November 14, 2011
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Crawford v. Weather Shield, Mfg. Inc. 44 Cal.4th 541 (2008) established a New World Order in construction litigation. The California Supreme Court created a new paradigm, shifting power to developers and general contractors and increasing the burden on subcontractors under express indemnity provisions of subcontracts. We previously reported on Crawford in March 2010, and on an appellate decision enforcing Crawford in February 2010.
Most recently, the Fourth Appellate District held that an assignee of a construction contract could enforce the assignor's Crawford rights. Searles Valley Minerals Operations Inc. v. Ralph M. Parsons Service Co., 191 Cal.App.4th 1394 (2011). There, Parsons Infrastructure built a chemical plant for Kerr-McGee Chemical Corporation under a contract in which Parsons agreed to indemnify Kerr-McGee. Kerr-McGee later sold its chemical plant to Searles Valley Minerals. After an employee of Searles Valley Minerals died in an industrial accident, his heirs sued Kerr-McGee. Searles Valley Minerals defended Kerr-McGee in the wrongful death action and then sued Parsons to recover Kerr-McGee's defense costs, as an assignee of the Parsons " Kerr-McGee construction contract. The Court of Appeal enforced Serles Valley Minerals' rights as assignee of the construction contract, over the objection that Kerr-McGee did not sustain any damages.
The lay of the land is that with rare exception, subcontractors and other indemnitors in construction contracts have an immediate duty to defend. They do so, in advance of an adjudication that they are liable for the injury or damage. They do so, even though they are ultimately adjudicated to have no liability. They do so, even for the assignee of a building owner's rights.
They also have a duty to pay judgments against (indemnify) an indemnitee, usually the building owner and/or general contractor. Historically, the balance of power favored the building owner/developer against the general contractor, and the building owner and the general contractor against subcontractors. Over the years, the California Legislature has attempted to ease the burden on subcontractors and other indemnitors.
It first enacted Civil Code Section 2782 in 1967, prohibiting express indemnity provisions in construction contracts that indemnified the sole negligence or willful misconduct of the indemnitee.
As construction defect litigation concerning residential construction became epidemic and saddled small subcontractors with oppressive defense and indemnity obligations, the California Legislature amended Section 2782, effective January 1, 2006, to outlaw "Type I" express indemnity agreements in favor of developers. ("Type I" is the name for express indemnity agreements that indemnify someone except for sole negligence.) Type I indemnity agreement in favor of general contractors were not forbidden.
Section 2782 was later amended effective January 1, 2008, to also prohibit Type I express indemnity agreements in favor of general contractors, but again it was limited to residential construction contracts.
Most recently, the California Legislature amended Section 2782, to prohibit Type I express indemnity agreements in virtually all construction contracts entered on or after January 1, 2013.
Whether an express indemnity agreement is or is not prohibited, the type of construction in which the provision is or is not prohibited, and the type of entity that may or may not be indemnified, thus depends upon the date on which the construction contract was entered.
We present the following chart, to help guide you through the maze. We provide highlights; the devil as always is in the details. Consult your legal advisor for definitive guidance. Our law firm is well equipped to provide you that definitive guidance.
[Click here for a link to The Burnham Brown Guide to Enforceability of Indemnity Agreements.]
David H. Waters advises owners, general contractors, and subcontractors and represents them in construction litigation. Mr. Waters further specializes in advising clients on their rights and obligations under insurance policies for all types of lawsuits. Mr. Waters can be reached at (510) 835-6725 or dwaters@burnhambrown.com.