Most Recent CA. Commercial Digest

IN THE POST-CRAWFORD WORLD, THE CONTRACTUAL DUTY TO DEFEND IS TRIGGERED WITH OR WITHOUT FAULT

UDC-Universal Development Company LP v. CH2M Hill 2010 WL 144353 (Cal. App. 6 Dist.) 10 Cal. Daily OP. Serv. 646

OVERVIEW

This case, which went to trial shortly after the watershed California Supreme Court indemnity decision in Crawford v. Weathershield Mfg., Inc. (2008) 44 Cal. 4th 541, confirms that (1) no specific allegations against a cross-defendant by a plaintiff are needed to trigger a contractual indemnity provision; (2) a lack of fault on the part of the cross-defendant, determined by a jury, does not operate to negate a contractual duty to defend under Crawford; and (3) the Crawford holding controls despite the fact that it was decided only a week before the matter was submitted to the jury, and counsel had relied on earlier case law.

FACTUAL BACKGROUND

UDC-Universal Development LP (UDC) entered into two contracts with CH2M Hill to provide engineering and environmental planning services for a residential development project. Among the provisions of one agreement was a paragraph obligating CH2M Hill to indemnify UDC (the developer) and to defend UDC against any suit, action, or demand brought against UDC arising from any claim covered by the agreement. The homeowners associ¬a¬tion for the development filed an action for property damage resulting from defective conditions due in part to negligent planning and design. UDC cross-complained for indemnity against several subcontractors including CH2M Hill, and tendered its defense under the express contractual indemnity provision, which CH2M Hill rejected.

UDC paid for its own defense for a year, then settled with plaintiffs; the cross-complaint against CH2M Hill proceeded to trial. On a special verdict form, the jury found CH2M Hill had not been negligent and had not breached the contract, but the trial court decided that the question of duty to defend was a separate matter not contemplated by the jury. The trial court ultimately found that the contract required that a defense be provided immediately upon an allegation of negligence in the manner of work. A finding of actual negligence was then necessary to trigger the duty to indemnify.

APPELLATE COURT DECISION

On appeal, CH2M Hill asserted that the contract only called for a defense when the under¬lying claim arose out of actual negligence, and that there was no finding of negligence by the jury or even any allegation of such negligence in the underlying complaint. CH2M Hill pointed out that in the Crawford case, the homeowners had expressly alleged negligence by the individual cross-defendant. The court rejected this argument, stating that the contractual indemnity provision did not state there must be an underlying claim of negligence against a cross-defendant specifically in order to trigger its obligation to defend. General allegations by the plaintiff are enough; the appellate court reasoned that an indemnitee should not have to rely on a plaintiff to name particular subcontractors in order to obtain the promised defense.

As to CH2M Hill’s argument that the jury finding of no negligence rendered the indemnity clause inapplicable, the appellate court pointed out that indemnity and defense are separate obligations and that the duty to defend arises as soon as litigation commences, regardless of whether the indemnitor is ultimately found negligent.

Finally, CH2M Hill argued that Crawford should not be applied retroactively, pointing to an exception to the retroactivity rule for situations in which the parties reasonably relied on previously existing law. The appellate court disagreed that Crawford so dramatically changed established law that its retroactive application would prejudice any party. The court pointed out that the contract called for a defense when any claim against UDC implicated the cross-defendant’s performance, even if it was not explicitly stated.

This case reinforces the rule post Crawford that no specific allegations implicating the party are needed in the underlying complaint for the duty to defend to arise. This case also serves as a reminder of the rule that case law can and will be applied retroactively, thus changing the state of the law even while a lawsuit is in progress.

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