Mt Builders v. Fisher Roofing

• Decision Date: 13 November 2008
• Docket Number: No. 1 CA-CV 07-0590.,1 CA-CV 07-0590.
• Citation: 197 P.3d 758,219 Ariz. 297
• Parties: MT BUILDERS, L.L.C., Third Party Plaintiff/Appellee, v. FISHER ROOFING INC., Third Party Defendant/Appellant.
• Court: Arizona Court of Appeals

197 P.3d 758

219 Ariz. 297

MT BUILDERS, L.L.C., Third Party Plaintiff/Appellee, v. FISHER ROOFING INC., Third Party Defendant/Appellant.

No. 1 CA-CV 07-0590.

Court of Appeals of Arizona, Division 1, Department E.

November 13, 2008.

Lee Hernandez Kelsey Brooks Garofalo & Blake, PC By Lee P. Blake, Litchfield Park, and Wood Smith Henning & Berman, LLP By Brenda Radmacher, Phoenix, Co-Counsel for Third Party Plaintiff/Appellee.

Schneider & Onofry, PC By Charles D. Onofry, Elda E. Orduno, Luane Rosen, Phoenix, and Struckmeyer & Wilson By Donald R. Wilson, Phoenix, Co-Counsel for Third Party Defendant/Appellant.

OPINION

NORRIS, Judge.

¶ 1 This appeal arises out of a construction defect lawsuit filed by a condominium association against a general contractor, Appellee MT Builders, L.L.C., and others. In response to the association's claims against it, MT Builders sought indemnity from its subcontractors, including Appellant Fisher Roofing Inc., under what is known as a "narrow form" indemnity provision that restricted indemnity "to the extent" of the subcontractor's negligence. After MT Builders settled the association's claims against it, MT Builders eventually obtained summary judgment on its indemnity claim against Fisher.

¶ 2 On appeal, Fisher challenges the superior court's construction and application of the indemnity provision and argues the court should not have granted summary judgment against it because the facts regarding its own negligence and the reasonableness of MT Builders' settlement with the association were in dispute. In part, we agree. Further, we agree with Fisher that it was not barred from contesting these matters because it failed to accept MT Builders' tender of defense. Accordingly, we affirm in part, reverse in part, and remand for further proceedings consistent with this opinion.

FACTS AND PROCEDURAL HISTORY

¶ 3 In January 2001, MV Condominium Association, Inc. ("Association") filed a construction defect lawsuit against various entities involved in the development, sale and construction of a condominium project, including the project's general contractor, MT Builders, and its roofing subcontractor, Fisher. The Association claimed MT Builders, Fisher and other defendant subcontractors had breached implied warranties of workmanlike performance, fitness and habitability. MT Builders, Fisher and the other defendant subcontractors denied the Association's claims.

¶ 4 Subsequently, seeking indemnity and asserting breach of a duty to defend, MT Builders filed a cross-complaint against Fisher and the other defendant subcontractors and a third-party complaint against other subcontractors not initially sued by the Association. MT Builders rested its claims against all of the subcontractors on an indemnity provision contained in the standard subcontract agreement it had used with all of the subcontractors. This provision provided as follows:

20. To the fullest extent permitted by law, the Subcontractor shall indemnify and hold harmless the Owner, Architect and the Builder and all their agents and employees from and against all claims, damages, losses and expenses, including but not limited to attorney's fees and court costs, arising out of or resulting from the performance or non performance [sic] of the Subcontractor's Work under this Subcontract, provided that any such claims, damage, loss or expense is attributable to bodily injury, sickness, disease, or death, or to injury to or destruction of tangible property including the loss of use resulting therefrom, to the extent caused in whole or in part by any negligent act or omission of the Subcontractor or anyone directly or indirectly employed by him or anyone for whose acts he may be liable, regardless of whether it is caused in part by a party indemnified thereunto. Such obligations shall not be construed to negate, or abridge, or otherwise reduce any other right or obligations of indemnity which would otherwise exist as to any party or person described in this paragraph.

¶ 5 In late 2002, MT Builders, along with several others, entered into a settlement agreement with the Association ("the settlement"). In exchange for $1,750,000 ("settlement sum") from MT Builders, the Association released its claims against MT Builders. The Association also assigned to MT Builders its direct claims against several of the defendant subcontractors, including Fisher. Fisher was not a party to MT Builders' settlement agreement with the Association.

¶ 6 After protracted and extensive briefing, see infra ¶¶ 39-48, the superior court subsequently entered summary judgment for MT Builders on its indemnity claim against Fisher. The judgment awarded MT Builders $240,523 in indemnity damages and $113,685.50 in attorneys' fees and defense costs it had incurred in defending itself against the Association's claims and in seeking indemnity from Fisher.

