Crawford v. Weather Shield Mfg. 1/31/06 CA4/3

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State: California

Court: 1st District Court of Appeal 1st District Court of Appeal

Docket No: G032301

Case Date: 05/24/2006

Preview:Filed 1/31/06

CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE

KIRK CRAWFORD, et al., Plaintiffs and Appellants, v. WEATHER SHIELD MFG., INC., Defendant and Appellant. G032301 (Super. Ct. No. 815154) OPINION

Appeals from an order granting a limited new trial motion, from portions of judgment, and protective cross-appeals from portion of judgment vacated by new trial order, of the Superior Court of Orange County, Raymond J. Ikola, Judge. Order granting new trial affirmed, and judgment otherwise affirmed; protective cross-appeals dismissed as moot. Sedgwick, Detert, Moran, & Arnold, Christina J. Imre, Stephanie Rae Williams and Orly Degani for Defendant and Appellant Weather Shield Mfg., Inc. Anderson & Kriger, Clayton Anderson Philip Y. Kim; and Richard H. Benes for Plaintiffs and Appellants Kirk Crawford, et al. Kabteck & Garris, Brian S. Kabateck, Alfredo Torrijos; Kabateck Brown Kellner, and Richard L. Kellner for Plaintiffs and Appellants Parviz Alai, et al. * * *

I. SUMMARY This appeal by a window manufacturer in a construction defect case involves three major issues. A. The New Trial Order The first issue is whether the trial judge abused his discretion in granting a partial new trial motion so as to allow a previously and erroneously dismissed strict liability claim against a window manufacturer to go forward. Here are the skeletal facts: Prior to a jury trial against a window manufacturer by a group of homeowners, two Court of Appeal decisions had precluded strict products liability claims against manufacturers of component parts for mass-produced homes. (La Jolla Village Homeowners' Assn. v. Superior Court (1989) 212 Cal.App.3d 1131; Casey v. Overhead Door Corp. (1999) 74 Cal.App.4th 112.) The window manufacturer strenuously argued that no strict liability claim against it should go to the jury. The trial judge, following those two appellate decisions, agreed. However, after the jury's verdict, the Supreme Court ruled that strict liability claims could indeed be asserted against manufacturers of component parts for mass-produced homes. (Jimenez v. Superior Court (2002) 29 Cal.4th 473.) In the process the Supreme Court expressly overruled both La Jolla and Casey, on which the trial judge had relied. So the judge did the logical thing and granted a partial new trial as to just the homeowners' strict liability claim. Under such circumstances we are tempted to say the only possible abuse of discretion would have been if the trial judge hadn't granted the new trial motion. Certainly under the "or even fairly debatable" standard for the grant of new trial motions articulated in Jiminez v. Sears, Roebuck & Co. (1971) 4 Cal.3d 379, 387 ["So long as a reasonable or even fairly debatable justification under the law is shown for the order granting the new trial, the order will not be set aside."] there would seem to be no doubt that the trial judge acted within his discretion.1
Since we affirm the trial court's grant of new trial, we hereby dismiss the protective cross-appeals filed by both sets of plaintiff homeowners as moot.
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B. Adjudication of the Developer's Defense Costs But not only was the window manufacturer sued by the disappointed homeowners, so was the developer. There was an agreement between the window manufacturer, as subcontractor, and the developer in which the window manufacturer promised the developer to "defend" actions brought against the developer "founded on . . . claims growing out of the execution" of the window manufacturer's work. (We quote the entirety of indemnity clause in the margin now,2 and again later in part IV. of this opinion when we discuss the language in greater detail.) Pursuant to this promise, the developer asked the window manufacturer (as well as a window framer) to defend it in the homeowners' suit. The window manufacturer (and window framer) refused, and the developer eventually settled the case. The developer sought the costs of defending the homeowners' suit from both the window manufacturer and window framer, and the trial judge declared that the window manufacturer and window framer each owed half of the costs incurred in the lawsuit which were properly attributable to the homeowners' claims for leaky and fogging windows. However, the jury also found that the window manufacturer was not negligent. Thus the issue arises: Did the absence of the window manufacturer's negligence retroactively excuse any duty that the window manufacturer had to provide a defense to the homeowners' suit which was -- there is no argument as to this -- founded upon claims growing out of the execution of the window manufacturer's work? That's the big issue in this case, and it accounts for most of the length of this opinion. The issue

