Centex v R-Help Construction Company, Inc. – Case Study

CASE STUDY PREPARED FROM ORIGINAL
PUBLISHED OPINION
ERNEST A. LONG
Alternative Dispute Resolution
Resolution Arts Building
2630 J Street, Sacramento, CA 95816
ph: (916) 442-6739 $ fx: (916) 442-4107
elong@ernestalongadr.com $ https://www.ernestalongadr.com
Centex v R-Help Construction Company, Inc.
3/11/19
Construction Contracts; Indemnity Agreements; Duty to
Defend; Crawford v. Weather Shield Mfg., Inc.
Centex Homes (Centex) contracted with R-Help
Construction Company, Inc. (R-Help) to trench, install and
inspect all utility boxes and conduits for the Novella residential
construction project in the City of Thousand Oaks (City). The
contract 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. The contract provided
for attorney fees incurred in enforcing the indemnity
agreement.
2.
Matthias Wagener filed a civil complaint against Southern
California Edison and others alleging he was injured when he
fell into a utility box. The complaint alleged that the
defendants negligently managed, maintained, and inspected
the utility box cover so as to create an unstable platform.
Centex and R-Help were later added as Doe defendants.
In answering R-Help’s interrogatories, Wagener stated:
“It appears as though R-Help installed and thereafter
abandoned the subject junction box or hand hole and adjoining
conduit, having installed the lid without the prescribed bolts
specifically designed to keep the SCE lid bolted to the junction
box. Acting as Centex’s agent, R-Help and Centex are both
jointly and severally liable to plaintiff for the injuries he
suffered and damages he sustained.”
Centex tendered the complaint to R-Help for defense and
indemnity. R-Help did not respond to the tender.
Centex filed a cross-complaint against R-Help alleging
causes of action for breach of contract, indemnity, and
declaratory relief. Centex sought costs and expenses incurred
in defending Wagener’s action and in enforcing the indemnity
agreement.
3.
Eventually Centex obtained a dismissal of the Wagener
action pursuant to a settlement. Wagener settled his action
with the remaining defendants, leaving Centex’s crosscomplaint against R-Help to be decided.
Centex moved for summary adjudication contending that
the allegations of Wagener’s complaint alone require R-Help to
defend Centex under the indemnity agreement as a matter of
law. R-Help moved for summary judgment contending
undisputed evidence shows the utility box on which Wagener
was injured is outside the scope of R-Help’s work under the
subcontract. The trial court denied both motions.
Centex’s cross-complaint against R-Help proceeded to
trial on two issues: whether R-Help breached the contract by
failing to obtain the required insurance, and whether R-Help
has a duty to indemnity Centex for the costs of defending the
Wagener action.
After pretrial motions in limine, the trial court
determined the question of indemnity is for the jury. The trial
court also determined whether R-Help breached the contract by
failing to obtain the required insurance is a question of law for
4.
the trial court. The court barred mention of insurance in the
jury portion of the trial.
A Centex manager and an expert testified for Centex at
trial. Jerry Domke was the senior land development manager
for Centex. He has a degree in civil engineering and decades of
experience working for public entities, private engineering
firms, and real estate developers. He worked for Centex from
2003 to 2007. He was involved in contracting for the Novella
project. Domke testified that R-Help contracted to install all the
utility boxes for the dry utilities; that is, telephone, electrical,
and cable. The box on which Wagener was injured is shown on
the City’s conduit plan, and is included in the scope of R-Help’s
work under its subcontract. A change order adjusting the
location of the box reflects that R-Help worked on it.
Henry Koffman has a master’s degree in civil engineering
and is professor of construction engineering and management
at the University of Southern California. He testified the utility
box on which Wagener was injured was on the plans for the
project. It was on the City’s conduit plan. The box on which
Wagener was injured was the same model box as another box
installed on the project by R-Help. He said no one but R-Help
would want to install a box at that location.
5.
Roberto Hurtado, president of R-Help, and the Novella
project foreman inspected the subject utility box. They
determined the box was not the work of R-Help and was not on
the project’s plans. They concluded it was not within R-Help’s
scope of work under the subcontract.
The trial court instructed the jury: “R-HELP
CONSTRUCTION CO. had a duty under the contract to defend
and pay for the defense of CENTEX HOMES upon a tender of
the defense if CENTEX proves that WAGENER’s alleged
injuries, in whole or in part, arose out of or related to the work
performed by R-HELP, unless the information available to both
parties at the time of the tender eliminated any reasonable
potential that the WAGENER claim arose out of or was related
to R-HELP’s work. Whether the WAGENER claim against
CENTEX and R-HELP succeeded is not determinative of the
duty to defend.”
Pursuant to the instruction, the trial court gave the jury a
special verdict form that included the following questions:
“Question No. 1: Did WAGENER allege that his injuries in
whole or in part arose out of or were related to R-HELP’s work?
6.
Question No. 2: Did the information available to both parties at
the time of the tender eliminate any reasonable potential that
the allegations in WAGENER’s claim arose out of or were
related to R-HELP’s work?”
The jury answered yes to both questions.
The trial court found that R-Help did not breach the
contract by failing to obtain insurance.
The trial court entered judgment in favor of R-Help.
Centex moved for a new trial. The trial court determined
that Centex was entitled to a new trial on R-Help’s duty to
provide insurance. The court found that the record does not
show Centex waived a jury on the issue. The court granted
Centex a new trial without prejudice to R-Help’s argument that
Centex had no right to a jury trial or that the issue has been
mooted by the jury’s verdict. The trial court denied Centex’s
motion for a new trial on the issue of indemnity. Both parties
appeal.
