It’s All About the Equities. Indemnity Provision Survives Anti-SLAPP Motion

Garret Murai | California Construction Blog

In our last post, Heads I Win, Tails You Lose. Court Finds Indemnity Provision Went Too Far, we discussed a case in which a project owner tried to use a contractual indemnity provision to require the principal of its contractor to defend and indemnify the project owner from the contractor’s claims against the property owner. If you read the post you know that the project owner’s indemnity claim ended about as well as my first fist fight in elementary school (not well).

Well, here’s one from the other end of the spectrum: C.W. Howe Partners, Inc. v. Mooradian, Case No. B290665 (December 19, 2019), in which a contractor got the best in an indemnity fight with a project owner where the contractor was seeking indemnity from the project owner.

The C.W. Howe Partners Case

We all love lovely homes. So did the Mooradians. Looking to remodel their home in Los Angeles, the Mooradians discovered the work of Erla Dogg Ingjaldsdottir and Tryggvi Thorsteinsson, a husband and wife design team from Iceland who, to my eye, look a bit like a slightly older version of the late 80s Swedish pop group Roxette. But I digress.

The Mooradians found Ingjaldsdottir and Thorsteinsson in a book featuring “cutting-edge” homes that were environmentally conscious, energy efficient and built with components prefabricated offsite. The Mooradians were particularly drawn to a house designed by Ingjaldsdottir and Thorsteinsson in Venice, California known as Superb-A House. So what did they do? Like we all would, of course, when looking enviously at design books. They called them.

Shortly after meeting with Ingjaldsdottir and Thorsteinsson the Mooradians signed a contract with their company Minarc. At the recommendation of Thorsteinsson, the Mooradians also signed a contract with C.W. Howe Partners, Inc. to provide structural engineer on the project.

At first, the project went swimmingly. At the end of 2014, the Mooradians home was demolished in preparation for the new house. And in early 2015, the City of Los Angeles issued a building permit for the home.

Then troubles arose. In early 2016, the general contractor Ingjaldsdottir and Thorsteinsson’s recommended for the project, Core Construction, discovered that a permit for the roof deck could not be obtained because the deck railing exceeded height limits. At about the same time, the Mooradians learned that Ingjaldsdottir and Thorsteinsson were not state licensed architects and terminated their contract with Minarc, as well their contract with Core Construction, claiming significant construction defects.

In 2017, the Mooradians filed suit against Ingjaldsdottir, Thorsteinsson, Minarc, C.W. Howe Partners, Core Construction and others claiming that the defendants had participated in a “joint enterprise to facilitate a variety of unlawful practices” including the practice of architecture by persons who were not licensed and the manufacture, sale and installation of building materials without required governmental approvals.

As to C.W. Howe Partners, the Moordians asserted causes of action for fraud, negligent breach of contract, restitution and injuctive relief, alleging that C.W. Howe Partners “intentionally suppressed certain material facts that should have been disclosed,” including that Ingjaldsdottir and Thorsteinsson were not licensed architects, that the City had not approved the offsite prefabrication of metal panels for the project, and that the panels included materials not approved for use in residential construction in the City.

In response, C.W. Howe Partners filed a cross-complaint against the Mooradians for express indemnity, equitable indemnity, contribution and declaratory relief based on an indemnity provision in their contract with the Mooradians which which provided:

Client agrees to indemnify, defend and hold harmless Engineer, [its] principals, agents and employees and subcontractors from and against all costs or liability, including but not limited to attorney fees and expert fees and costs; arising in whole or in part from errors, omissions or inaccuracies in any Project related information or documents provided by, or through Client, or any other person or entity, acting on Client’s behalf; including but not limited to the type of foundation by Client’s soils engineer. Engineer has no duty to defend the Client or any party claiming through the Client.

The Mooradians in turn filed an anti-SLAPP motion under Code of Civil Procedure section 425.16 arguing that C.W. Howe Partners’ cross-complaint arose from the Mooradians’ constitutional right of petition, namely, the Mooradians’ filing of their complaint against Ingjaldsdottir, Thorsteinsson, Minarc, Core Construction as well as C.W. Howe Partners.