"Contractor does agree to indemnify and save Owner harmless against all claims for damages to persons or to property and claims for loss, damage and/or theft of homeowner's personal property growing out of the execution of the work, and at his own expense to defend any suit or action brought against Owner founded upon the claim of such damage or loss or theft; to procure and maintain, during the entire progress of the work, full and unlimited Workman's Compensation and Employers' Liability Insurance, Public Liability and Property Damage Insurance including without limitation automobile and products liability covering in amounts and with a carrier or carriers satisfactory to Owner; to furnish Owner with certificates of said insurance before commencing work hereunder which certificates shall provide that the policy shall not be canceled or reduced in coverage until ten (10) days after written notice shall be given to Owner of such cancellation or reduction in coverage; to insure his interest from loss to the premises resulting from fire, earth settlement, earthquake, theft, embezzlement, riot or any other cause whatsoever and Owner shall not, under any circumstances, be liable or accountable to the Contractor for such loss."

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is of importance because it relates to legal problems that commonly arise in the construction industry3 in a context where the case law is, perhaps, not as clear as one might hope. (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 about, say, school prayer or whether a trial judge abused his or her discretion in issuing a spousal support order.4) This opinion will show that, at least as regards the language of the particular contract before us, the case law is consistent, and upholds the decision of the trial judge. At least two decisions of the Court of Appeal, Continental Heller Corp. v. Amtech Mechanical Services, Inc. (1997) 53 Cal.App.4th 500 and Centex Golden Construction Co. v. Dale Tile Co. (2000) 78 Cal.App.4th 992, have clearly held that there is no per se rule precluding a subcontractor-indemnitor from paying for the defense costs of a general contractor-indemnitee related to claims growing out of the subcontractorindemnitor's work, even though the subcontractor-indemnitor is ultimately found not to be negligent. However, a separate group of Court of Appeal decisions, Peter Culley & Associates v. Superior Court (1992) 10 Cal.App.4th 1484; Regan Roofing Co. v. Superior Court (1994) 24 Cal.App.4th 425; Heppler v. J.M. Peters Co. (1999) 73 Cal.App.4th 1265; Mel Clayton Ford v. Ford Motor Co. (2002) 104 Cal.App.4th 46; and, most recently, Baldwin Builders v. Coast Plastering Corp. (2005) 125 Cal.App.4th 1339, have language in them which, out of context, can be taken as supporting such a per se rule. In this case we will prove that the latter cases do not stand, and should not be read, for any such per se rule. Readers who are willing to take our word that no opinion thus far, properly read in context, stands for a per se rule that the absence of
See Rapattoni, Subcontractors Seek Shield From Full Liability, L.A. Daily Journal (April 27, 2005), p. 1 [noting that bills have been introduced in Legislature "to ban contract clauses that require subcontractors to indemnify or provide a defense for developers who are sued for construction defects."] 4 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.
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negligence retroactively excuses a defense obligation undertaken by a subcontractor can save themselves about 20 pages of detailed explanations of these cases set forth in part IV.C of this opinion (slip op. at pp. 38-60). Readers who are skeptical, as counsel for the window manufacturer certainly will be (they heavily rely on several of these cases) are invited to wade through these cases with us. At the very least they will be a little more knowledgeable of what those cases actually do, and don't, say. (There is also the problem that, generally speaking, indemnity cases are hard to read and easy to forget. We hope, therefore, that our detailed summaries of the cases will serve the dual purpose of mapping the exact contours of the case and also of furnishing readers with summaries of the development of the existing case law to which they may refer in other contexts. (See Cal. Rules of Court, rule 976(c)(4)).) In any event, let us at the outset emphasize the narrowness of our decision. Under no circumstances should this opinion be read as even remotely imposing on subcontractors who make promises like the one at bar anything resembling the broad triggers of a duty to defend that are associated with insurers' duties to defend. The case law is clear that non-insurance indemnity contracts are construed against the indemnitee and courts must construe narrowly the promises of subcontractors who make them. (E.g., Goldman v. Ecco-Phoenix Elec. Corp. (1964) 62 Cal.2d 40, 49.) No way, for example, should the language before us in this case be construed to obligate the subcontractor to defend all claims against a general contractor (or developer) in a construction defect case, or, more particularly, claims that cannot be said to reasonably "grow out" of the subcontractor's particular work. (See, e.g., St. Paul Fire & Marine Ins. Co. v. American Dynasty Surplus Lines Ins. Co. (2002) 101 Cal.App.4th 1038, 1049-1054 [subcontractor not obligated to provide a defense to a general contractor in a context where the suit against the general contractor was entirely unrelated to any work that the subcontractor was doing at the time].) We only construe the subcontract before us, but as to this particular subcontract, even narrowly construed, it is clear that this subcontractor was indeed obligated to defend the particular claims for which this developer was sued in this
