Aluma Systems Concrete Construction of California v. Nibbi Bros.

Filed 8/16/16
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION FIVE
ALUMA SYSTEMS CONCRETE
CONSTRUCTION OF CALIFORNIA,
Plaintiff and Appellant, A145734
v. (San Francisco County
NIBBI BROS. INC., et al., Super. Ct. No. CGC-14-540636)
Defendants and Respondents.
Aluma Systems Concrete Construction of California, Inc. (hereafter, Contractor)
was sued by employees of respondents Nibbi Bros. Inc., and Nibbi Bros. Associates, Inc.
dba Nibbi Concrete (hereafter, Employer), for injuries sustained on the job.
Subsequently, Contractor sued Employer for indemnification based on a specific
provision in the parties’ contract. The trial court sustained Employer’s demurrer to
Contractor’s complaint, relying on the allegations in the underlying lawsuit that set forth
claims only against Contractor and not against Employer. Because the allegations in the
underlying lawsuit are not determinative of Contractor’s claim for indemnity we reject
that analysis, reverse and remand.
BACKGROUND1
In March 2011, Contractor entered into an agreement with Employer to design and
supply the materials for wall formwork and deck shoring at Employer’s construction
1
Because we are reviewing an order sustaining a demurrer, we assume the truth of the
complaint’s factual allegations and consider judicially noticed matters. (Committee for
Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42
(Committee for Green Foothills).)
1
project (the Contract). The terms of the Contract included the following indemnification
provision: “To the extent permitted by law, [Employer] shall defend, indemnify and hold
harmless [Contractor] against any and all claims, actions, expenses, damages, losses and
liabilities, including attorneys fees and expenses, for personal injuries (including death)
and/or property damage arising from or in connection with this contract and/or
[Contractor]’s equipment and services, except to the extent such claims, actions,
expenses, damages, losses and liabilities are caused by the acts or omissions of
[Contractor] or anyone directly or indirectly employed by [Contractor] or anyone for
whose acts [Contractor] may be liable.”2
Subsequently, two lawsuits were filed by Employer’s employees against
Contractor (the Employee Lawsuits) alleging that in August 2011, the employees were
injured after a shoring system designed by Contractor collapsed. The Employee Lawsuits
alleged the collapse was due to Contractor’s negligence. Contractor’s answers alleged as
affirmative defenses that the employees’ injuries were proximately caused by the
negligence of Employer and unnamed others. Contractor tendered the Employee
Lawsuits to Employer for defense and indemnification, but received no response.
Contractor then filed the instant action against Employer for breach of contract,
express indemnification, and declaratory relief.3 Employer demurred to the complaint.
The demurrer argued the contractual indemnification provision does not apply because
the Employee Lawsuits allege Contractor alone, not Employer, was negligent. The
demurrer also argued that the complaint should be dismissed as to Nibbi Bros., Inc.
because the Contract was with Nibbi Concrete only, and that the claim for declaratory
relief is unnecessary because Contractor can determine its rights in the Employee
Lawsuits.
2
Separate provisions of the Contract provided for indemnification if Employer failed to
perform certain duties, for example, to comply with all applicable safety regulations.
3
The declaratory relief claim sought a determination of Employer’s liability to indemnify
Contractor. The complaint also alleged claims against Employer’s insurer, which are not
at issue in this appeal.
2
The trial court sustained the demurrer without leave to amend. As to the breach of
contract and express indemnification claims, the trial court found “the exception included
in the Contract’s indemnity provision plainly states that the [Employer’s] duty to defend,
indemnify, or hold harmless does not arise from acts caused by or omissions of the
[Contractor]. . . . The underlying complaints in this action allege negligence as to the
[Contractor] only because the employees are required to pursue worker’s compensation
claims against the [Employer]. The acts and/or omissions for which [Contractor] seeks
indemnity against arose from [Contractor’s] alleged negligence and is barred by the plain
language of the Contract.” The court sustained the demurrer as to the declaratory relief
claim on the ground that Contractor can determine its rights in the Employee Lawsuits.
Contractor filed a motion for reconsideration, pointing in part to the fact that the
Employee Lawsuits had now settled. The trial court denied the motion and entered
judgment for Employer.
DISCUSSION
“On review from an order sustaining a demurrer, ‘we examine the complaint de
novo to determine whether it alleges facts sufficient to state a cause of action under any
legal theory, such facts being assumed true for this purpose. [Citations.]’ [Citation.] We
may also consider matters that have been judicially noticed.” (Committee for Green
Foothills, supra, 48 Cal.4th at p. 42.)
