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M.T. Builders, L.L.C. v. Fisher Roofing Inc. - 11/13/2008

Arizona Court of Appeals Division One Holds That “Narrow Form” Indemnity Provision That Limits Indemnity Obligation to the Extent of Indemnitor’s Fault Does Not Create Any Up-Front Duty to Defend Suit Against Indemnitee.

A condominium association (“Plaintiff”) sued a general contractor (“Builder”) for alleged construction defects.  Builder filed a cross-complaint and a third-party complaint against a subcontractor (“Subcontractor”) and others for indemnity and for alleged breach of a duty to defend Builder.  An indemnity provision in Builder’s contract with Subcontractor obligated Subcontractor to indemnify and hold harmless the Builder against all claims, damages, losses and expenses “to the extent caused in whole or in part by any negligent act or omission of the Subcontractor” or of persons employed by the Subcontractor.  After settling with Plaintiff, Builder obtained summary judgment for its indemnity claim against Subcontractor.  The trial court awarded to Builder the Subcontractor’s allocated share of indemnity damages, attorneys’ fees and defense costs.  Subcontractor appealed.

The Court of Appeals held that the trial court erred by granting summary judgment to Builder in the face of disputed facts regarding the extent that Subcontractor’s fault caused Builder’s damages, and without a determination that the relevant portions of Builder’s settlement with Plaintiff were reasonable and prudent.

The Court rejected Subcontractor’s threshold arguments that the settlement between Plaintiff and Builder had eliminated Builder’s indemnity claim by failing to discharge the Plaintiff’s claims against Subcontractor.  Nor was Builder’s indemnity claim defeated by Plaintiff’s assignment to Builder of its claims against Subcontractor. 

The Court agreed with Subcontractor, however, that the indemnity clause of the contract between Builder and Subcontractor provided for indemnification only to the extent that Builder’s damages and expenses were caused by Subcontractor’s negligence – an issue that was never decided.  Subcontractor’s refusal to accept Builder’s tender of defense did not preclude Subcontractor from disputing the extent of its indemnity liability, because Subcontractor’s limited indemnity obligation did not create any up-front duty to defend Builder.  Because the contract’s “narrow form” indemnity provision limited Subcontractor’s indemnity obligation to the extent of Subcontractor’s fault, the provision imposed no duty to defend Builder prior to a determination of Subcontractor’s fault.

Finally, the trial court erred by entering summary judgment against Subcontractor without determining whether the portion of the Plaintiff/Builder settlement attributable to Subcontractor’s fault was reasonable and prudent under the circumstances.  The Court therefore reversed and remanded to the trial court for further proceedings.

Judge Norris authored the opinion; Judges Kessler and Gemmill concurred.

Posted On: 11/18/2008