Contractor Who Did Nothing Wrong May Have To Defend and Indemnify

Law Talk

The California Supreme Court affirmed a Court of Appeal ruling that a subcontractor may be obliged to defend a developer even if it turns out that the subcontractor was not negligent.

This matter does not deal with insurance policies but a contractual duty. A material supplier/subcontractor supplied wood-framed windows for this particularly large residential project. As part of the contract the subcontractor agreed that (1), "to indemnify and save [builder] harmless against all claims for damages… loss,… and/or theft… growing out of the execution of [subcontractor's] work" as well as, (2) "at [its] own expense to defend any suit or action brought against [builder] founded upon the claim of such damage… loss or theft."

It turns out that numerous homeowners filed complaints alleging numerous construction defects as well as such things as the windows leaked and fogged, which caused much damage due to improper design, manufacturing, and installation. The developer and subcontractor cross-complained. The homeowners eventually settled with the developer. Declaratory relief was granted by the trial court in favor of the developer against the subcontractor for indemnification of over $130,000.00. The subcontractor argued that he did nothing wrong.

Declaratory Relief is when a court determines an issue. In this case, who was liable.

The court looked to the contract and its language regarding indemnity in order to come to this decision. The contract stated in a plain and unambiguous manner that the subcontractor would provide defense on "any suit or action brought against [builder] founded upon the claim of such damage…" The court indicated that it was because of the precise language in the contract that the duty to defend was imposed on the subcontractor and that the holding did not go past the language of this contract.

The court also reviewed various cases in an attempt to determine if the duty to defend was conditioned on the subcontractor being negligent. It turned out that negligence was not a condition precedent to the liability of the subcontractors. Liability was based on the language in the contract.

The question that was at hand was whether a subcontractor was obligated to defend and/or indemnify a developer in a lawsuit wherein the complaints alleged defects, but not from the subcontractor's negligence. Even though the subcontractor was found not to be negligent nor that the builder had no rights to indemnification unless the subcontractor was negligent, the court found that the subcontractor was, in fact, obligated to defend the builder in the suit. Mostly based on the language as stated in the contract.

Keep this in mind when entering into contracts. As in this case, the language in the contract will almost always determine who will be responsible.