In its opposition to the Mooradians’ motion, C.W. Howe Partners argued that its cross-complaint did not arise from the Mooradians’ protected activity of filing their complaint, but rather, was based on the Mooradians’ breach of their obligation to indemnify C.W. Howe Partners from any liability attributable to information provided to C.W. Howe Partners by the Mooradians or their representatives including Ingjaldsdottir, Thorsteinsson  and their company Minarc, and further, that C.W. Howe Partners had no responsibility for construction means and methods (i.e., the offsite fabrication) or the selection of materials (i.e., the panels).

The trial court agreed with C.W. Howe and the Mooradians appealed.

The Appeal

On appeal, the 2nd District Court of Appeal, explained that under Civil Code Section 425.16:

A cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.

The Court of Appeals further explained that subdivision (e) of Code of Civil Procedure Section 425.16 provides that:

[An] act in furtherance of a person’s right of petition or free speech under the United States or California Constition in connection with a pubic issue includes: (1) any written or oral statement or writing made before a legislative, executive or judicial proceeding, or any other official proceeding authorized by law, (2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law, (3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest, or (4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.

Finally, explained the Court of Appeal:

In ruling on a motion under section 425.16, the trial court engages in a two-step process. “First, the defendant must establish that the challenged claim arises from activity protected by section 425.16. If the defendant makes the required showing, the burden shifts to the plaintiff to demonstrate the merit of the claim by establishing a probability of success.” “Only a cause of action that satisfies both prongs of the anti-SLAPP statute—i.e., that arises from protected speech or petitioning and lacks even minimal merit—is a SLAPP, subject to being stricken under the statute.” If the moving party fails to demonstrate that any of the challenged claims for relief arise from protected activity, the court properly denies the motion to strike without addressing the second step (probability of success).

And here, held the Court of Appeal:

The filing of the Mooradians’ first amended complaint is not the wrongful act forming the basis for the Mooradians’ liability as alleged in the Howes’ cross-claims. Rather, the alleged wrongful act that forms the basis for the express indemnity cause of action is the Mooradians’ failure to indemnify, defend and hold harmless the Howes in breach of section 4(b) of the Howe agreement, including to indemnify the Howes from any liability arising from the use of the EPS panels selected by the Mooradians or the Mooradians’ representative Minarc. Similarly, the alleged wrongful act supporting the equitable indemnity cause of action—the alleged “fault” for which they should be held equitably responsible for any damages suffered by the Howes—is the decision they or their representative Minarc made to use the EPS panels.

In short, C.W. Howe Partners’ cross-complaint for indemnity did not arise from the Mooradians’ constitutionally protected right to petition by filing their complaint but based on their contractual obligation to indemnify C.W. Howe Partners.

Conclusion

In the case discussed in our prior post, Heads I Win, Tails You Lose. Court Finds Indemnity Provision Went Too Far, the Court upheld an anti-SLAPP motion challenging a cross-complaint for indemnity. However, in C.W. Howe Partners, the Court upheld the denial of an anti-SLAPP motion challenging a similar cross-complaint for indemnity. So, what gives? I think it’s the facts. As well, importantly, as the equities. In the previous case, the cross-complainant was attempting to use an indemnity provision against a shield against what appeared to be meritorious factual claims by the plaintiff. In C.W. Howe Partners, on the other hand, C.W. Howe Partners was using an indemnity provision as a shield against what appeared to be un-meritorious factual claims by the Mooradians.

Indemnify is a Funny Word Carrying Historical Baggage—Be Aware and Use with Care

Glenn West | Weil, Gotshal & Manges

Despite the proliferation of R&W insurance as the sole recourse for buyers with respect to sellers’ breach of representations and warranties, an indemnification remedy against sellers (subject to a cap) continues to find its way into many private company acquisition agreements.  Indemnification, as a concept, originated in the context of one party to a contract agreeing to ensure that the counterparty was held harmless against claims by third parties for which the indemnifying party had agreed to be responsible.  In other words, indemnification was not a concept that ordinarily applied as a means of ensuring that a non-breaching party was compensated by the breaching party for direct losses the non-breaching party sustained by virtue of the breaching party’s breach of contract.  Indeed, absent an exclusive remedy provision, a non-breaching party is entitled to damages under the common law for a breaching party’s failure to abide by the terms of the contract irrespective of whether that contract contains an indemnification clause.  Nevertheless, indemnification provisions in most acquisition agreements today purport to cover losses sustained by a non-breaching party, whether those losses arise directly from the breach or arise as a result of a third party claim.  But the historical fact that indemnification was not normally associated with direct (or first party) claims continues to cause courts some confusion and requires care by deal lawyers to avoid misunderstandings and unintended results.

