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SUBCONTRACTOR OWES CONTRACTUAL DEFENSE OBLIGATION EVEN WHEN FOUND NON-NEGLIGENT FOLLOWING CRAWFORD DECISION. 03.10.10 – UDC-Universal_Development,_L.P._v._CH2M_Hill January 15, 2010, California Court of Appeals decision - Sixth Appellate District Synopsis: Following the Crawford decision, subcontractor owes contractual defense obligation to developer even when subcontractor found non-negligent. Detailed discussion: Subcontractor CH2M Hill subcontractor seeks review of a judgment in favor of respondent UDC-Universal Development, L.P. (UDC) pursuant to an indemnity provision in the parties' contract which required CH2M Hill to reimburse UDC for the cost of its defense in a third entity's lawsuit. CH2M Hill contends that: (1) the parties contract required no defense because CH2M Hill's negligence was not alleged in the third party's complaint or established in UDC's action; and (2) UDC's cross-complaint was barred because its contract with CH2M Hill was illegal. The Court of Appeals affirmed the judgment of the trial court, requiring the subcontractor to pay defense costs of the developer even though subcontractor was found non-negligent. The court, interpreting the decision Crawford v. Weather Shield Mfg., Inc., (2008) 44 Cal. 4th 541, explained that the duty to defend is a separate and distinct duty which is not based on the ultimate liability of a party but rather plaintiff's claims that potentially relate to that subcontractor's work. The court determined that the general nature of plaintiff's claim could be interpreted to implicate CH2M Hill and thereby triggered the duty to defend even though CH2M Hill was ultimately not found to be negligent. CH2M Hill then argued that it should not be liable for UDC's defense fees and costs because UDC was not a licensed contractor at the time it entered into the contract with CH2M Hill. As a result, CH2M Hill argued that contract was illegal and that UDC should be prohibited from benefiting from the terms of an illegal contract, including indemnification. The court rejected CH2M Hill's argument, departing from the prior judicial authority of Ranchwood Communities Limited Partnership v. Jim Beat Construction Company, (1996) 49 Cal. App. 4th 1397. Even though UDC was potentially not licensed (no determination was made whether UDC was or was not licensed), UDC was not seeking compensation for its own work under the construction contract, but seeking indemnification which would be permitted even if UDC was not licensed at the time it entered its contract with CH2M Hill. WHY THIS CASE IS IMPORTANT This case is important because the court applies Crawford to determine that a subcontractor's duty to defend developer is a separate and distinct duty, even if the subcontractor/indemnitor is found not to be negligent for the underlying claim. This ruling also departs from previous authority in Ranchwood regarding a contractor's ability to enforce terms of a contract when one of the contractors was not licensed. Here, the court explains that even an unlicensed contractor can seek express indemnity as distinguished from seeking compensation for services under that contract.
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