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particular case. It is as simple as this: A window manufacturer who promises to "defend" claims "growing out" of the window manufacturer's "work" must provide a defense to the developer when the developer is sued by homeowners based on claims for defective windows -- even if the window manufacturer is ultimately shown not to have been negligent. (In that process we will also show that the relevant statutes governing indemnity, particularly section 2778, subdivision (3), not only do not pose any obstacle to the enforcement of what the parties contracted for here (the statute clearly does not apply when a "contrary intention governs"), but in fact contemplate the very result we reach today -- that there will be times, however narrowly defined, when an indemnitor must provide a defense to an indemnitee even if the indemnitor has yet to be adjudicated negligent.) Moreover, we also stress that any question of conscionability is not before us. We deal in this case only with two relatively large construction firms who, as the court put it in Continental Heller Corp. v. Amtech Mechanical Services, Inc., supra, 53 Cal.App.4th 500, 507, "could be expected to review, understand and bargain over their indemnity agreement." Thus, for example, this opinion should in no way be cited for the idea that a subcontract saddling a "`small-time subcontractor . . . with ruinous liability'" (to quote Heppler v. J.M. Peters Co. (1999) 73 Cal.App.4th 1265, 1280, quoting Continental Heller, supra, 53 Cal.App.4th at p. 507) would necessarily be enforceable as against an unconscionability (or any other conceivable) challenge based on the disparity in the parties' bargaining power. We only hold that the trial court here correctly interpreted and adjudicated this subcontract, which was made between parties of relatively equal sophistication and bargaining power. C. Attorney Fees Awarded For Prosecuting the Cross-Complaint The final issue involves the trial court's determination of who was the "prevailing party" as between the window manufacturer subcontractor who promised to indemnify and defend the developer, and the developer. While the trial judge declared that the developer could recover defense costs from the subcontractor, the developer
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failed to obtain any "indemnity" from the subcontractor. That is, because the jury found the subcontractor not negligent, the subcontractor did not owe the developer for any part of what the developer ultimately paid the homeowners in the settlement. So the result was mixed. The developer prevailed on "defense," the window manufacturer prevailed on what we will call in this opinion, "classic indemnity," that is, "indemnity" thought of as just paying for a judgment or settlement incurred by the indemnitee, as distinct from defense costs. As we will explain in part V. of this opinion, in the case of such mixed results, under Civil Code section 17175 the determination is within the trial court's discretion, and under analogous case law, it is clear that the trial court did not abuse that discretion. D. Summary of Summary The net result is that we will affirm the trial court's grant of a partial new trial order, and we will affirm those parts of the judgment otherwise challenged by the appellant subcontractor. II. FACTS AND PROCEDURAL HISTORY A. The Underlying Construction Defect Case A group of about 200 homeowners in the Huntington Place housing development in Huntington Beach brought a construction defect action against the developer of the project,6 as well as against the project's window manufacturer7 and window framer.8 The homeowners sued the window manufacturer on theories of strict products liability, negligence, and breach of warranty. They asserted that the window manufacturer's wooden windows were defectively designed and manufactured, causing them to leak and fog. The developer filed a cross-complaint against the window manufacturer and the window framer, seeking its attorney fees incurred in defending
All references to section 1717 or to section 2772 or 2778 in this opinion will be to the Civil Code. All references to sections 1032 or 1033.5 will be to the Code of Civil Procedure. 6 Namely, Capital Pacific Holdings, Inc., fdba J.M. Peters Company, Inc., whom we will refer for reader convenience under the generic title of "the developer." 7 Defendant Weather Shield Mfg. Inc., who will be referred to as "the window manufacturer." 8 Darrow the Framing Corporation, who will be referred to as "the window framer."
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against the homeowners' suit, as well as indemnification (indemnification meaning money paid to satisfy a judgment or settlement of that suit).9 The homeowners eventually entered into a sliding scale "Mary Carter" agreement with the developer, in conjunction with which all complaints and cross-complaints were dismissed except as to the window manufacturer and the window framer, who did not settle. B. The Striking of the Claims for Strict Products Liability In the summer of 2002, before trial, the window manufacturer filed a special trial brief requesting that the homeowners' strict liability claim against it be stricken. Noting that the only appellate decisions still on the books at the time (La Jolla and Casey) were clear that strict liability could not be asserted against subcontractors in a mass-produced housing project, the trial brief asserted that it "would be error for the court to give jury instructions regarding strict products liability." Accordingly, in late July of 2002, the trial judge dismissed the homeowners' strict liability claims, characterizing his action as granting a motion for "judgment on the pleadings." C. The Jury's Decision on the Negligence and Warranty Claims The homeowners' negligence and breach of warranty causes of action were, however, allowed to go to the jury. Additionally, the developer's claim for contractual indemnification went to the jury, but not its claim for attorney fees for defending the general contractor in the suit brought against it by the homeowners, and in fact the jury was specifically instructed "not to concern" itself with "any claim for attorney's fees."10 The jury found in favor of the window manufacturer on both the homeowners' claims for negligence and breach of warranty, and on the developer's claim for contractual indemnity.
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Some published decisions, because the distinction between indemnity and defense was not specifically before the court, have tended to lump the duty to defend with the duty to indemnify and will frequently refer to the two distinct obligations as "indemnity provisions." Because the distinction is the focus of much of this opinion, we will go out of our way to emphasize the separateness of the two obligations. 10 The trial judge would later interlineate into the judgment the recitation that "By stipulation of the parties, the causes of action in [the developer's] cross-complaint for declaratory relief were bifurcated for trial by the court after the jury returned a verdict on the other causes."