Centex contends the trial court improperly delegated the
duty to defend issue to the jury. It claims the issue is one of law
for the court.
7.
Centex argues Wagener’s allegation that the utility box
was within the scope of work R-Help performed for it is alone
sufficient to require R-Help to defend. Centex relies on
Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541. In
Crawford, the developer of a residential project subcontracted
with a window manufacturer to supply windows for the
project. The subcontract required the window manufacturer to
indemnity the developer against all claims arising out of the
manufacturer’s work. Homeowners sued the developer
alleging the windows manufactured by the subcontractor were
faulty. The developer tendered defense to the manufacturer
under the indemnity provisions in the subcontract. Our
Supreme Court 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. Claims 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.
Here Wagener claimed his injuries arose out of or related
to R-Help’s work for Centex. The Second District Court of
Appeal explained that under Crawford, the duty to defend arose
immediately upon the proper tender of defense of a claim
8.
embraced by the indemnity agreement. (Crawford v. Weather
Shield Mfg., Inc., at p. 558.) The duty to defend was not a
question of fact for the jury; the trial court was compelled to
determine as a matter of law that Wagener’s claim was
embraced by the indemnity agreement.
R-Help attempts to distinguish Crawford on the ground
that there the question giving rise to indemnity was whether
the window manufacturer was negligent. The resolution of
that question lies in the underlying tort action. R-Help argues
that here the question of the scope of work under the
subcontract may be resolved independently of the underlying
tort action. But the scope of work was an issue in the
underlying tort action here, as was negligence in Crawford.
Under Crawford, the duty to defend arises as a matter of law
from the mere allegation in the underlying tort action that
plaintiff’s injuries arose out of R-Help’s work.
Crawford suggests that the obligation to defend may not
continue “if the promisor . . . conclusively established that the
claims were not among those ‘embraced by the indemnity.’”
(Crawford v. Weather Shield Mfg., Inc., at p. 558) In Montrose
Chemical Corp. v. Superior Court (1993) 6 Cal.4th 289, 298, an
insurance case on which both parties rely, our Supreme Court
stated: “It would be pointless . . . to require an insurer to defend
9.
an action where undisputed facts developed early in the
investigation conclusively showed, despite a contrary
allegation in the complaint, that the underlying acts occurred
on a date when the policy was not in effect or at a location
concededly not covered by the policy.”
But 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.
R-Help attempted to show conclusively by undisputed
evidence in its motion for summary judgment that Wagener’s
action was not covered by the indemnity agreement. R-Help
failed to do so.
R-Help’s reliance on Morlin Asset Management LP v.
Murachanian (2016) 2 Cal.App.5th 184 is misplaced. In Morlin,
plaintiff sued a landlord for injuries that occurred in the
common area of an office building. Landlord cross-complained
against a tenant under an indemnity agreement in the tenant’s
lease. The tenant obtained summary judgment on the ground
that under the indemnity clause he was only liable to
10.
indemnity for injuries that occurred within his suite, not the
common area. The Court of Appeal affirmed.
In Morlin, unlike this case, the allegations of the
complaint in the underlying tort case were not embraced by the
terms of the indemnity agreement. Moreover, the tenant in
Morlin was able to show conclusively by undisputed evidence
that the indemnity agreement did not apply. Here R-Help
could not so demonstrate. Thus, the trial court denied R-Help’s
motion for summary judgment.
R-Help argues there is no substantial evidence that
installation of the utility box was within its scope of work. RHelp attempts to support its argument by attacking the
credibility of Centex’s witnesses.
Centex’s development manager Domke is a civil engineer
with decades of experience. He testified that R-Help contracted
to install all the utility boxes for the project. He said the box on
which Wagener was injured was within R-Help’s scope of work
as shown on the City’s conduit plan and as reflected in a
change order. Centex’s expert Koffman also testified that
installation of the box was within R-Help’s scope of work.
11.
R-Help challenges Domke’s and Koffman’s testimony by
pointing to the cross-examination tending to show that the box
in question was not installed according to the City’s plans and
specifications and had no function as installed. It is not
unusual in the history of real estate development that someone
who contracted to install an item failed to install it according to
the plans and specifications so that it had no function as
installed. None of the evidence elicited on cross-examination
definitively shows the box was not within R-Help’s scope of
work or that R-Help did not install the box. Domke’s and
Koffman’s testimony constitutes substantial evidence that could
be found credible by a reasonable trier of fact even though that
did not happen here.
In any event, it is too late to challenge the duty to defend
after the underlying tort case has been resolved. Our Supreme
Court stated in Scottsdale Insurance Co. v. MV Transportation
(2005) 36 Cal.4th 643, 655: “The 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. 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.’”
12.
The Justices recognize that Scottsdale Insurance Co. is an
insurance case, and that there are some differences in treatment
between insurance policies and other indemnity agreements.
(See Crawford v. Weather Shield Mfg., Inc., at p. 552.) But R-Help
cites no authority for a difference in treatment as it relates to the
prospective application of the extinguishing of the duty to
defend.
It follows that the trial court’s jury instruction was
erroneous. The court should have instructed that R-Help had a
duty to defend and that it breached its duty. The only issue left
for the jury would be damages.
The DCA will reverse the judgment and remand. Centex
is entitled to a new trial on the issue of damages for failure to
defend. Costs are awarded to Centex.
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