Centex Homes v. R-Help Construction Co., Inc.

Filed 3/11/19
CERTIFIED FOR PARTIAL PUBLICATION *
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
CENTEX HOMES, 2d Civil No. B276708
(Super. Ct. No. 56-2011-
Cross-complainant and 00401979-CU-PO-VTA)
Appellant, (Ventura County)
v.
R-HELP CONSTRUCTION
COMPANY, INC.,
Cross-Defendant and
Appellant.
A subcontractor is hired by a developer to install utility
boxes in a subdivision. The subcontract contains a clause
requiring the subcontractor to indemnify the developer for all
claims arising out of the subcontractor’s work. [[The subcontract
also contains a clause requiring the subcontractor to obtain
insurance with the developer named as an insured.]]
*Pursuant to California Rules of Court, rules 8.1100 and 8.1110,
this opinion is certified for partial publication. The portions of
this opinion to be deleted from publication are identified as those
portions between double brackets, e.g., [[/]].
A plaintiff in an underlying tort action brings an action
against the subcontractor and the developer for injuries allegedly
arising from the subcontractor’s work. The subcontractor does
not defend the developer.
The trial court submits the question of the subcontractor’s
duty to defend to a jury. The jury finds the plaintiff’s injuries
were not caused by the subcontractor’s work. Does this end the
matter? No.
The end of the trial is not the end of the case. The parties
are back to the beginning on the issue of duty to defend. Why?
Where plaintiff in an underlying tort action alleges that his
injuries arose out of the subcontractor’s work, the developer is
entitled as a matter of law to a defense under the indemnity
clause. It is error to submit the question of the subcontractor’s
duty to defend to a jury. [[We also hold that the developer is
entitled to a jury trial in its action for damages alleging breach of
the covenant to provide insurance.]] We reverse and remand.
FACTS
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. [[It also
required R-Help to maintain a policy of liability insurance to
cover such claims, with Centex named as an additional insured.]]
Matthias Wagener filed a civil complaint against Southern
California Edison and others alleging he was injured when he fell
2.
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.” (Italics omitted.)
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.
Eventually Centex obtained a dismissal of the Wagener
action pursuant to a settlement. Wagener settled his action with
the remaining defendants, leaving Centex’s cross-complaint
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.
3.
[[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 the trial
court. The court barred mention of insurance in the jury portion
of the trial.]]
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
4.
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.
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? [¶] . . .
[¶] 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.
5.
Post Trial
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.]]
DISCUSSION
Centex’s Appeal
I
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. We agree.
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
6.
actually owed. (Id. at p. 558.) 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. (Ibid.)
Here Wagener claimed his injuries arose out of or related to
R-Help’s work for Centex. Under Crawford, the duty to defend
arose immediately upon the proper tender of defense of a claim
embraced by the indemnity agreement. (Crawford v. Weather
Shield Mfg., Inc., supra, 44 Cal.4th 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., supra, 44 Cal.4th at
p. 558, fn. 7.) 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 an action where undisputed facts
7.
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 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.
8.
R-Help argues there is no substantial evidence that
installation of the utility box was within its scope of work. R-
Help 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.
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. [Citation.] When the duty, having arisen,
9.
is extinguished by a showing that no claim can in fact be covered,
‘it is extinguished only prospectively and not retroactively.’”
We 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., supra, 44 Cal.4th 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.
[[R-Help’s Appeal
II
R-Help contends it did not breach the subcontract by failing
to obtain the required insurance policy.
But the trial court found after a bench trial that R-Help did
not breach its agreement to provide insurance for Centex. R-Help
cannot seek review of a favorable ruling. (9 Witkin, Cal.
Procedure (5th ed. 2008) Appeal, § 327, pp. 375-376.) R-Help can
appeal, however, from the trial court’s order granting a new trial
on the question of insurance. (See Liodas v. Sahadi (1977) 19
Cal. 3d 278, 285.)
Here Centex brought an action for damages against R-
Help, alleging R-Help breached its subcontract by failing to
provide the required insurance. An action for damages arising
from a breach of contract is an action at law entitling Centex to a
jury trial. (Valley Crest Landscape Development, Inc. v. Mission
Pools of Escondido, Inc. (2015) 238 Cal. App. 4th 468, 491-492.)
10.
R-Help argues that the interpretation of a written contract
presents a question of law for the trial court. That is true unless
the interpretation turns on the credibility of extrinsic evidence.
(Parsons v. Bristol Development Co. (1965) 62 Cal. 2d 861, 865.)
