CSAA Ins. Exch. v. Premier Restoration & Remodel, Inc.

• Decision Date: 23 July 2019
• Docket Number: A155081
• Court: California Court of Appeals Court of Appeals
• Parties: CSAA INSURANCE EXCHANGE, Plaintiff and Respondent, v. PREMIER RESTORATION & REMODEL, INC., Defendant and Appellant.

CSAA INSURANCE EXCHANGE, Plaintiff and Respondent, v. PREMIER RESTORATION & REMODEL, INC., Defendant and Appellant.

A155081

COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION ONE

July 23, 2019

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(San Francisco City & County Super. Ct. No. CGC-15-546518)

Premier Restoration & Remodel, Inc. (Premier) appeals from an order awarding attorney fees to plaintiff CSAA Insurance Exchange (CSAA). CSAA sued Premier for breach of written contract, negligence, and nuisance related to an insurance claim CSAA was required to pay for faulty repair work performed by Premier. The court entered judgment for CSAA, which then moved for attorney fees. The trial court awarded CSAA attorney fees pursuant to an indemnification provision in the parties' contract. Premier contends the indemnification provision in the contract only applies to third party actions and does not constitute a prevailing party attorney fee provision for a direct action between the parties. We agree and reverse the order awarding attorney fees.

I. BACKGROUND

A. Factual Background

Premier entered into a written "Direct Repair Network Agreement" (DRN agreement) with CSAA. The purpose of the DRN agreement was to provide CSAA with prescreened and experienced contractors to repair dwellings insured by CSAA pursuant to certain standards and terms.

Section 3.2 of the DRN agreement set forth an indemnification provision, which stated: "Vendor will indemnify, defend and hold harmless [CSAA], their past and present directors, officers and employees from any and all claims, demands, causes of action, losses, damages, fines, penalties, liability, costs and expenses, including reasonable attorney's fees and court costs, sustained or incurred by or asserted against [CSAA] by reason of or arising out of the act or failure to act of Vendor or the sublet provider. This indemnity will survive the termination of this Agreement and/or any transfer of the ownership of Vendor's business. [CSAA] shall have the sole and exclusive right to select counsel of its own choice to defend it or them pursuant to the terms of this paragraph." The DRN agreement does not contain any other indemnification provisions or any other provisions referencing recovery of attorney fees.

Pursuant to the DRN agreement, CSAA recommended Premier to a customer who experienced a broken water pipe and resulting water damage. The customer subsequently hired Premier and, as part of its repairs, Premier applied a disinfectant to remediate and prevent mold growth. The disinfectant caused an unpleasant odor, and efforts to mitigate the odor were unsuccessful. After a lengthy investigation, CSAA ultimately agreed to demolish and rebuild the customer's house, including its concrete foundation.

B. Procedural History

CSAA filed a lawsuit to recover the money it incurred to resolve the odor problem. The complaint alleged causes of action against Premier for (1) breach of written contract, (2) negligence, and (3) nuisance. CSAA alleged in relevant part that Premier breached the DRN agreement by failing to perform the repairs in a "neat, skillful and workmanlike manner," by using and applying the disinfectant inappropriately, and by failing to guarantee its work. CSAA also alleged Premier breached the DRN agreement by not indemnifying CSAA from its losses and damages incurred as a result of the customer's claim.

The complaint sought reimbursement of expenses incurred in connection with repairs to the residence, the customer's loss of use of the residence, the customer's personal property damage, the investigation of the odor issues, and CSAA's attorney fees and costs.

Following a seven-day bench trial, the court found Premier had violated the DRN agreement because it "did not provide exceptional service[,] has not indemnified and held harmless CSAA for the cost of remediating the malodor problem," failed "to employ qualified and experienced workers," failed "to be in full control of [its] workers and sub-contractors," provided "untrained workers who did not know the proper and safe use of" the disinfectant, and failed "to stand behind its guarantee." The court held CSAA was entitled to recover reasonable attorney fees pursuant to section 3.2 of the DRN agreement.

The court subsequently entered judgment in favor of CSAA on all issues. It awarded damages and prejudgment interest in the amount of $2,003,860.93, plus additional prejudgment interest in the amount of $226,604.60. The judgment also awarded CSAA its costs in an amount to be determined.

