Crawford v. Weather Shield Mfg. Inc.

• Decision Date: 21 July 2008
• Docket Number: No. S141541.,S141541.
• Citation: 187 P.3d 424,44 Cal.4th 541,79 Cal.Rptr.3d 721
• Court: California Supreme Court
• Parties: Kirk CRAWFORD et al., Plaintiffs and Appellants, v. WEATHER SHIELD MFG. INC., Defendant and Appellant.

187 P.3d 424

79 Cal.Rptr.3d 721

44 Cal.4th 541

Kirk CRAWFORD et al., Plaintiffs and Appellants, v. WEATHER SHIELD MFG. INC., Defendant and Appellant.

No. S141541.

Supreme Court of California.

July 21, 2008.

Sedgwick, Detert, Moran & Arnold, Christina J. Imre, Stephanie Rae Williams, Orly Degani and Maureen M. Home, Los Angeles, for Defendant and Appellant.

Summers & Shives and Robert V. Closson, San Diego, for California Framing Contractor's Association as Amicus Curiae on behalf of Defendant and Appellant.

Crawford & Bangs, E. Scott Holbrook, Jr., Covina, and Joshua J. Wes, Los Angeles, for American Subcontractors Association as Amicus Curiae on behalf of Defendant and Appellant.

Horvitz & Levy, Lisa Perrochet and John A. Taylor, Jr., Encino, for California Professional Association of Specialty Contractors, Pacific Rim Drywall Association and Southern California Contractors Association as Amici Curiae on behalf of Defendant and Appellant.

McAtee • Harmeyer and Jeff G. Harmeyer, San Diego, for Jeld-Wen, inc., as Amicus Curiae on behalf of Defendant and Appellant.

Stephan, Oringher, Richman, Theodora & Miller, Theodora Oringher Miller & Richman, Harry W.R. Chamberlain, Los Angeles, and Robert M. Dato for American Architectural

Manufacturers Association as Amicus Curiae on behalf of Defendant and Appellant.

Anderson & Kriger, Clayton Anderson, La Mesa, Philip Y. Kim, Santa Ana; and Richard H. Benes, San Diego, for Plaintiff and Appellant Kirk Crawford.

Kabateck & Garris, Kabateck Brown Kellner, Brian S. Kabateck, Alfredo Torrijos and Richard L. Kellner, Los Angeles, for Plaintiff and Appellant Parviz Alai.

Cooper, White & Cooper, Kathleen F. Carpenter, Walnut Creek, and Carol J. Stair, San Francisco, for California Building Industry Association as Amicus Curiae on behalf of Plaintiffs and Appellants.

Green & Hall, Brian C. Plante and Samuel M. Danskin, Santa Ana, for Capital Pacific Holdings, Inc., as Amicus Curiae on behalf of Plaintiffs and Appellants.

Newmeyer & Dillion, Thomas F. Newmeyer, Jay B. Freedman and Michael B. McClellan, Newport Beach, for Standard Pacific Corp., KB Home, The Irvine Company, Alexander Communities, Inc., Taylor Woodrow Homes, Inc., and William Lyon Homes, Inc., as Amici Curiae on behalf of Plaintiffs and Appellants.

BAXTER, J.

Standard comprehensive liability insurance policies provide that the insurer must both indemnify and defend the insured against claims within the scope of the policy coverage. The insurer's duty to defend is broader than its duty to indemnify. The latter duty runs only to claims that are actually covered by the policy, while the duty to defend extends to claims that are merely potentially covered. (E.g., Buss v. Superior Court (1997) 16 Cal.4th 35, 45-46, 65 Cal. Rptr.2d 366, 939 P.2d 766 (Buss); Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153.) "The [insurer's] defense duty is a continuing one, arising on tender of defense and lasting until the underlying lawsuit is concluded [citation], or until it has been shown that there is no potential for coverage...." (Montrose, supra, at p. 295, 24 Cal.Rptr.2d 467, 861 P.2d 1153.)

Here, however, we address issues concerning the contractual duty to defend in a noninsurance context. We consider whether, by their particular terms, the provisions of a pre-2006 residential construction subcontract obliged the subcontractor to defend its indemnitee — the developer-builder of the project — in lawsuits brought against both parties, insofar as the plaintiffs' complaints alleged construction defects arising from the subcontractor's negligence, even though (1) a jury ultimately found that the subcontractor was not negligent, and (2) the parties have accepted an interpretation of the subcontract that gave the builder no right of indemnity unless the subcontractor was negligent. We conclude that the answer is yes. We will therefore affirm the judgment of the Court of Appeal.

FACTS AND PROCEDURAL BACKGROUND

The basic facts are not in dispute. J.M. Peters Co. (JMP) was the developer, builder, and general contractor of a large Huntington Beach residential project. Weather Shield Manufacturing Co., Inc. (Weather Shield), contracted with JMP to manufacture and supply wood-framed windows for the project. In the contract, Weather Shield promised (1) "to indemnify and save [JMP] harmless against all claims for damages ... loss, ... and/or theft ... growing out of the execution of [Weather Shield's] work," and (2) "at [its] own expense to defend any suit or action brought against [JMP] founded upon the claim of such damage[,] ... loss or theft." (Italics added.)