¶ 7 Fisher timely appealed. We have jurisdiction pursuant to Article 6, Section 9, of the Arizona Constitution and Arizona Revised Statutes ("A.R.S.") sections 12-120.21(A)(1) and -2101(B) (2003).

DISCUSSION

I. Validity of the Indemnity Claim

¶ 8 As an initial matter, Fisher argues, as it did in the superior court, that MT Builders did not have a valid indemnity claim because MT Builders' settlement with the Association failed to discharge any claims the Association had against Fisher. Fisher further argues the Association's assignment of its direct claims against Fisher to MT Builders means these claims were never extinguished and, thus, MT Builders never suffered any loss on those claims.

¶ 9 Fisher's argument is not well taken; it rests on a fundamental misunderstanding of its obligations under the indemnity provision at issue in this case and what those obligations mean.

¶ 10 Whether MT Builders had a valid indemnity claim requires us to interpret the indemnity provision and thus presents a question of law we review de novo. Thomas v. Liberty Mut. Ins. Co., 173 Ariz. 322, 324, 842 P.2d 1335, 1337 (App.1992). When, as here, there is an express indemnity agreement between parties, the extent of the duty to indemnify must be determined from that agreement. INA Ins. Co. of N. Am. v. Valley Forge Ins. Co., 150 Ariz. 248, 252, 722 P.2d 975, 979 (App.1986). And, when, as here, parties bind themselves "by a lawful contract the terms of which are clear and unambiguous, a court must give effect to the contract as written." Grubb & Ellis Mgmt. Servs., Inc. v. 407417 B.C., LLC, 213 Ariz. 83, 86, ¶ 12, 138 P.3d 1210, 1213 (App.2006). But, as with all contracts, if the meaning of an indemnity provision remains uncertain after consideration of the parties' intentions, as reflected by their language in view of surrounding circumstances, a secondary rule of construction requires the provision to be construed against the drafter. First Am. Title Ins. Co. v. Action Acquisitions, LLC, 218 Ariz. 394, 397, ¶ 8, 187 P.3d 1107, 1110 (2008); Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 158 n. 9, 854 P.2d 1134, 1144 n. 9 (1993); Allison Steel Mfg. Co. v. Superior Court, 22 Ariz.App. 76, 80, 523 P.2d 803, 807 (1974) (court "inclined" to construe indemnity provision against general contractor because it occupied better bargaining position and drafted the agreement).

¶ 11 "A contractual right of indemnity may accrue upon the happening of one or both of two events. Indemnification against liability applies once liability for a cause of action is established; the indemnitee is not required to make actual payment." INA, 150 Ariz. at 253, 722 P.2d at 980. In contrast, indemnification against loss or damages applies "when the indemnitee has actually paid the obligation for which he was found liable." Id. An agreement may provide for both types of indemnification.

¶ 12 The indemnification provision at issue here obligated Fisher to "indemnify and hold harmless" MT Builders "from and against all claims, damages, losses and expenses" under certain specified conditions. This wording constitutes an agreement to indemnify for loss. Cf. Skousen v. W.C. Olsen Inv. Co., 149 Ariz. 251, 253, 717 P.2d 930, 932 (App.1986) (contracts requiring party to save or hold other party harmless "have been interpreted to protect against only actual loss or damage"). The indemnification provision did not limit or restrict losses to losses incurred through entry of a judgment. Indemnification against a loss encompasses a loss incurred through a settlement as long as the loss is covered by the indemnity agreement. S. Ry. Co. v. Georgia Kraft Co., 823 F.2d 478, 480-81 (11th Cir.1987); Kaydon Acquisition Corp. v. Custom Mfg., Inc., 301 F.Supp.2d 945, 959 (N.D.Iowa 2004) (citing cases); Peerless Landfill Co. v. Haleyville Solid Waste Disposal Auth., 941 So.2d 312, 317 (Ala.Civ.App.2006); Maurice T. Brunner, Annotation, Liability of Subcontractor Upon Bond or Other Agreement Indemnifying General Contractor Against Liability for Damage to Person or Property § 9, 68 A.L.R.3d 7, 61-63 (1976).

¶ 13 The record reflects the Association's claims against MT Builders relating to Fisher rested on alleged defects and negligent workmanship growing out of Fisher's work under the subcontract ("Fisher-based claims").¹ MT Builders paid the Association the settlement sum to settle the Fisher-based claims because it was potentially liable for Fisher's allegedly defective work. In so doing, it incurred a loss. This loss did not become a "non-loss" because the Association assigned its direct claims against Fisher to MT Builders. Nothing in the indemnity provision conditioned MT Builder's indemnification rights on obtaining a discharge for Fisher of Fisher's potential liability to the Association.² As a matter of law, MT Builders had a valid indemnity claim against Fisher, and the Association's assignment of its direct claims against Fisher to MT Builders did not change that.

II. Fault, the Duty to Defend, Preclusion and Reasonableness

A. Fault

¶ 14 Fisher next...