Partners Adam Johnson, Cheryl Orr and Shireen Rogers Win Appeal in “Duty to Defend” Case

Partners Adam Johnson, Cheryl Orr and Shireen Rogers obtained a big win for client Centex Homes in the appeal of a “duty to defend” case based on a contractual indemnity provision in a construction agreement. The case, Centex Homes v. R. Help Construction Co., Inc., 2019 Daily Journal D.A.R 1949 (March 11, 2019) has potentially significant implications for the construction industry.

Centex was sued by Plaintiff Wagener, who claimed he was injured when he stepped on a utility box that subcontractor R-Help allegedly installed. R-Help admitted installing utility boxes at the project, but claimed that it did not install the particular box at issue. R-Help refused to defend Centex in the lawsuit. Centex sought to confirm R-Help’s duty to defend by filing various pre-trial motions, but to no avail. The trial court refused to find such a duty and submitted the question of the duty to defend to a jury. The jury found that Centex could not prove that R-Help had “actually” installed the utility box at issue, and the trial court entered judgment in favor of R-Help. Centex appealed.

The Court of Appeal found that R-Help owed Centex an immediate contractual duty to defend the Wagener claim as a matter of law based on the allegations of the underlying complaint against Centex, and thus reversed and remanded the matter for a new trial on the issue of damages for R-Help’s failure to defend. In an unpublished portion of the opinion, the Court of Appeal also agreed that Centex was entitled to a new trial on the question of whether R-Help had failed to obtain insurance as required under its subcontract.

As a result of the decision, Centex should be able to recover from R-Help significant fees and costs it incurred to defend against the underlying tort action and to enforce R-Help’s defense obligation, plus prejudgment interest on those unpaid sums.

The decision is notable in that it applied the duty to defend principles from insurance coverage case law to the construction context. The opinion clarifies that indemnitors have an “immediate” duty to defend based on the allegations in a lawsuit, despite the indemnitors’ contentions that their work did not “actually” cause the injury or damage alleged. Indemnitors and their insurers may be more likely to accept defense tenders of indemnitees as a result. The opinion may also make it more difficult for indemnitors to withdraw a defense. The Court of Appeal confirmed that an indemnitor has a duty to defend “throughout” a tort action “unless it can conclusively show by undisputed facts that [a] [p]laintiff’s action is not covered by the [indemnity] agreement.”