The dictionary definition of “indemnify” includes both “secur[ing] against hurt, loss, or damages,” as well as “compensat[ing] for incurred hurt, loss, or damage.”  Nonetheless, cases across the country have suggested that there is a presumption that the term “indemnify” only applies to losses arising from third party claims, not losses incurred directly by a party as a result of a counterparty’s default under a contract.[1] While most of these cases do not involve the indemnification provisions contained in private company acquisition agreements, and are focused on whether the indemnification provision allows recovery for attorneys’ fees related to direct claims between the parties,[2] it is not clear that they can be completely discounted on that basis. 

To overcome the general presumption that an indemnification provision only covers third party claims, it is important to state in clear and unequivocal terms that the indemnification provision applies to both direct and third party claims.  Language that simply provides that the breaching party shall indemnify the non-breaching party for losses sustained by the non-breaching party, as a result of the breaching party’s breach of representations, warranties or covenants set forth in the agreement, may be deemed insufficient to clearly cover first party (or direct) claims, as opposed to be presumed to only apply to third party claims.  While we have addressed this issue before in a series of posts to Weil’s Global Private Equity blog,[3] some recent Delaware cases have suggested that a reminder of these principles may be in order.

For example, in a recent Delaware Superior Court decision, Sarn Energy LLC v. Tatra Defence Vehicle A.S., C.A. No.: N17C-06-355 EMD CCLD, 2019 WL 6525256 (Del. Super. October 31, 2019),  a party’s claims for attorney’s fees and costs incurred in pursuing its claim for damages against the breaching party were denied despite the existence of the following indemnification clause in Section 11 of the Agreement:

11. Indemnification. Parties shall defend, indemnify and hold harmless each other and its officers, directors, employees, agents, parent, subsidiaries and other affiliates, from and against any and all damages, costs, liability, and expense whatsoever (including attorneys’ fees and related disbursements) incurred by reason of (a) any failure by Parties to perform any covenant or agreement of the Parties set forth herein; (b) injury to or death of any person or any damage to or loss of property which is due to the negligence and/or willful acts of the Parties; or (c) any breach by Parties of any representation, warranty, covenant or agreement under this Agreement. (emphasis added)

Notwithstanding Section 11’s seeming breadth, the court held that: “Section 11 is a standard indemnity provision that applies to third party actions not to first party claims like the one asserted here by [plaintiff].” And, as such, it did not otherwise qualify as a valid fee shifting clause that overrode the American Rule which “provides that litigants generally are responsible for their own litigation costs.”

Similarly, in a granted motion for re-argument in Winshall v. Viacom International, Inc., C.A. No.: N15C-06-137 EMD CCLD, 2019 WL 5787989 (Del. Super. November 6, 2019), the court held that the following indemnification clause in Section 8.6 of the Merger Agreement only applied to third party claims, not to first party claims:

a) Indemnification. Subject to the limitations set forth in this Article VIII, from and after the Effective Time, each of Parent [Viacom] and MergerCo, jointly and severally, shall indemnify, defend and hold harmless each Merger Consideration Recipient [Mr. Winshall and the other Harmonix Shareholders] against any and all Losses actually incurred or suffered by any such Merger Consideration Recipient as a result of:
(i) the breach of any representation or warranty of Parent or MergerCo set forth in this Agreement or in any Ancillary Document; and
(ii) the breach of any covenant or agreement of Parent or MergerCo contained in this Agreement or in any Ancillary Document.

Losses were defined in the Merger Agreement as follows:

any and all losses, liabilities, damages, claims, awards, judgments, diminution in value, Taxes, fees, costs and expenses (including reasonable attorneys’ fees and expenses, expenses of investigation, defense, prosecution and settlement of claims (including any claims under Article VIII hereof), court costs or enforcement of the provisions of this Agreement) suffered or incurred by such Person, plus any interest that may accrue on the foregoing.

According to the court, the absence of explicit language covering the reimbursement of attorneys’ fees for directly enforcing the breaching party’s obligations (i.e., first party claims), which were the only claims asserted, meant that the indemnification clause was limited to third party claims.  Hmmmm.