The parties agree that pursuant to Labor Code section 3864, Employer is only
liable to indemnify Contractor pursuant to the terms of the Contract.4 They dispute
whether the indemnity provision—which applies to claims and damages in connection
with the Contract “except to the extent” they are “caused by the acts or omissions of
[Contractor]”—applies to the Employee Lawsuits. Employer argues the Employee
4
Labor Code section 3864 provides that if a personal injury action prosecuted by an
employee against a party other than the employer “results in judgment against such third
person, or settlement by such third person, the employer shall have no liability to
reimburse or hold such third person harmless on such judgment or settlement in absence
of a written agreement so to do executed prior to the injury.”
3
Lawsuits allege solely Contractor’s negligence and the indemnification provision
therefore does not apply. Contractor argues that the provision may apply because
Contractor is jointly and severally liable for all economic damages in the Employee
Lawsuits, including any attributable to the negligence of Employer or others, as long as
Contractor’s negligence is partially responsible.
As an initial matter, Contractor argues the indemnification provision provides for
proportionate liability: Employer must indemnify Contractor for any portion of economic
damages attributable to the negligence of Employer and/or others, but is not obligated to
indemnify Contractor for any portion of damages attributable to Contractor’s negligence.
Employer does not contest this interpretation, which we think is a reasonable construction
of the Contract’s language. “ ‘When reviewing whether a plaintiff has properly stated a
cause of action for breach of contract, we must determine whether the alleged agreement
is ‘reasonably susceptible’ to the meaning ascribed to it in the complaint. [Citation.]
“ ‘So long as the pleading does not place a clearly erroneous construction upon the
provisions of the contract, in passing upon the sufficiency of the complaint, we must
accept as correct plaintiff’s allegations as to the meaning of the agreement.’ ” ’ ”
(Marzec v. Public Employees’ Retirement System (2015) 236 Cal.App.4th 889, 909
(Marzec).) We therefore accept Contractor’s interpretation for purposes of this appeal.
We next turn to relevant principles of workers’ compensation and tort law.
Because the employees were working for Employer at the time of their injuries, they
cannot sue Employer for damages but must pursue benefits through the workers’
compensation system. (DaFonte v. Up-Right, Inc. (1992) 2 Cal.4th 593, 598 (DaFonte)
[“[A]n employer cannot be sued in tort for the work-related injury of an employee. The
employer’s sole liability is for benefits payable, regardless of fault, under the workers’
compensation law.”].) This limitation on Employer’s liability does not extend to third
parties, however, and the employees may sue Contractor for damages caused by its
negligence. (Ibid. [“the employee may sue any other responsible person for ‘all damages
proximately resulting’ from the injury”]; see also Lab. Code, § 3852 [“The claim of an
employee . . . for compensation does not affect his or her claim or right of action for all
4
damages proximately resulting from the injury or death against any person other than the
employer.”].)
If a factfinder found Contractor’s negligence was a proximate cause of the
employees’ injuries—even if Contractor’s negligence was one of two or more proximate
causes—Contractor would be liable to the employees for 100 percent of their economic
damages. (DaFonte, supra, 2 Cal.4th at p. 600 [tort law provides for “the joint liability
of all tortfeasors, regardless of their respective shares of fault, with respect to all
objectively provable expenses and monetary losses”].) As for noneconomic damages,
Contractor is only liable to the employees for its proportionate share. “[Civil Code]
section 1431.2[5] plainly limits a defendant’s share of noneconomic damages to his or her
own proportionate share of comparative fault.” (DaFonte, at p. 604.) These tort law
principles apply in suits by injured employees against third parties. (Ibid.)
Employer argues that Proposition 51, codifying these joint and several liability
principles, does not apply because it derives from equitable principles and this case is
governed by the Contract. The argument is unpersuasive. To be sure, Contractor’s
indemnification claim against Employer is properly based on the Contract, not on
principles of equitable indemnity. (Lab. Code, § 3864.) But Proposition 51 is relevant to
Contractor’s liability to the employees in the Employee Lawsuits and does apply in those
actions. (DaFonte, supra, 2 Cal.4th at p. 604 [rejecting argument that Proposition 51
does not apply in cases brought by injured employees against third parties, reasoning
“[t]he statute states or implies no exception for third party suits by injured employees”
and “[n]o compelling reason appears to infer such an exception in derogation of the
measure’s literal words”].)
