High court finds widely used hold-harmless pacts require
subcontractors to defend suits against general contractors
A California Supreme Court ruling siding firmly with a
homebuilder general contractor is based on a widely used
hold-harmless agreement that could affect numerous other
disputes with subcontractors, attorneys say.
Even though a jury cleared the subcontractor of
negligence, the hold-harmless agreement required the
subcontractor to provide a defense for the builder when
subcontractor negligence is merely alleged, the California high court said last week in the
ruling that cited parallels to liability insurance.
The ruling in Kirk Crawford et al. vs. Weather Shield
Manufacturing Inc. applies to hold-harmless agreements
commonly used as part of building industry risk management
and insurance purchasing strategies during California's most recent housing boom,
attorneys said.
Agreement terms have sparked disputes between some of the
nation's largest homebuilders and subcontractors.
In 1999, 122
California
homeowners sued Newport, Calif.-based developer/builder J.M.
Peters Co., Medford, Wis.-based Weather Shield and other
subcontractors. Homeowners alleged numerous construction
defects including leaky windows made by Weather Shield and
installed by another subcontractor, court records show.
JMP filed a cross complaint against Weather Shield and
other subcontractors. Most subcontractors settled, but
Weather Shield went to trial. In 2002 a jury ruled in favor
of Weather Shield and found it was not negligent. JMP's
cross-complaint was tried in 2003, with a court ruling that
Weather Shield did not have to pay JMP's indemnity costs but
was obligated by the hold-harmless agreement to defend JMP.
A state appellate court affirmed the ruling and the
California Supreme Court agreed.
The court noted that under general liability insurance
policies, an insurer's duty to defend is broader than its
duty to indemnify. A duty to indemnify applies only to
claims actually covered by a policy. In contrast, the duty
to defend extends to "merely potentially covered" claims,
the court said.
The high court said Weather Shield must defend the
general contractor even if the agreement between the two
parties does not require the subcontractor to pay the
builder's indemnity costs.
Courts across the country have established the duty to
defend under insurance policies, said David B. Goodwin, a
policyholder attorney at Covington & Burling L.L.P. in
San Francisco. But prior to last
week's ruling, it was unclear whether subcontractors in
construction hold-harmless agreements had similar
obligations.......
For the Full Story to to website hyperlink below or to
the August 11th edition of the "Builders Exchange E-zone"
Kirk Crawford et al. vs. Weather Shield Manufacturing
Inc. et al., California Supreme Court, S141541, July 21,
2008.
http://www.businessinsurance.com/cgi-bin/article.pl?articleId=25555
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