But, in Collab9. LLC v. En Pointe Technologies Sales, LLC, C.A. NO. N16C-12-032 MMJ CCLD, C.A. NO. N19C-02-141 MMJ CCLD, 2019 WL 4454412 (Del. Super. September 17, 2019), the court was able to conclude that the indemnification provision covered both direct and third party claims (this case did not, however, involve a dispute over the recovery of attorney’s fees).  After noting that typically “indemnification [only] comes into play when one party to a contract agrees to indemnify a second party to the contract for liability resulting from third-party claims against the second party,” the court note that the Asset Purchase Agreement “states that Seller indemnification may apply ‘whether or not involving a third party claim’ resulting from ‘any breach or inaccuracy of a representation or warranty….’” The court further noted additional language that made clear that indemnification was available for both direct and third party claims. 

The good news is that most private company acquisition agreements cover this issue explicitly and make clear that despite the historical limitations placed on the word “indemnify,” both direct and third party claims are intended to be covered by the indemnification regime.  Moreover, the indemnification provisions in many private company acquisition agreements use terms more expansive than simply “indemnify, defend and hold harmless,”[4] which are terms more traditionally related to third party claims.  But many ancillary agreements do not explicitly cover this issue or use the more expansive terms. 

Perhaps we would all do well to heed this observation from a 2012 Delaware Superior Court case attempting to decipher an indemnification provision: 

When the Court considers the indemnity clause here, even if the Court was kind in its description, it would have to guess that it was written by counsel who never litigate, whose days are filled with the excitement of writing contract terms that only they will understand or can reasonably interpret, and who obviously have lost the ability to write in a clear and common-sense manner. While this may be a well-respected and sought-after art form, it does not help the client insure their expectations and demands are understood by all parties. Instead, the Court is left with the challenge of deciphering terms that were perhaps in vogue in the nineteenth century but whose days have clearly passed.[5]

Remember, the word “indemnify” carries historical baggage; be aware and use care. 

Endnotes    (↵ returns to text)

  1. See e.g., TranSched Sys. Ltd. v. Versyss Transit Sols., LLC, 2012 WL 1415466, at *1-*2 (Del. Super. Mar. 29, 2012); Hopper Assoc., Ltd. v. AGS Computers, Inc., 548 N.E.2d 903, 905 (N.Y. 1989); Hot Rods, LLC v. Northrup Grumman Sys. Corp., 272 Cal. App.4th 1166, 1179 (2015); Claybar v. Samson Exploration, LLC, NO. 09–16–00435–CV, 2018 WL 651258, at *3 (Tex. App.—Beaumont Feb. 1, 2018); see also Kenneth A. Adams, A Manual of Style for Contract Drafting §13.416 (4th Ed. 2017).
  2. See Richard L. Levine, Peter Feist and Jessica N. Djilani, Clarifying the “Unmistakable Clarity” Standard in Contractual Indemnification Provisions,  85 U.S.L.W. 1391 (April 13, 2017), reproduced here.  The fact that many of these cases concern the recovery of attorneys’ fees is relevant because of the strong presumption imposed by the “American Rule,” which states that in the absence of a “specific and explicit” provision in a contract or statute requiring a party to pay the attorneys’ fees of the other party, each party is responsible for their own attorneys’ fees.  Indeed, the American Rule’s presumption is so strong that the United States Supreme Court recently held (unanimously) that a statute requiring one party to pay “all expenses of the proceedings” was not sufficiently clear and explicit to rebut the American Rule’s presumption that each party was required to pay their own attorney’s fees.  Peter v. Nantkwest, Inc., No. 18-801, 589 U.S. __ (Dec. 11, 2019, Sotomayor, J.).  Thus, it may be that it is the American Rule’s presumption that is sometimes at work more than the presumption that the word “indemnify” ordinarily only applies to third party claims.
  3. Peter Feist & Jessica N. Djilani, Indemnification Provisions: Are Attorneys’ Fees (And Other Expenses) Incurred In Claims Between Contracting Parties Covered? – Part 1, Weil’s Global Private Equity Watch, June 9, 2016, available here; Peter Feist & Jessica N. Djilani, Indemnification Provisions: Are Attorneys’ Fees (And Other Expenses) Incurred In Claims Between Contracting Parties Covered? – Part 2, Weil’s Global Private Equity Watch, June 14, 2016, available here; Peter Feist & Jessica N. Djilani, Indemnification Provisions: Are Attorneys’ Fees (And Other Expenses) Incurred In Claims Between Contracting Parties Covered? – Part 3, Weil’s Global Private Equity Watch, June 23, 2016, available here; Peter Feist & Jessica N. Djilani, Indemnification Provisions: Are Attorneys’ Fees (And Other Expenses) Incurred In Claims Between Contracting Parties Covered? – Part 4, Weil’s Global Private Equity Watch, July 7, 2016, available here.
  4. Such terms may include “pay, compensate, and reimburse for,” in addition to “defend, indemnify, and hold harmless from and against.”
  5. TranSched Sys. Ltd. v. Versyss Transit Sols., LLC, 2012 WL 1415466, at *3 (Del. Super. Mar. 29, 2012).  I suspect contract drafting guru, Ken Adams, would agree with those sentiments.  See  Kenneth A. Adams, A Manual of Style for Contract Drafting, “Introduction,”  xxxvi-xxxvii (4th Ed. 2017).