In September and October 1999, 220 owners of 122 finished homes in the project sued JMP, Weather Shield, and other participants in the project's construction. The defendants included Darrow the Framing Corporation (Darrow), the project's principal subcontractor, whose responsibilities included framing the structures and installing the windows. The complaints alleged numerous construction defects, including electrical, plumbing, roofing, chimney, framing, and other structural problems. As relevant here, they also asserted that, because of improper design, manufacture, and installation, windows in the homes, including those supplied by Weather Shield, leaked and fogged, causing extensive damage. Theories of negligence, strict liability, breach of warranty, and breach of contract were set forth.¹

In April 2000, JMP cross-complained against Weather Shield, Darrow, and all the other project subcontractors sued by the homeowners. The cross-complaints asserted, among other things, that under the pertinent subcontract provisions — all of which had been drafted by JMP and were identical on the point — the subcontractors owed JMP duties of indemnity and defense against the homeowners' complaints. The cross-complaints sought declaratory relief with respect to JMP's alleged indemnity and defense rights.²

JMP, and all the subcontractors except Weather Shield and Darrow, settled before trial. The "sliding scale" settlement agreement provided the homeowners a minimum payment of $2.55 million, and guaranteed an additional sum of $1.45 million against any recovery from the nonsettling subcontractors. The settling defendants also agreed to assist the homeowners in prosecuting their claims against the nonsettling parties. JMP and the settling subcontractors mutually released all claims, demands, and liabilities among themselves. All complaints and cross-complaints were dismissed except as to Weather Shield and Darrow.

In July 2002, during final pretrial proceedings, Weather Shield moved to dismiss the homeowners' strict liability causes of action. The motion cited then extant case law holding that a subcontractor hired by a developer — even a subcontractor that supplied a component product rather than a service — could not be strictly liable for defects in mass-produced homes, unless the subcontractor also owned or controlled the housing development. (See, e.g., Casey v. Overhead Door Corp. (1999) 74 Cal.App.4th 112, 119-120, 87 Cal.Rptr.2d 603 (Casey); La Jolla Village Homeowners' Assn. v. Superior Court (1989) 212 Cal.App.3d 1131, 1146, 261 Cal.Rptr. 146 (La Jolla Village).) The court granted the motion, subject to a reevaluation of prejudice in the event of an intervening change in the law.

The window leak and framing issues went to trial against Weather Shield and Darrow on the remaining theories of negligence and breach of warranty. In October 2002, the jury returned general verdicts against Darrow and in favor of Weather Shield. The jury awarded the homeowners approximately $1 million in damages against Darrow. Following the jury verdict, Darrow settled all the complaints against it.

Thereafter, in March 2003, JMP's cross-complaint against Weather Shield was separately tried to the court. JMP sought both (1) express indemnity for amounts paid to the homeowners in settlement, and (2) under the duty-to-defend provisions of Weather Shield's subcontract, attorney fees and expenses incurred by JMP in defending itself against the homeowners' suit.

The trial court ruled that the subcontract's terms obliged Weather Shield to indemnify JMP for amounts paid to the homeowners only if Weather Shield was found negligent. Thus, the court determined, the jury's verdict that Weather Shield was not negligent absolved Weather Shield of indemnity liability in this case. On the other hand, the court concluded, the subcontract did give Weather Shield responsibility for JMP's legal defense against the homeowners' claims, insofar as those claims concerned the windows supplied by Weather Shield, regardless of whether Weather Shield was ultimately found negligent.

JMP presented evidence that it had incurred $375,069 in attorney fees to defend the homeowners' claims, and that 70 percent of the homeowner settlement amount was attributable to the window problems. JMP therefore urged that, under their subcontracts, Weather Shield and Darrow were together liable for 70 percent of JMP's defense fees, or $262,548. The court apportioned this amount equally between Darrow and Weather Shield, and therefore awarded JMP $131,274 in damages against Weather Shield. The court also found Weather Shield contractually liable to JMP, as the prevailing party on JMP's cross-complaint, for $46,734 in attorney fees incurred by JMP to prosecute the cross-action.

Meanwhile, in December 2002, this court held in Jimenez v. Superior Court (2002) 29 Cal.4th 473, 127 Cal.Rptr.2d 614, 58 P.3d 450 (Jimenez) that, contrary to the teaching of such cases as Casey, supra, 74 Cal.App.4th 112, 87 Cal.Rptr.2d 603, and La Jolla Village, supra, 212 Cal.App.3d 1131, 261 Cal.Rptr. 146, the manufacturer or supplier of a component part installed in a mass-produced home may be held strictly liable when a defect in the component causes damage to other parts of the structure. (Jim...