Special Care Should Be Taken in Drafting Indemnity Provisions Under California Law
Indemnity contracts generally provide that the "indemnitor," the indemnifying party, undertakes to protect the "indemnitee," the indemnified party, against loss or damage through liability to a third person. While indemnity provisions are generally construed using the same standards as other contracts, drafters must use particular care because of case law that has developed in California peculiar to indemnity provisions. Indeed, much litigation concerning indemnity provisions arises from the lack of specificity in drafting the scope of indemnity. In the absence of specificity, California courts may issue decisions inconsistent with the parties’ intent. Courts have held, for example, that a party who was owed a general indemnity was not covered for its own "active negligence." Conversely, courts have also held that an indemnifying party was liable even though it was neither negligent nor otherwise responsible for the damage or injury incurred by the indemnified party. Exemplifying the need for this care is the recent decision of McCrary Construction Co. v. Metal Deck Specialist, Inc. (November 14, 2005).
Holding of McCrary Construction Company v. Metal-Deck Specialist, Inc.
In McCrary, a contractor entered into subcontracts for a project with the following indemnity provision: "Subcontractor agrees to defend and indemnify Contractor against, and save and hold him harmless from, any and all claims, suits or liability on account of, or related to, any act or omission, of the Subcontractor . . . Subcontractor shall be liable to Contractor for all expenses, including court costs and attorney's fee incurred by Contractor in connection with any such claims, suits or liability . . ."
A negligence action was brought against the Contractor and two Subcontractors by the family of a carpenter who died after falling through a metal roof at the job site. At trial, the jury apportioned fault 45% to the Contractor, 30% to one Subcontractor and 25% to the carpenter. On the Contractor's cross-complaint for indemnity against the Subcontractor who was found 30% liable, the trial court found in favor of the Contractor and ordered the Subcontractor to fully indemnify the Contractor.
The appellate court reversed the trial court's decision, holding that because the indemnity provision did not address the circumstance where the indemnified party (i.e., the Contractor) was found to be actively negligent, the general rule that an actively negligent indemnified party cannot recover under a general indemnity clause applied. As a result, because the Contractor was found by the jury to be negligent, the Contractor was not entitled to be indemnified under the terms of the indemnity provision.
Significance of Decision
The McCrary decision is relevant to the interpretation of all California indemnity provisions, whether or not applicable to the construction industry. The impact of the McCrary decision reminds parties that they must specify in the indemnity provision to the greatest extent possible the circumstances in which the indemnity is to apply. Absent a provision which makes clear the scope of the indemnity, the indemnifying party may escape its duty to indemnify, or an indemnified party may gain a right of indemnity the parties never intended.
If you have any questions concerning indemnity provisions, please feel free to contact any member of our Litigation Group in Los Angeles at:
Pircher, Nichols & Meeks
1925 Century Park East
Los Angeles, California 90067
The PN&M Litigation Bulletin is published as a service to our clients and friends. It is intended to provide general information and should not be acted upon without first obtaining professional advice appropriately tailored to your individual needs.