A Second Level of Protection to Indemnitees

Thomas L. Oliver III | Bradley Arant Boulg Cummings | July 31, 2019

Construction and Procurement Law News, Q2 2019

It is not uncommon for indemnitees to attempt to add language to indemnification provisions providing additional liability protections from the indemnitor. And courts and legislators are wary of language in indemnity agreements that create obligations on the indemnitor to indemnify the indemnitee for its own acts or omissions and create restrictions on the indemnitee’s rights to do so. A recent Florida court attempted to strike a balance between an indemnitee’s right to indemnification generally and protecting an indemnitor from indemnifying the indemnitee for its own fault.

In CB Contractors, LLC v. Allens Steel Products, Inc., a general contractor of a condominium project brought a contractual and common law indemnification action against its subcontractors arising out of a construction defect action brought against the contractor by the condominium association.

The subcontract’s indemnity clause stated: “Subcontractor’s indemnity obligations hereunder shall apply regardless of whether or not the claims, damages, losses, and expenses or causes of actions are caused in part by a party indemnified hereunder […].” In essence, the subcontract, on its face, allowed the general contractor to seek indemnity for claims, damages, and losses as a result of its own fault.

Florida Statute § 725.06 (2004), which applies to construction of buildings, states that “[a]ny portion of any agreement […] promis[ing] to indemnify or hold harmless the other party to the agreement […] for damages to persons or property caused in whole or in part by an act, omission, or default of the indemnitee […] shall be void and unenforceable unless the contract contains a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract […].”

Applying this statute, the lower court found that the entire indemnity clause was void and unenforceable. The general contractor appealed the trial court’s decision.

On appeal, the appellate court disagreed and found that the entire indemnity clause was not void and unenforceable, but instead concluded that only the specific portion of the indemnity clause purporting to impose indemnity obligations for the contractor’s own acts or omissions was unenforceable.

This ruling, which reflects the same middle-of-the-road approach followed by many jurisdictions, provides protection to the indemnitor without completely voiding the parties’ indemnification agreement. This decision could have been different under a different state’s stricter law regarding indemnity. Contracting parties should carefully consider the extent of indemnity included in their contracts, especially in light of the relevant jurisdiction’s law regarding those protections.

California Court of Appeals Weighs in on the Duty to Defend and Suggests “Fetch” New Motion

Garret Murai | California Construction Law Blog | June 5, 2019

It’s not uncommon for construction contracts to include indemnity provisions requiring the indemnitor (typically, the lower-tiered party) to “defend, indemnify and hold harmless” the indemnitee (typically, the higher-tiered party) from third-party claims. But when an indemnitor refuses to defend an indemnitee, who gets decide that issue, the jury or the court?

In Centex Homes v. R-Help Construction Company, Case No. B276708 (March 11, 2019), the 2nd District Court of Appeal answered that question. They also framed the issue better than I could, so I’ll let the court speak for itself:

A subcontractor is hired by a developer to install utility boxes in a subdivision. The subcontract contains a clause requiring the subcontractor to indemnify the developer for all claims arising out of the subcontractor’s work.

A plaintiff in an underlying tort action brings an action against the subcontractor and the developer for injuries allegedly arising from the subcontractor’s work. The subcontractor does not defend the developer.

