Duty to Defend Greater than Duty to Indemnify
A July 2008 decision on a piece of litigation in the California Supreme Court affirmed the duty to defend concept as being greater than the duty to indemnify. The case, Crawford v. Weather Shield Manufacturing, stated that a subcontractor’s contractual obligation to defend a builder exists regardless of the subcontractor’s actual negligence.
The decision rendered will have a significant impact on the way cases with similar issues are decided in the future. The question before the court was “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 answer from the California Supreme Court on July 21, 2008 was an emphatic, “yes.”
Weather Shield had entered into a contract (prior to 2006) agreeing to (1) to indemnify and save the builder harmless against all claims for damages, loss, and/or theft growing out of the execution of Weather Shield’s work, and (2) at its own expense to defend any suit or action brought against the builder founded upon the claim of such damage, loss or theft. The builder filed a cross complaint against Weather Shield seeking defense and indemnity.
At trial, the jury found Weather Shield was not negligent and absolved them of any indemnity.
However, the court found that Weather Shield had an obligation to defend the builder regardless of whether Weather Shield was ultimately found negligent.
The court found Weather Shield had two distinct obligations under its contract with the builder: a duty to defend and a duty to indemnify. The court held that a duty to defend arises immediately and doesn’t depend on whether indemnity is actually owed.
To the extent Weather Shield’s subcontract obligated it to indemnify the builder against claims arising from Weather Shield’s negligent performance, it followed that Weather Shield’s duty to defend included such suits or actions that alleged such negligence on Weather Shield’s part. The duty to defend extended to suits that alleged such claims, not just suits where negligence was proven.
It should be noted that Weather Shield’s contract pre-dated California Assembly Bill 758. Civil Code Section 2778 Under AB 758 allows parties to contractually agree as to the timing and immediacy of a defense obligation including reallocation based on a final determination of the indemnity obligations of the subcontractor. Contracts that pre-date AB 758 (Crawford) will enforce a separate contractual defense obligation against a subcontractor, even if that subcontractor is found to be not negligent.
This recent decision along with any applicable statute should be considered when drafting indemnification agreements to ensure that the separate duty to defend is reflected.