California courts have recently expanded the duty of indemnitors to indemnify and defend their work. It is long established law that contractual agreements may require a Subcontractor to defend, indemnify and hold an Owner or General Contractor harmless in the event of litigation, as California courts have held that “indemnity agreements are construed under the same rules which govern the interpretation of other contracts.” Continental Heller Corp. v. Amtech Mechanical Services, Inc. 53 Cal.App.4th 500, 504 (1997). “[T]he question of whether an indemnity agreement covers a given case turns primarily on contractual interpretation, and it is the intent of the parties as expressed in the agreement that should control.” Centex Golden Construction Co. v. Dale Tile Co., 78 Cal.App.4th 992, 996 (2000). Therefore, “[w]hen the parties knowingly bargain for the protection at issue, the protection should be afforded.” Id. The intent of the parties “is to be ascertained from the ‘clear and explicit’ language of the contract, [a]nd unless given some special meaning by the parties, the words of the contract are to be understood in their ‘ordinary and popular sense’.” Id. at 997.
California Civil Code Section 2778(4) states that “[I]n the interpretation of a contract of indemnity, the following rules are to be applied, unless a contrary intention appears: . . . (4) The person indemnifying is bound, on request of the person indemnified, to defend actions or proceedings brought against the latter in respect to the matters embraced by the indemnity, but the person indemnified has the right to conduct such defenses, if he chooses to do so”. (Id.). The statute imposed a requirement for an immediate duty to defend pursuant to the express language in the subcontract agreements.
In 2008, the California Supreme Court interpreted Civil Code Section 2778(4) to impose an immediate duty to defend upon proper tendering of the claim which is embraced by the indemnity and alleges facts that would give rise to a duty to indemnify. Crawford v. Weather Shield Mfg. Inc. 44 Cal. 4th 451, 558 (2008). The Court stated,
“[i]mplicit in this understanding of the duty to defend an indemnitee against all claims “embraced by the indemnity,” as specified in subdivisions 4 of section 2778, is that the duty arises immediately upon a proper tender of defense by the indemnitee, and thus before the litigation to be defended has determined whether indemnity is actually owed. This duty, as described in the statute, therefore cannot depend on the outcome of that litigation. It follows that, under subdivision 4 of section 2778, claims “embraced by the indemnity,” as to which the duty to defend is owed include those which, at the time of tender, allege facts that would give rise to a duty of indemnity. Unless the indemnity agreement states otherwise, the statutorily described duty “to defend” the indemnitee upon tender of the defense.” (Id. at 733-734).
This duty to defend was irrespective and not contingent upon a finding of fault or negligence on the part of the subcontractor. Rather, the Court applying the statute ruled that Weather Shield still owed a complete duty to defend since the developer would not have been involved in the litigation but for the alleged defective work of the subcontractor, for which both parties incurred costs and fees defending the action.
By 2010, the California Court of Appeal re-affirmed the Crawford holding concerning a subcontractor’s duty to defend in UDC-Universal Development, L.P. v. CH2M Hill 181 Cal. App. 4th 10 (2010) decision. In UDC-Universal Development, the developer (UDC) cross-complained against its engineer (CH2M Hill), and subsequently tendered its defense in connection with a construction defect action brought by the homeowner’s association for a residential condominium complex. CH2M Hill refused to accept the defense tender. At trial, CH2M Hill was found to have not acted negligently by unanimous special verdict. Still, the trial court, applying Crawford, found that CH2M Hill had breached its contractual duty to defend and ordered CH2M Hill to reimburse UDC the full defense costs it had incurred defending the claims relating to CH2M Hill’s work. UDC-Universal Development, 181 Cal. App. 4th at 14-16. On appeal, the Court upheld the trial court’s ruling and reasoned that “[i]n a construction project involving multiple consultants and subcontractors, any of them might have been negligent. An indemnitee should not have to rely on the plaintiff to name a particular subcontractor or consultant in order to obtain a promised defense by the one indemnitee [it] believes is responsible for the plaintiff’s damages”. Id. at 18-19. As such, “[t]he duty to defend … arose when the cross-complaint attributed responsibility for [the damages] to CH2M Hill’s deficient performance of its role in the project. Id. Although the HOA’s complaint did not specifically identify each subcontractor or the details of each’s role in the project, its general description of the defects in the project implicated CH2M Hill’s work. This was sufficient to trigger CH2M Hill’s duty to defend.” Id. at 19.
In March 2019, the California Court of Appeal increased the scope of the duty to defend by determining that the duty is owed well before there is a determination that indemnity is owed to the Developer. Centex Homes v. R-Help Construction Co., Inc., 32 Cal.App.5th 1230 (2019). In Centex, the Plaintiff in the underlying case, claimed he was injured when he stepped on a utility box that subcontractor R-Help allegedly installed. R-Help admitted installing utility boxes at the project, but claimed that it did not install the particular box at issue, and refused to defend Centex in the lawsuit. Centex sought to confirm R-Help’s duty to defend by filing various pre-trial motions, but to no avail. The trial court refused to find such a duty and submitted the question of the duty to defend to a jury. The jury found that Centex could not prove that R-Help had “actually” installed the utility box at issue, and the trial court entered judgment in favor of R-Help. Centex appealed. In contrast, the Court of Appeal found that R-Help did owe Centex an immediate contractual duty to defend the Wagener claim as a matter of law based on the allegations of the underlying complaint against Centex, and thus reversed and remanded the matter for a new trial on the issue of damages for R-Help’s failure to defend. “[T]he duty to defend claims embraced by the indemnity agreement arises immediately upon the proper tender of defense, and thus before the litigation has determined whether indemnity is actually owed.” (Centex Homes v. R-Help Construction Co., Inc. 32 Cal.App.5th 1230, 1236 (2019).) The duty to defend is not a question of fact for the jury but rather is to be determined as a matter of law. (Id.). As a result of the decision, Centex was able to recover from R-Help significant fees and costs it incurred to defend against the underlying tort action and to enforce R-Help’s defense obligation, plus prejudgment interest on those unpaid sums.
The Centex decision is notable in that it applied the duty to defend principles from insurance coverage case law to the construction context. The opinion clarifies that indemnitors have an “immediate” duty to defend based on the allegations in a lawsuit, regardless of the indemnitors’ contentions that their work did not “actually” cause the injury or damage alleged. Indemnitors and their insurers may be more likely to accept defense tenders of indemnitees as a result. The opinion may also make it more difficult for indemnitors to withdraw a defense. The Court of Appeal confirmed that an indemnitor has a duty to defend “throughout” a tort action “unless it can conclusively show by undisputed facts that [a] [p]laintiff’s action is not covered by the [indemnity] agreement.”
The take-away from these cases is that the contractual language between the Developer/General Contractor and subcontractors is critical and must have the express language requiring the duty to defend. If it is found that the subcontract agreement language comports with the requisite defense language from Crawford, UDC-Universal Dev., and the newly decided Centex Homes cases, then the subcontractor would owe an immediate duty to defend irrespective of fault or negligence and irrespective of whether there is a triggering duty to indemnify the general contractor. California law is clear that the duty to defend is a separate and distinct duty owed by the subcontractors which must be promptly provided upon tender of the claim.