The trial court submits the question of the subcontractor’s duty to defend to a jury. The jury finds the plaintiff’s injuries were not caused by the subcontractor’s work. Does this end the matter? No.

The end of the trial is not the end of the case. The parties are back to the beginning on the issue of duty to defend. Why? Where plaintiff in an underlying tort action alleges that his injuries arose out of the subcontractor’s work, the developer is entitled as a matter of law to a defense under the indemnity clause. It is error to submit the question of the subcontractor’s duty to defend to a jury. We reverse and remand.

Background

Centex Homes (Centex) contracted with R-Help Construction Company, Inc. (R-Help) to trench, install and inspect utility boxes and conduits at a residential construction project in the City of Thousand Oaks, California. The subcontract required R-Help to defend and indemnify Centex from all claims “to the extent such Claim(s) in whole or in part arise out of or relate to [R-Help’s work].”

Following R-Help’s completion of its work, a lawsuit is filed by Matthias Wagener who was injured when he fell into a utility box. What Mr. Wagener was doing standing on top of a utility box, I don’t know, but he sued both Centex and R-Help alleging that the “defendants” negligently managed, maintained and inspected the utility box cover such that it created an unstable platform.”

During the discovery phase of the litigation, Mr. Wagener was asked about the basis of his claims, to which he responded:

It appears as though R-Help installed and thereafter abandoned the subject junction box or hand holder and adjoining conduit, having installed the lid without the prescribed bolts specifically designed to keep the SCE lid bolted to the junction box. Acting as Centex'[s] agent, R-Help and Centex are both jointly and severally liable to plaintiff for the injuries he suffered and the damages he sustained.

I’m guessing he had help with that response. At any rate, after receiving Mr. Wagener’s response, Centex tendered Mr. Wagener’s claim to R-Help demanding that R. Help defend and indemnify Centex pursuant to the subcontract. After R-Help failed to respond, Centex filed a cross-complaint against R-Help for breach of contract, indemnity and declaratory relief.

Centex later settled with Mr. Wagener, leaving Centex’s cross-complaint against R-Help to be decided.

At the subsequent trial between Centex and R-Help, contradictory evidence was presented by  the parties. Centex’s witnesses testified that the utility box was installed by R-Help, while R-Help’s witnesses testified that it wasn’t. After the case was presented to the jury, the jury found that R-Help did not install the utility box and had no duty to defend Centex.

Centex appealed.

The Court of Appeal Decision

For those of us who practice regularly in the area of construction law the issue on appeal was pretty straightforward: A contractual duty to defend implies an immediate duty to defend. After all, what’s the point of including a defense obligation in a contract if a party can just punt the duty down the road, by which time, even if a trier-of-fact was to determine that there was a duty to defend it would be too late anyway?

Well, that’s exactly what Centex argued on appeal. Citing Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541, Centex argued that the California Supreme Court had held “that the duty to defend . . . arises immediately upon the proper tender of defense . . . and before . . . litigation has determined whether indemnity is actually owed.”

The Court of Appeal agreed:

Here Wagener claimed his injuries arose out of or related to R-Help’s work for Centex. Under Crawford, the duty to defend arose immediately upon the proper tender of defense of a claim embraced by the indemnity agreement. The duty to defend was not a question of fact for the jury; the trial court was compelled to determine as a matter of law that Wagener’s claim was embraced by the indemnity agreement.

The Court of Appeal did caution, however, that an escape hatch does exist. Quoting the Supreme Court in Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 289, 298, an insurance case, the Court of Appeal noted:

It would be pointless . . . to require an insurer to defend an action where the undisputed facts developed early in the investigation conclusively show, despite a contrary allegation in the complaint, that the underlying acts occurred on a date when the policy was not in effect or at a location concededly not covered by the policy.

The Crawford decision has even spawned a specific indemnity-related motion, the Crawford-motion, filed by an indemnitee (i.e., the party being indemnified) against an indemnitor (i.e., the party providing the indemnity) to force an indemnitor to defend an indemnitee pursuant to an indemnity agreement. Note: even if an indemnity agreement does not expressly include a defense obligation, a defense obligation will be implied, unless expressly waived. See Civil Code section 2778.

