In a recent decision in Centex Homes v. R-Help Constr. Co., Inc., the California Court of Appeal for the Second District, reinforcing the holding in Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541, ruled that whether a duty to defend arises under an indemnity agreement is a matter of law for the court to decide, and that the duty to defend the indemnitee from third party claims which are embraced by the indemnity agreement arises immediately upon the proper tender of defense, and thus before the litigation has determined whether indemnity is actually owed. Centex Homes v. R-Help Constr. Co., Inc., No. 2D CIV. B276708, 2019 WL 1109627 at *3, *5 (Cal. Ct. App. Mar. 11, 2019). 

In Centex, Matthias Wagener filed a tort action against R-Help Construction Company (R-Help) and Centex Homes (Centex) for injuries allegedly sustained when he fell into a utility box that was negligently managed, maintained and inspected by the defendants. The injury occurred at a residential construction project being developed by Centex. R-Help was Centex’s subcontractor who agreed to install and inspect all utility boxes. The contract between Centex and R-Help required R-Help to defend and indemnify Centex for all claims “to the extent such Claim(s) in whole or in part arise out of or relate to” R-Help’s work. (Id. at *1.) Upon receipt of Mr. Wagener’s suit, Centex tendered to R-Help for defense and indemnity. However, R-Help did not respond to the tender. At trial, Centex contended that the allegations in the complaint required R-Help to defend it under the indemnity provision as a matter of law. R-Help countered that there was undisputed evidence showing that the subject utility box was outside the scope of R-Help’s work. The trial court determined that the question of indemnity was one for the jury, which found in favor of R-Help.

On appeal, the Second District Court of Appeal (the Centex court) held that the question of indemnity was one of law that must be determined by the court, and thus, the trial court erred in submitting the question to the jury. In doing so, the court relied on Crawford, stating, “[o]ur Supreme Court [in Crawford has] held that the duty to defend claims embraced by the indemnity agreement arises immediately upon the proper tender of defense, and thus before the litigation has determined whether indemnity is actually owed.” Id. at *3. Again relying on Crawford, the Centex court stated, “[c]laims on which a duty to defend is owed include those which at the time of tender allege facts that would give rise to a duty of indemnity” immediately before stating that “[h]ere Wagener claimed his injuries arose out of or related to R-Help’s work for Centex.” Id. Therefore, it concluded, “the trial court was compelled to determine as a matter of law that Wagener’s claim was embraced by the indemnity agreement.” Id.

The Centex court summarily rejected R-Help’s argument that it did not have a duty to defend because Mr. Wagener’s injury did not arise out of R-Help’s scope of work and thus his claim was not “embraced” by R-Help’s agreement to indemnify Centex, stating that “where the plaintiff’s complaint alleges facts embraced by the indemnity agreement, the indemnitor has a duty to defend throughout the underlying tort action unless it can conclusively show by undisputed facts that plaintiff’s action is not covered by the agreement.” Id. at *4. R-Help had failed to make this showing, the Centex court found, because, among other things, there was no other subcontractor who worked on installing the utility boxes and the fact that the utility box did not function was not determinative of any material issue. 

Finally, the Centex court noted that “it is too late to challenge the duty to defend after the underlying tort case has been resolved,” relying on Scottsdale Insurance Co. v. MV Transportation (2005) 36 Cal.4th 643, 655, which held that ‘“[t]he defense duty arises upon tender of a potentially covered claim and lasts until the underlying lawsuit is concluded, or until it has been shown that there is no potential for coverage. [Citation.] When the duty, having arisen, is extinguished by a showing that no claim can in fact be covered, ‘it is extinguished only prospectively and not retroactively.’’” Id. at *4. Although the Centex court recognized that insurance contracts and indemnity and defense rules are generally subject to different treatment due to unique circumstances and public policy considerations, the it nevertheless found that the rule that the duty to defend can only be extinguished prospectively applies to all indemnity contracts.

The key takeaways from Centex Homes are: (i) The case reinforces the rule that the duty to defend applies to all claims that are “embraced” by the duty to defend and that such duty triggered at the outset of the case upon tender, not when the case is resolved and liability has been determined; and (ii) Whether an indemnitor must also defend the indemnitee—that is, whether the particular third-party claim is “embraced” by the indemnity—is a question for the court, not the jury.

Best practice is to involve Dentons early in the process when a dispute is likely and you are either requesting defense of a third-party claim under a written indemnity agreement or are faced with such a request, because Centex did not change the rule that indemnity agreements, like all contracts, are interpreted by its express terms. Thus, whether one is entitled to a defense (obligated to defend), and entitled to indemnity (or obligated to indemnify another), depends on the express terms of your indemnity agreement. Contact your Dentons' team or the authors listed on the right.