But R-Help’s argument misses the point. If within the context of
a jury trial the trial court determines as a matter of law that R-
Help did not breach the insurance provisions of the subcontract,
the trial court may grant R-Help judgment of nonsuit or some
other appropriate remedy. But R-Help cites no authority for the
proposition that such a possibility deprives Centex of a jury trial
in the first instance. (See Van de Kamp v. Bank of America
(1988) 204 Cal. App. 3d 819, 863 [“Denial of the right to trial by
jury is an act in excess of the court’s jurisdiction and is reversible
error per se”].) The trial court points out that “[its] ruling is
without prejudice to contentions by R-Help that there was no
right to a jury trial on the insurance-procurement issue because
it is a matter of contractual interpretation for the court, or that
this issue has been mooted by the jury verdict.
III
R-Help contends the subcontract is one of adhesion and the
provision for attorney fees for enforcement of the indemnity
agreement is unconscionable.
A contract of adhesion is a standardized contract, drafted
and imposed by the party with superior bargaining power and
which offers the subscribing party only the opportunity to accept
or reject the contract. (Neal v. State Farm Ins. Cos. (1961) 188
Cal. App. 2d 690, 694.) A finding that a contract is one of adhesion
does not mean it is invalid. (Intershop Communications AG v.
Superior Court (2002) 104 Cal. App. 4th 191, 201.) The finding
simply opens a second inquiry: whether a particular provision
11.
should be denied enforcement because it defeats the expectations
of the weaker party or is unduly oppressive or unconscionable.
(Ibid.)
Here the trial court found that the subcontract was not one
of adhesion. R-Help points out in a footnote that its expert
testified Centex had the superior bargaining power. But R-Help
points to no foundation for that opinion. In any event, the trial
court was not required to find the testimony credible. (See
Sprague v. Equifax, Inc. (1985) 166 Cal. App. 3d 1012, 1028 [trier
of fact not required to believe even uncontradicted evidence].)
Moreover, unequal bargaining power is not the only element of a
contract of adhesion. R-Help points to no credible evidence that
it could not have bargained for more favorable terms.
Even if the subcontract were one of adhesion, it would still
be enforceable. There is no evidence it defeated the expectations
of the weaker party. R-Help’s president Hurtado testified he has
been in the construction business for 46 years and has been
involved with over 1,000 contracts. He read every page of the
subcontract and he understood its terms. Nor is there anything
about the subcontract’s indemnity clause, insurance clause or the
attorney fee clause that is unduly oppressive or unconscionable.
R-Help argues the attorney fee clause is unconscionable
because it is unilateral. Under “Claim,” the subcontract provides
for fees incurred “in enforcing this indemnity provision.” R-Help
relies on Carmona v. Lincoln Millennium Car Wash, Inc. (2014)
226 Cal. App. 4th 74, 88, for the proposition that unilateral
attorney fees clauses are unconscionable and are not saved by
Civil Code section 1717.
Carmona is distinguishable. It involved a contract of
adhesion for arbitration of employment disputes between car
12.
wash owners and their employees. Carmona did not involve a
sophisticated party with 46 years in the contracting business. A
provision that may be unconscionable in one context may not be
unconscionable in another.
R-Help argues the indemnity provision of the subcontract is
unconscionable because Centex interprets it to mean the duty to
defend exists even in the absence of a nexus between third party
claims and R-Help’s work. In fact, Crawford shows Centex’s
interpretation is correct. The duty to defend is broader than the
duty to indemnify. (See Crawford v. Weather Shield Mfg., Inc.,
supra, 44 Cal.4th at p. 558 [duty to defend does not depend on
whether the litigation to be defended establishes a duty of
indemnity].)
Finally, R-Help claims the attorney fee provision is
unconscionable because it places it in a worse position than an
insurer. R-Help claims an insurer is not always liable for
attorney fees incurred in enforcing the duty to defend. (Citing
Brandt v. Superior Court (1985) 37 Cal. 3d 813, 820 [insurer liable
for attorney fees in enforcing duty to defend where it has denied
defense in bad faith].)
But insurance policies typically do not contain attorney fee
clauses. Attorney fee clauses are common in other types of
contracts. There is no reason why they should not apply to the
enforcement of indemnity agreements as well as other
contractual provisions. That insurers and others whose contracts
do not contain attorney fee clauses may not be similarly burdened
does not mean such clauses are unconscionable.]]
We reverse the judgment and remand. Centex is entitled to
a new trial on the issue of damages for failure to defend.
13.
[[Centex is also entitled to a new trial on the issue of whether R-
Help failed to obtain insurance.]] Costs are awarded to Centex.
CERTIFIED FOR PARTIAL PUBLICATION.
GILBERT, P. J.
We concur:
YEGAN, J.
TANGEMAN, J.
14.
Vincent J. O'Neill, Jr., Judge
Superior Court County of Ventura
______________________________
Musick, Peeler & Garrett, LLP, Adam L. Johnson, Cheryl
A. Orr for Cross-complainant and Appellant.
Hayes, Scott, Bonino, Ellingson, Guslani, Simonson &
Clause, LLP, Mark G. Bonino, Charles Tillage; Law Offices of
Jamie Skeeba, Mark Santa Romana for Cross-defendant and
Appellant.
15.