Employer argued below that the availability of an offset for workers’
compensation benefits obviates the need for indemnification. We disagree. Contractor,
like all third parties so sued, may be entitled to offset part or all of the workers’
5
Civil Code section 1431.2 was enacted in 1986 by Proposition 51, which also amended
and added other Civil Code sections. (DaFonte, supra, 2 Cal.4th at pp. 596, 599.)
5
compensation benefits received by the employees if Employer is also at fault for the
injuries. “[A]n employee’s damage judgment against third parties must be reduced by an
amount attributable to the employer’s proportionate share of fault, up to the amount of
workers’ compensation benefits paid.” (DaFonte, supra, 2 Cal.4th at p. 599.) Contractor
alleged such an offset claim in the Employee Lawsuits. However, when “the employer’s
share of fault exceed[s] the benefits paid or owed . . . , third party defendants remain[]
jointly and severally liable to the injured employee for all damages attributable to the
employer’s fault which were not covered by workers’ compensation benefits,” except for
noneconomic damages. (Ibid., see also id. at p. 600.) Therefore, despite Contractor’s
claim in the Employee Lawsuits for an offset of workers’ compensation benefits
attributable to Employer, Contractor may still be liable for a portion of Employer’s share
of the employees’ economic damages. Contractor could only recover this portion
pursuant to the indemnification provision, if it applies.
Employer’s primary argument is that the Employee Lawsuits alleged only
Contractor’s negligence, which is expressly excluded from the indemnification provision.
Employer contends the application of the indemnity provision turns on whether the
Employee Lawsuits alleged the negligence of any party other than Contractor, rather than
on what a factfinder ultimately determines about the parties’ respective negligence.6 We
disagree.
We look first at the language of the Contract. Employer notes the indemnification
provision applies to “claims” and argues this indicates the allegations of the Employee
Lawsuits control the provision’s application. Assuming this is an appropriate
construction of the word “claims,” the provision also requires indemnification for
Contractor’s “damages” and “losses.” We see no basis to restrict the damages and losses
6
The extent of each party’s negligence, if any, will not be determined in the Employee
Lawsuits, but can be litigated in the instant action. (Mel Clayton Ford v. Ford Motor Co.
(2002) 104 Cal.App.4th 46, 59–60 (Mel Clayton Ford) [where indemnitee’s negligence is
relevant to application of indemnification provision and indemnitee settled underlying
claim with third party, negligence must be litigated in indemnification action].)
6
so indemnified to the allegations of the Employee Lawsuits, rather than to the damages
Contractor is ultimately found liable for. Even if Employer’s construction of the Contract
were possible, we must accept Contractor’s reasonable interpretation for purposes of this
demurrer. (Marzec, supra, 236 Cal.App.4th at p. 909.)
Employer points to cases in which the application of indemnification provisions
turned on the allegations of the third party’s complaint. These cases, however, all
involve the duty to defend. The duty to indemnify is distinct from the duty to defend: the
former “require[s] one party to indemnify the other, under specified circumstances, for
moneys paid or expenses incurred . . . as a result of” a third party claim, while the latter
“assign[s] one party . . . responsibility for the other’s legal defense when a third party
claim is made.” (Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541, 551
(Crawford).) Depending on the contractual language, a duty to defend may exist even if
no duty to indemnify is ultimately found. (Id. at p. 561 [under contractual language,
“even if the indemnity obligation is triggered only by an ultimate finding of the
indemnitor’s fault, the defense obligation applies before, and thus regardless of, any
finding to be made in the course of the litigation for which a defense is owed”]; UDC-
Universal Development, L.P. v. CH2M Hill (2010) 181 Cal.App.4th 10, 21-22 (UDC)
[rejecting indemnitor’s argument that “the jury’s eventual ‘no negligence’ finding
rendered the entire indemnity clause, including the defense provision, inapplicable”].)
The duty to defend “necessarily arises as soon as [the specified] claims are made
against the promisee.” (Crawford, supra, 44 Cal.4th at p. 554.) Therefore, the duty to
defend may depend on the framing of the third party’s complaint. (Id. at p. 558 [duty to
defend “arises . . . before the litigation to be defended has determined whether indemnity
is actually owed” and therefore is triggered by claims “which, at the time of tender,
allege facts that would give rise to a duty of indemnity”]; UDC, supra, 181 Cal.App.4th
at p. 21 [discussing whether allegations of third party complaint were “sufficient to
7
trigger [indemnitor’s] duty to defend”].)7 Unlike the duty to defend, however, the duty to
indemnify does not arise until liability is proven. (Crawford, supra, at p. 559 [“One can
only indemnify against ‘claims for damages’ that have been resolved against the
indemnitee, i.e., those as to which the indemnitee has actually sustained liability or paid
damages.”]; see also ibid. [duty to defend “was not dependent on whether the very
litigation to be defended later established [the indemnitor’s] obligation to pay
indemnity”].)
