Maryland Casualty Co. v. Bailey & Sons, Inc., D015935

• Decision Date: 01 June 1995
• Docket Number: No. D015935,D015935
• Citation: 35 Cal.App.4th 856,41 Cal.Rptr.2d 519
• Court: California Court of Appeals Court of Appeals
• Parties: MARYLAND CASUALTY COMPANY, Cross-Complainant and Appellant, v. BAILEY & SONS, INC. et al., Cross-Defendants and Respondents.

Page 519

41 Cal.Rptr.2d 519

35 Cal.App.4th 856

MARYLAND CASUALTY COMPANY, Cross-Complainant and Appellant, v. BAILEY & SONS, INC. et al., Cross-Defendants and Respondents.

No. D015935.

Court of Appeal, Fourth District, Division 1, California.

June 1, 1995.

Certified for Partial Publication ¹

Review Denied Sept. 14, 1995.

Bronson, Bronson & McKinnon, Ralph S. LaMontagne, Jr. and Eric A. Amador, Los Angeles, for cross-complainant and appellant.

Greco & Traficante, Paul A. Traficante and Scott A. Johnson, San Diego, Callahan, McCune & Willis, O. Brandt Caudill, Jr. and Christopher J. Zopatti, Tustin, Ault, Deuprey, Jones and Gorman and Alan H. Schonfeld, San Diego, for cross-defendants and respondents.

HALLER, Associate Justice.

This appeal arises from the construction of the Villa Mallorcas condominium project (Project) in the late 1970s. The ensuing construction defect litigation began in 1984 and continued in various forms over the next decade, culminating in this appeal. ² The remaining parties include appellant Maryland Casualty Company (Maryland), the primary liability insurer for the Project's general contractor and owner (referred to as Kelly), and the respondents, three of the subcontractors on the Project: the masonry subcontractor Bailey & Sons, Inc. (Bailey), the framing subcontractor L & H Construction Company (L & H), and the architect Carl McLarand Associates (CMA) (collectively Subcontractors).

This appeal concerns (1) indemnity claims asserted by Maryland, acting as Kelly's assignee, against each of the Subcontractors, seeking to recover $3.5 million paid to the Villa Mallorcas Homeowners Association; (2) breach of contract claims asserted by Maryland, as Kelly's assignee, against Bailey and L & H; and (3) CMA's express indemnity claim asserted against Maryland, as Kelly's assignee, seeking to recover money paid in a settlement to Kelly's excess insurer (Fireman's Fund Insurance Company) plus attorney fees.

The trial court granted the Subcontractors' summary judgment motions as to each of Maryland appeals, asserting numerous contentions. For the reasons explained below, we affirm the judgment insofar as it holds Maryland is barred from bringing claims against L & H and Bailey for equitable indemnity and for breach of contract to maintain liability insurance. We reverse the remaining portions of the summary judgment.

Maryland's claims against them and awarded attorney fees to Bailey and L & H. The court also granted CMA summary judgment on its affirmative indemnity claim against Maryland, awarding CMA $406,004.27.

FACTUAL AND PROCEDURAL BACKGROUND

In 1984, the Villa Mallorcas Homeowners Association (Homeowners) brought a construction defect action against Kelly. Kelly cross-complained against several subcontractors, including CMA, Bailey and L & H. These subcontractors in turn filed cross-complaints against Kelly and against each of the other subcontractors. (Kelly's action against the subcontractors will be referred to as the Subcontractor Action).

In July 1987, the trial court severed the Subcontractor Action from the primary action between Homeowners and Kelly. The court thereafter conducted several settlement conferences, during which Homeowners and Kelly presented expert witness testimony and documents. Pursuant to the conferences, Homeowners and Kelly entered into a stipulation of facts, agreeing to permit the court to render a judgment based on the stipulated facts. ³ The stipulated facts identified numerous defects pertaining to the Project and then set forth damage estimates. In a statement of decision, the court found Kelly to be negligent and strictly liable for the construction defects. In December 1987, the court entered a $6,620,000 judgment in favor of Homeowners (hereafter "Kelly Judgment"). In exchange for Kelly assigning its rights to Homeowners to pursue Kelly's insurers, Homeowners agreed not to execute on the judgment as against Kelly.

In February 1988, Maryland filed a declaratory relief action against Homeowners, Kelly, and other insurers for Kelly, including one of Kelly's excess insurers, Fireman's Fund Insurance Company ("Fireman's Fund"). Maryland sought a declaration of its obligations and requested reimbursement from the other potentially liable insurers.

