreement to indemnify another is a statutory duty to defend the indemnitee. In order to trigger this duty, the indemnitee must tender (present) the claim or lawsuit to the indemnitor and request that the indemnitor defend the matter. Upon doing so, the indemnitor is obliged to assume the defense or contribute financially toward it under Civ. Code Section 2778(4). Crawford v. Weather Shield (2008) 44 Cal. 4th 541, 555. The Crawford case was discussed in an earlier blog here.

Concluding Thoughts

When reviewing a contract, consider each provision carefully. There is no such thing as a standard contract that cannot be improved through negotiation. Have an attorney review and explain the parts of a contract so that you understand them. Once the contract is signed, it will govern the rights and responsibilities of the parties.

With indemnity and defense, a contract should be negotiated to achieve clarity of expectations on both sides of the transaction before a dispute triggers those provisions. If you are giving the indemnity (you are the indemnitor), make sure you provide the contract to your insurance agent. Ask your insurance agent to confirm in writing that your insurance coverage complies with what the contract requires.

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 in understanding, negotiating, or litigating indemnity and defense obligations.

Indemnity and Defense

What Does Indemnity Mean? – Part 1

Post author By Mazzola Law Office P.C.
Post date January 24, 2013

Indemnity

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.

As a practical matter, when you indemnify another person in a contract, you agree to be responsible for a range of problems that arise from the contract. This can be true even if the other party caused the problem. This means that you, or your insurance company, may have to defend the other party and ultimately settle a dispute.

There are Different Kinds of Express Indemnity

Modern cases recognize that each express indemnity provision must be dealt with on a case-by-case basis according to its own facts and the language used by the parties. Rossmoor Sanitation v. Pylon (1975) 13 Cal. 3d 622, 633. However, being creatures of habit, lawyers and judges like to think of a common framework when evaluating indemnity provisions. Forty years ago, a handy three-part framework was developed in a case named MacDonald & Kruse v. San Jose Steel (1972) 29 Cal. App. 3d 413. That case referred to express indemnity classifications as Type I, II, or III.

Type I indemnity provides that the party promising (the indemnitor) to protect the other (the indemnitee) will do so ‘expressly and unequivocally’ even if the indemnitee was negligent. MacDonald & Kruse at 419. The words of a Type I indemnity agreement typically include a phrase promising indemnity regardless of the active or passive negligence of the indemnitee. Type I indemnity is no longer available in all circumstances.

Type II indemnity goes almost as far, but does not include acts of “active” negligence of the indemnitee. This means that if the indemnitee caused the problem through affirmative acts, the indemnity might not apply.

Type III indemnity is even more restrictive. It comes into effect only when the problem was caused by the fault of the indemnitor (the promising party).

In construction contracts, by law, one cannot indemnify another for their ‘sole or willful negligence.’ Additionally, there have been a number of significant changes to indemnity in construction agreements since 2009. It is important to know what is no longer ‘on the table’ when it comes to indemnity. Consult an experienced construction attorney for your particular needs.

This blog is continued in Part 2.

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

Post author By Mazzola Law Office P.C.
Post date November 23, 2011

The 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 immediateduty 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.