Low, Ball & Lynch’s

WEEKLY LAW RESUME

June 24, 2004 Issue      By: Raymond Coates

Indemnity - Right to Recover

Bramalea California, Inc. v. Reliable Interiors, Inc.

Court of Appeal, Fourth District

(May 13, 2026)

With the advent of indemnity agreements and additional insured endorsements, it is often thought that they provide a convenient method for the transfer of risk.  However, this case points out important procedural considerations that may limit the right of recovery for indemnity.

Bramalea California, Inc. (Bramalea), a residential real estate developer, was sued by homeowners for construction defects.  Bramalea cross-complained for indemnity against its subcontractors.  Bramalea was in bankruptcy at the time, and the suit against it was limited, pursuant to bankruptcy order, to any insurance proceeds, as well as any indemnity rights.  All of the subcontractors had written indemnity agreements, as well as agreements to provide insurance for Bramalea.

Bramalea delayed in making a prompt tender of defense to the subcontractors’ insurance carriers.  Once the tenders were made, the carriers assumed the cost of defense.  When the case was settled by  Bramalea and the subcontractors, the issue of reimbursement for defense costs and fees incurred by Bramalea was left open.

Bramalea pursued its cross-complaint against Ram-Mar Painting and All Star Electric, Inc.  The trial court granted a motion to dismiss the cross-complaint because Bramalea failed to prove it had been damaged.  Bramalea had paid nothing for its attorneys’ fees and costs because they had been paid by its insurer.  Bramalea appealed.

The Court of Appeal affirmed the dismissal of this matter.  Bramalea first argued that these fees and costs were recoverable costs it was entitled to recover.  The Court, however, pointed out that the underlying action had been settled, and there was no prevailing party who was entitled to costs.  Bramalea was thus limited to its contract remedy of indemnity.

Bramalea admitted its attorneys’ fees were entirely paid by its insurer.  Thus, it was not out of pocket any loss.  The Court stated that since Bramalea had its attorneys’ fees and costs paid, this was an impermissible attempt to obtain double recovery.  The collateral source rule did not apply since that rule only applies to tort actions.  This was a contract action.  A breach of contract action is not actionable without proof of damages.

The Court stated Bramalea could pursue this matter if it had assigned the claim to its insurer and the insurer was suing in its own name or if the insurer was seeking to take Bramalea’s place to pursue recovery against the subcontractors on an equitable subrogation theory.  Bramalea did not assert either position.  The Court further questioned whether the insurer could pursue equitable subrogation.  The Court pointed out that equitable subrogation is not allowed for breach of the indemnity agreement.  Any damages were caused by the lawsuit brought by the homeowners for construction defects.  These damages were one of the risks the insurer accepted premiums to cover.  Since the lawsuit did not resolve whether the construction defects were caused by the subcontractors, equitable subrogation could not be allowed.

In a footnote, the Court noted that the insurer could have pursued the subcontractors’ insurers on its own for equitable contribution.  That was not done in this case.  The judgment of a dismissal was therefore affirmed.

COMMENT

What this case suggests is that the insurer should sue for equitable subrogation or there should be an assignment of the rights to pursue the indemnity action if it is brought in the insured’s name.  Absent proof of those facts, the indemnitor may be able to successfully defend against claims of indemnity.

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