Interestingly, the Centex decision also seems to suggest that an indemnitor could  file a motion, let’s call it a Centex-motion, to get out of the obligation to defend an indemnitee, and perhaps even, as a means of avoiding liability altogether since most defense and indemnity obligations are premised on some fault or presumed fault of the indemnitor. Since, like one of the mean girls in the movie Mean Girls, I don’t have the gravitas to make up the name of a new motion (recall Gretchen’s attempt to get the term “fetch” to catch on), let’s just call it what it is: a motion for summary judgment.

Conclusion

The Centex decision confirms that the duty to defend is immediate and, as can be surmised from the Crawforddecision although it’s not expressly stated in that decision, is not a factual issue to be determined by a jury. The Centexdecision also suggests that an indemnitor subject to a defense obligation could potentially file a motion (a Centex-motion) to avoid defense obligations if it can conclusively show by undisputed facts that no defense is owed under the indemnity agreement.  That is so “Fetch!”

Construction Law Practice Tip: Indemnity Provision Details Matter

Pierre Grosdidier | Haynes and Boone LLP | February 5, 2019

In the usual construction contractual chain, the owner has a contract with a general contractor (“GC”), and likewise the GC with a subcontractor. Indemnity provisions typically ensure that the GC indemnifies the owner, and the subcontractor indemnifies the GC if, for example, an injured subcontractor employee sues the owner in a third-party over action (Figure). At least, that is the way it should have worked—but did not—when a Port Authority, Schneider Electric, and Oliver Communications entered into contracts to install security cameras on a bridge.

Burness, an Oliver employee, sued the Port Authority for an injury sustained on the job site. The Port Authority sought indemnification from Schneider, which eventually agreed to pay a settlement to Burness. Schneider then moved for summary judgment against Oliver for indemnification. The trial court granted the motion and awarded Schneider over $1.2 million against Oliver, but the Amarillo Court of Appeals reversed and denied judgment for Schneider, for two reasons. As a threshold matter, the court reiterated that, under Texas law, “indemnity agreements are strictly construed in favor of the indemnitor.”

The subcontract obligated Oliver to “indemnify, save, and hold harmless” Schneider, its agents and employees, “and all parties indemnified by Contractor in Contractor’s Contract.” In this case, the “Contractor’s Contract” was the contract between the Port Authority and Schneider. Thus, Oliver was allegedly contractually obligated to indemnify Schneider and anyone Schneider was obligated to indemnify. But, after scrutinizing the owner-GC contract, the court determined that Schneider had no obligation to indemnify the Port Authority. 

The Contract between the Port Authority and Schneider boiled down to a purchase order that contained no indemnity provision, and that did not incorporate the only document that included an owner-GC indemnity provision (a request for proposal).4 The court held that Schneider, in its motion for summary judgment, failed to prove that it had a duty to indemnify the Port Authority, which meant that Oliver had no duty to indemnify Schneider for Burness’s claim against the Port Authority.5 Schneider, therefore was, not entitled to summary judgment.

The court then turned to the scope of Oliver’s indemnification duty. The subcontractor agreed to indemnify against claims “arising by reason of the death or bodily injury … to the extent caused in whole or in part by any negligent act or omission of Subcontractor [Oliver], [Oliver’s] employees, agents, suppliers, subcontractors or anyone for whose acts subcontractor may be liable and [Oliver] expressly so agrees, whether or not said liability … arises in part from the negligence of Contractor [Schneider] or any party indemnified by [Schneider] in Contractor’s Contract.

Citing to prior Texas appellate cases that have addressed this issue, the court held that this provision required some act of negligence by Oliver or those under it to trigger Oliver’s indemnification obligation. Oliver had no duty to indemnify Schneider and its indemnitees if the latter were “the sole cause of the injury.” But, the court added, the factual record contained insufficient evidence to raise a question of fact regarding the negligence of Burness, Oliver, and those under Oliver. For this additional reason, Schneider was not entitled to summary judgment. There being no basis to Schneider’s summary judgment motion, and inadequate evidence adduced to counter Oliver’s no-evidence motion for summary judgment, the court reversed the trial court and rendered judgment for Oliver.

Counsel’s takeaway from this case is straightforward: check that all indemnity provisions are in place in the construction contractual chain and, when seeking indemnity under a provision such as Schneider and Oliver’s, look for a fact that implicates the indemnitor’s responsibility in the incident and might bar the indemnitor’s noevidence motion for summary judgment.