California Court Upholds Contractual Duty to Defend

In a 7-0 decision, the California Supreme Court confirmed that an indemnitee (a developer-builder in this case) is entitled to an immediate defense by an indemnitor (a subcontractor in this case) under a contractual indemnity clause, even though a jury ultimately found the subcontractor’s work was not negligent.

In Crawford v. Weather Shield Mfg. Inc. – S141541, the California Supreme Court answered “yes” to the following question: “Did a contract under which a subcontractor agreed ‘to defend any suit or action’ against a developer ‘founded upon’ any claim ‘growing out of the execution of the work’ require the subcontractor to provide a defense to a suit against the developer even if the subcontractor was not negligent?”

The court’s analysis contains a review of the underlying statutory law on indemnity, including Civil Code sections 2778 and 2782, and of case law speaking to the issue. In the end, the court declined invitations from various stakeholders to change the clear meaning of Civil Code section 2778(4) or to change the parties’ contract, both of which required that the indemnifying party “to defend” the party owed indemnification in the underlying lawsuit.

While this result may change given legislation pending in Sacramento (AB 2738), for now it is the law of the land. The duty to defend is separate and distinct from the duty to indemnify, the later of which reimburses a party for damages arising from a claim, the former of which pays for the defense against that claim. If an indemnification clause is silent as to the duty to defend, Civil Code section 2778(4) obligates the indemnifying party “to defend” the indemnified party. If the indemnification clause includes an up-front duty to defend, it is generally enforceable.

Source: MorganMillerBlair

Topics California