Following entry of judgment, CSAA filed a motion for attorney fees based on section 3.2 of the DRN agreement and Civil Code section 1717. Premier opposed the motion, arguing section 3.2 of the DRN agreement was a third party indemnity clause that did not provide for the prevailing party to recover fees in a direct action on the contract. The trial court granted the motion and awarded CSAA $841,980 in attorney fees "based on Section 3.2 of the Direct Repair Network (DRN) agreement between CSAA and Premier." The trial court examined the entirety of the DRN agreement and concluded the parties intended for Premier to indemnify CSAA "for losses incurred in actions between CSAA and Premier on the enforcement of the DRN agreement itself." The court based this holding on the "broad wording" of section 3.2 and the choice of law provision in section 5.19 of the DRN agreement. Premier timely appealed.

II. DISCUSSION

Premier argues the DRN agreement does not authorize CSAA to recover attorney fees it incurred in its action to enforce the DRN agreement. We agree.

A. Standard of Review

"Whether [an indemnitee] is entitled to recover attorney fees incurred in enforcing the indemnity agreement, as opposed to recovering attorney fees incurred in defending the underlying claims, depends on the language of the contract." (Continental Heller Corp. v. Amtech Mechanical Services, Inc. (1997) 53 Cal.App.4th 500, 508 (Continental).) "Indemnity agreements are construed under the same rules that govern the interpretation of other contracts." (Alki Partners, LP v. DB Fund Services, LLC (2016) 4 Cal.App.5th 574, 600 (Alki Partners).) "The basic goal of contract interpretation is to give effect to the parties' mutual intent at the time of contracting. [Citations.] When a contract is reduced to writing, the parties' intention is determined from the writing alone, if possible. [Citation.] 'The words of a contract are to be understood in their ordinary and popular sense.' " (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955; Alki Partners, at p. 600 ["The intention of the parties is to be ascertained from the 'clear and explicit' contract language."].)

"Generally, the inclusion of attorney fees as an item of loss in a third party claim-indemnity provision does not constitute a provision for the award of attorney fees in an action on the contract which is required to trigger [Civil Code] section 1717." (Carr Business Enterprises, Inc. v. City of Chowchilla (2008) 166 Cal.App.4th 14, 20 (Carr Business Enterprises).) A corollary of this rule is attorney fees "are not available in the prosecution of an indemnity action absent clear language in the indemnity agreement stating the parties contemplated an award of fees for enforcing the agreement." (Torres v. City of San Diego (2007) 154 Cal.App.4th 214, 224-225 (Torres); Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 971 (Myers) ["A provision including attorney fees as an item of loss in an indemnity clause is not a provision for attorney fees in an action to enforce the contract"].)

Courts examine both the language of the indemnification provision and the context in which the language appears to assess whether a provision includes an award of attorney fees in an action on the contract. (Alki Partners, supra, 4 Cal.App.5th at pp. 600-601.) Based on this review, courts must assess whether there is any language " 'which reasonably can be interpreted as addressing the issue of an action between the parties on the contract.' " (Id. at p. 601.)

"Interpretation of a written contract is a question of law for the court unless that interpretation depends upon resolving a conflict in properly admitted extrinsic evidence." (Alki Partners, supra, 4 Cal.App.5th at p. 599.) " '[E]xtrinsic evidence cannot be used to vary or contradict the instrument's express terms,' " but may "be admitted to explain the meaning of the contractual language at issue." (Hot Rods, LLC v. Northrop Grumman Systems Corp. (2015) 242 Cal.App.4th 1166, 1175 (Hot Rods).)¹

B. Section 3.2 of the DRN Agreement

We first examine the language of the indemnification provision to determine whether it can reasonably be interpreted as encompassing the attorney fees at issue. The provision states: "Vendor will indemnify, defend and hold harmless [CSAA] . . . from any and all claims, demands, causes of action, losses, damages, fines, penalties, liabilities, costs and expenses, including reasonable attorney's fees and court costs, sustained or incurred by or asserted against [CSAA] by reason of or arising out of the act or failure to act of Vendor or the sublet provider." While the provision references indemnity, that alone does not determine the scope of the provision. " 'Although indemnity generally relates to third party claims, "this general rule does not apply if the parties to a contract use the term 'indemnity' to include direct liability as well as third party liability." ' " (Hot Rods, supra, 242 Cal.App.4th at p. 1179.)

CSAA attempts to draw a...