Low, Ball & Lynch’s

WEEKLY LAW RESUME

February 23, 2006 Issue  By: Ray Coates

Duty To Defend - Contractual Indemnity

Kirk Crawford, et al. v. Weather Shield Mfg., Inc.

 (January 31, 2026)

Court of Appeal, Fourth District

A contractual duty to defend another contained in an indemnity agreement has always been treated differently from an insurer’s duty to defend.  This case discusses the issue of whether that duty to defend arises immediately upon tender and exists independent of a duty to indemnify.

Two hundred homeowners in Huntington Beach, California brought a construction defect action against the developer, the project’s window manufacturer, and the window framer.  The window manufacturer’s windows were claimed to leak and to fog.  The developer cross-complained against the window manufacturer and window framer, seeking attorneys’ fees in defending the suit, as well as indemnification.  The homeowners settled with the developer, and the cross-complaints were tried.  A jury found for the window manufacturer on claims of negligence and breach of warranty, and on the claim for contractual indemnity.  The jury found against the window framer. 

The window manufacturer’s contract with the developer provided that it would defend and indemnify the developer in actions brought against the developer founded on claims growing out of the execution of the window manufacturer’s work.  The trial court found the window manufacturer responsible for the developer’s attorneys’ fees attributable to window problems, even though it had no duty to indemnify.  The Court allocated 70% of the developer’s defense costs to window problems based on the developer’s risk manager’s testimony.  The Court then split the amount equally between the window manufacturer and the window framer, and ordered the window manufacturer to pay the developer $131,274.  The trial court also awarded the developer fees and costs in prosecuting the cross-complaint.  The trial court later granted a new trial on liability, based upon erroneous jury instructions and the failure to instruct on strict liability.  Appeals were filed on the trial court’s determination of damages, as well as new trial order.

               
The Court of Appeal, in a 2-1 decision, affirmed the granting of the new trial order, and affirmed the order granting the developer reimbursement of its defense costs and fees.  The Court quickly disposed of the new trial order, and held that the trial court properly granted that motion.  The bulk of the opinion, consisting of 71 pages, is devoted to a discussion of whether the window manufacturer was excused from any duty to provide a defense to the developer where it had not been found negligent.  In an opinion that discusses all of the major contractual indemnity cases decided in California, and quotes from such sources as law review articles, and Monty Python, the Court held that the absence of negligence did not excuse a defense obligation undertaken by the subcontractor in the indemnity agreement.

The Court stated it was not adopting a rule requiring a defense in all cases potentially covered by an agreement, such as in insurance law.  Rather, the Court stated it must be shown that the claim grows out of the subcontractor’s particular work.  The Court felt this result was warranted by reason of the language of the particular agreement, as well as Civil Code Section 2778, which governs indemnity agreements.

The Court held that attorneys’ fees for prosecuting an indemnity cross-complaint where there is no indemnity, but there is a right to obtain reimbursement for fees paid, are left to the discretion of the court.  In this case, the trial court granted the developer recovery of those fees.

                                       
The Court held that the duty to defend was triggered upon tender.  This duty arose independent of whether the window manufacturer was ever held negligent.  The duty was not to provide a complete defense, but only a defense to claims arising out the subcontractor’s work.  This duty was triggered even though the claim was ultimately proven to be unfounded.  The Court stated trial courts handling multiple claims by developers against subcontractors could sort through the problems that might arise in allocating the defense. 

The Court affirmed the new trial order and the trial court’s order awarding the developer attorneys’ fees for defending the action and prosecuting their cross-complaint. 

                                                       
The dissent asserted the majority opinion adopted a new rule for interpreting duty to defend contract provisions.  The dissent felt that the language of the contract was tied to indemnity.  The dissent stated there is no duty to pay for the defense where there is no duty to indemnify.  Further, the dissent would not have awarded fees and costs to the developer as a prevailing party in the prosecution of the cross-complaint.  Finally, the dissent stated this case would require trial courts to sort out the portion each subcontractor must pay toward the defense of the developer before these fees are incurred, and would require subcontractors to provide a current defense to claims that are only potentially covered. 

COMMENT
       
This controversial decision will undoubtably be requested to be reviewed in the California Supreme Court.  In the meantime, the decision is likely to shake up the handling of construction defect lawsuits.

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