In October 1990, Maryland and two of Kelly's excess carriers (Northwestern and Fremont) reached a settlement with Homeowners and Kelly ("Maryland Settlement"). As is relevant here, the agreement provided (1) Maryland agreed to pay Homeowners $3.5 million of the $6.62 million Kelly Judgment; ⁴ (2) Kelly assigned "its position as cross-complainant [in the Subcontractor Action] to Maryland, to pursue [the Subcontractors] as Maryland in its sole and exclusive discretion shall decide"; (3) Homeowners (on behalf of Kelly) released Maryland and covenanted it would not seek any further recovery from Maryland on the Kelly Judgment, but would seek any additional recovery on the Kelly Judgment only from Fireman's Fund; and (4) Kelly released all of its claims against Maryland, including bad faith claims.

Shortly after the trial court confirmed the Maryland Settlement as a good faith settlement, Fireman's Fund settled with Homeowners (on behalf of Kelly), agreeing to pay Homeowners $2,453,000 under its excess liability policy. ⁵

Maryland thereafter filed an amended complaint adding itself as a cross-complainant (as "assignee of Kelly's position") in the Subcontractor Action. ⁶ A settlement conference pertaining to the Subcontractor Action was held on January 17, 1991. Counsel for Maryland, L & H, CMA, and Bailey participated at the conference. Although Fireman's Fund was not a named party, Fireman's Fund's counsel also attended the conference.

The settlement conference began with discussions between Maryland's counsel and counsel for the Subcontractors. When it became clear the parties could not reach agreement, counsel for the Subcontractors asked "if [they] could have discussions with Fireman's Fund Insurance and its counsel...." Maryland's counsel then left. Thereafter, further settlement discussions took place. As a result of these discussions, CMA, L & H and Bailey each conditionally agreed to pay Fireman's Fund $150,000 contingent on a good faith determination.

The Subcontractors moved the court for a good faith determination pursuant to CODE OF CIVIL PROCEDURE SECTION 877.6⁷. Maryland opposed the motion. After substantial briefing and a hearing, the court entered an order finding the settlement to be in good faith and further finding "Maryland ... to be a joint tortfeasor and/or co-obligor." Maryland petitioned for writ of mandate, challenging this ruling. We denied the petition "without prejudice to reviewing the issue on appeal from the judgment."

The trial court thereafter granted Maryland leave to file a third amended cross-complaint. The third amended cross-complaint alleged three types of claims: (1) equitable indemnity claims against each of the Subcontractors; (2) contractual indemnity claims against L & H and Bailey; and (3) breach of contract claims against Bailey and L & H. CMA reasserted its previously filed cross-complaint for express indemnity against Maryland, as Kelly's assignee.

The Subcontractors each moved for summary judgment, contending there were no factual issues and they were entitled to judgment as a matter of law with respect to Maryland's third amended cross-complaint. CMA also filed a summary judgment motion with respect to its cross-complaint against Maryland.

After substantial written briefing and oral argument, the court entered judgment in favor of all three Subcontractors on Maryland's third amended cross-complaint. ⁸ The court also entered judgment in favor of CMA on its cross-complaint, awarding CMA $406,004.27. The court awarded L & H attorney fees of $130,324 and $11,277.96 in costs and awarded Bailey attorney fees of $512,630.07 and $16,010.61 in costs.

Maryland appeals from these rulings.

DISCUSSION

I. Introduction Regarding Indemnity Claims

Indemnity means "the obligation resting on one party to make good a loss or damage another party has incurred." (Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 628, 119 Cal.Rptr. 449, 532 P.2d 97.) An indemnitor is the party who is obligated to pay another. An indemnitee is the party who is entitled to receive the payment from the indemnitor.

An indemnity obligation arises from two general sources. First, it may arise from "express contractual language establishing a duty in one party to save another harmless upon the occurrence of specified circumstances." (E.L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 506 Indemnity may also arise based on equitable considerations. (E.L. White, Inc. v. City of Huntington Beach, supra, 21 Cal.3d at p. 507, 146 Cal.Rptr. 614, 579 P.2d 505.) Unlike contractual indemnity which looks to the parties' intent, equitable indemnification focuses on principles of fairness and justice and "is designed to apportion loss among tortfeasors in proportion to their relative culpability...." (Smoketree-Lake Murray, Ltd. v. Mills Concrete Construction Co. (1991) 234 Cal.App.3d 1724, 1736, 286 Cal.Rptr. 435.) As will be discussed more fully below, where parties have expressly contracted with respect to the duty to indemnify, the extent of that duty is generally determined from the contract and not by reliance on the independent doctrine of equitable indemnity. (Rossmoor Sanitation, Inc. v. Pylon, Inc., supra, 13 Cal.3d at p. 628, 119 Cal.Rptr. 449, 532 P.2d 97.) Regional Steel Corp. v. Superior Court (1994) 25 Cal.App.4th 525, 529, 32 Cal.Rptr.2d 417.)

                146 Cal.Rptr. 614, 579 P.2d 505.)   Courts interpret contractual indemnity provisions under the same rules governing other contracts, with a view to determining the actual intent of the parties.  (Myers Building Industries, Ltd. v. Interface Technology, Inc.  (1993) 13 Cal.App.4th 949, 968-969, 17 Cal.Rptr.2d

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