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The window framer, however, did not do so well. When one counts up the various homeowner-by-homeowner components of the judgment, it turns out that the jury awarded more than $700,000 against it. The window framer then settled with the plaintiffs. D. The Trial Court's Decision on the Developer's Claim for Defense Fees But in the later bench trial on the developer's attorney fee claim, the window manufacturer incurred a loss. The trial judge determined that the window subcontractor's promise to defend lawsuits "founded on" claims of damage growing out of the execution of the window manufacturer's work meant that the window manufacturer was responsible for the developer's attorney fees attributable to the window problems experienced by the homeowners. Of course, the window framer was responsible for those problems too, so there was a need for allocation. The developer's risk manager had allocated 70 percent of the developer's settlement payment to window problems. Accordingly, the trial judge allocated 70 percent of the developer's total defense costs of $375,069 to window problems. That 70 percent amounted to $262,548. The trial court then split the amount equally between the window manufacturer and the window framer, and came up with a figure of $131,274. That amount, the judge declared, was what the window manufacturer owed the developer. E. The Judgment The result of all of these proceedings was a judgment, filed March 14, 2003, embodying zero liability on the part of the window manufacturer to the homeowners, zero liability on the part of the window manufacturer to the developer for the developer's causes of action for "breach of contract and express indemnity," but providing, by way of declaratory relief, a determination that the developer was "entitled to be indemnified" by the window manufacturer in the "principal amount of $131,274."

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F. The New Trial Order In the interval between the jury's decisions and the judge's determination on the defense issue in the bench trial, our Supreme Court handed down Jimenez v. Superior Court, supra, 29 Cal.4th 473. Jimenez held that "the manufacturers of component parts, here windows, that are installed in mass-produced homes can be subject to strict products liability in tort when their defective products cause harm." (Id. at p. 481, italics added.) The homeowners brought a new trial motion in early April based on, among other things, the newly-minted Jimenez decision. The trial judge granted the motion with respect to the strict product liability cause of action. He noted that the homeowners had the right to instructions on their theory of the case if the instruction was reasonable and found support in the pleadings and evidence. (See 7 Witkin, Cal. Proc. (4th ed. 1997) Trial,

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