Contractor’s complaint alleges Employer owed a duty to both defend and
indemnify. Employer’s demurrer argues the entire indemnification provision does not
apply to the Employee Lawsuits, and the parties make no distinction between Employer’s
duty to defend and its duty to indemnify. Therefore, we need not decide whether the
complaint sufficiently states a claim with respect to the duty to defend; if it states a claim
with respect to the duty to indemnify, Employer’s demurrer fails.
The cases cited above considering a third party’s allegations to determine whether
there is a duty to defend do not govern the question of whether these allegations
determine the duty to indemnify. As noted above, we see no basis in the Contract’s
language to so limit the indemnification provision. We note also, as Contractor argues,
the employees have no reason to allege Employer was liable, as they cannot recover
damages from Employer. (DaFonte, supra, 2 Cal.4th at p. 598.) Indeed, the employees
have reason not to make such allegations, because their damages from Contractor may be
reduced by workers’ compensation benefits attributable to Employer’s fault. (Id. at p.
7
Contrary to Employer’s characterizations of these cases, the relevant discussions
involved only the duty to defend, not the duty to indemnify. Indeed, in both cases the
court found the indemnitor owed a duty to defend, despite not owing a duty to indemnify.
(Crawford, supra, 44 Cal.4th at p. 547; UDC, supra, 181 Cal.App.4th at pp. 21–22.) An
additional case relied on by Employer similarly involved the duty to defend. (Mel
Clayton Ford, supra, 104 Cal.App.4th at p. 55.)
8
599.) While the allegations may be relevant to Employer’s duty to defend, they do not
govern Employer’s duty to indemnify.8
Finally, we reject the additional arguments Employer raised below. (Coppinger v.
Rawlins (2015) 239 Cal.App.4th 608, 612 [“The judgment must be affirmed if it is
correct on any ground stated in the demurrer, regardless of the trial court’s stated
reasons.”].) Employer argued the contract was made with Nibbi Concrete only, but
Contractor’s complaint alleges that each defendant “was the agent, servant and/or
employee” of each of the other defendants. We assume this allegation to be true.
(Committee for Green Foothills, supra, 48 Cal.4th at p. 42.) Principals may be liable for
contracts executed by agents, even where the principal is not disclosed in the contract. (3
Witkin, Summary of Cal. Law (10th ed. 2005) Agency and Employment, § 158 [“If the
principal is undisclosed, i.e., if an agent acting for his principal makes a contract in his or
her own name either orally or in writing, the result will ordinarily be that either the
principal or the agent may be held liable on it by the third party. [Citations.] [¶] . . . And
if the contract is in writing, parol evidence is admissible to prove that the undisclosed
principal is in fact the party for whom the contract was made.”].) Employer’s demurrer
raised no argument disputing liability based on agency principles and Employer has not
pursued this argument on appeal. As for Employer’s argument on the declaratory relief
claim, the Employee Lawsuits have settled and there is no longer any argument that they
provide an adequate forum for Contractor to determine Employer’s indemnification
obligations.
Because we conclude Employer’s demurrer does not establish Contractor failed to
state a claim, we reverse and remand for further proceedings.
8
Because we conclude Contractor’s complaint states a claim based on the Contract’s
primary indemnity provision, we need not decide Employer’s argument that Contractor
fails to state a claim based on the Contract’s additional indemnity provisions, which
apply in certain circumstances. (See ante, fn. 2.)
9
DISPOSITION
The judgment is reversed with directions to the superior court to vacate its order
sustaining the demurrer without leave to amend and to enter a new order overruling the
demurrer. Appellant shall recover its costs on appeal.
SIMONS, Acting P.J.
We concur.
NEEDHAM, J.
BRUINIERS, J.
10
Superior Court of the City and County of San Francisco, No. CGC-14-540636, Hon.
Ernest H. Goldsmith, Judge.
Haight, Brown & Bonesteel, Vangi M. Johnson; Yukevich, Cavanaugh, Steven D.
Smelser; Cantey Hanger, Al Kroemer, for Plaintiff and Appellant.
Wood, Smith, Henning & Berman, Steven R. Disharoon, Gregory P. Arakawa; Fisher &
Kong, Raymond E. Kong, for Defendants and Respondents.
11