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Quote of the Day - To Anthony's credit, they could have found themselves embroiled in some major litigation a few years back ... Anthony got indemnity agreements drafted. - John Browning
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The Court Writes Another Boring Indemnity Opinion - Or So They Say

Before reading this post, read this warning first, directly from the Court:  "Indemnity is an inherently dull subject anyway, and reading even the most pellucid indemnity opinion generally takes much longer than reading an equivalent length opinion."  In its footnote at the end of this quote, the court continued,  "The comedy troupe Monty Python once made the subject of insurance -- insurance of all things -- the butt of a comedy skit.  But we doubt that even comedians of their caliber would try to make “indemnity” the topic of comedy.  It is a topic so deadly dull that it makes insurance look interesting.  That is not to say, however, that the topic is not of vital importance in many commercial contexts, particularly in California’s construction industry."

You can't say I didn't warn you. In fact, MIPTC has covered indemnity opinions before, and adds this important new one to its treasure trove, at the expense of boring you to death.  Indeed, the court "wades" through some twenty pages of its review of indemnity cases, and warns us again:  "There is also the problem that, generally speaking, indemnity cases are hard to read and easy to forget."  Here too, that is true.  While the opinion is exceptionally well-written, it's 82 pages long, including a 10-page dissent.  Nonetheless, it should be required reading for anyone dealing with this area of the law.

Forewarned is forearmed, so off we go.

Here's the root of the problem:  If a subcontractor is found innocent of contributing to construction defects where a developer was sued by upset homeowners, then is the sub excused from the indemnity provision requiring the the subcontractor to defend and indemnify the developer where the developer is sued by homeowners for defects not caused by the subcontractor?

Hold on to your seats here if you're a subcontractor:  the answer is yes, if the claim arises out of the subcontractor's work.  Yep, you didn't do anything wrong, but you still have to pay.  Before you get too riled up, check to see whether the indemnity provision in footnote 2 of this case is the same as yours.  Most likely, however, it is, since it's a fairly commonly used indemnity provision.

You might not be too surprised, though, if you had read this language in the "almost no fault" indemnity provision you signed:  you agreed to " insure [the developer's] interest from loss to the premises resulting from fire, earth settlement, earthquake, theft, embezzlement, riot or any other cause whatsoever..."  It's that last part that got you into trouble.  "any cause whatsoever" is very broad.

So broad, in fact, that the Court essentially interpreted it as a "almost no fault" clause, requiring you to defend the developer even if the developer got sued through no fault of yours, if and that's a big if, your developer was sued from something arising out of your work.  Here, the developer was sued for window leaks, and the window manufacturer refused to defend and indemnify the developer.  Even though the window manufacturer was ultimately found not liable for the window leaks - innocent/not guilty - the developer was found liable for other things.  The window framer, on the other hand, was found responsible - to the tune of some $700,000 in damages. 

Plus, the court found that there was no disparity between the developer and this particular sub (a manufacturer)  - both were of substantial size and equally capable of negotiating the contract between them.  That is not the case between small-time subs and big developers, and likely a similar indemnity provision in that single circumstance would turn out differently.  Even so, the trial court found that the sub had to pay the developer's attorneys fees and costs, but did not require the sub to indemnify the developer since the sub was found to have done nothing wrong.

What appeared at first to be a double whammy was in fact, a fair decision given the language of the agreement entered into between the parties.  The moral of the story?  Be careful what you sign, and have good insurance.


Printer friendly page Permalink Email to a friend Posted by J. Craig Williams on Saturday, February 04, 2006 at 12:51 Comments Closed (0) |
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