General Contractor Who Fails To Prove Subcontractor’s Negligence At Trial Is Liable for Subcontractor’s Attorney’s Fees Despite Indemnity Agreement

» Articles » Construction Articles » Article

July 11, 2005
Author: , Esq.

Baldwin Builders v. Coast Plastering Corporation (2005) 125 Cal.App.4th 1339.

In Baldwin Builders, an Appellate Court affirmed a trial court ruling that the general contractor owed attorney’s fees and costs to a subcontractor where it was unable to prove subcontractor negligence. Although the subcontractor had an indemnity agreement with the general contractor, the Court found that the unilateral attorney fee clause in the indemnity agreement was subject to the reciprocity rules set forth in California Code of Civil Procedure section 1717.

Baldwin Builders was the developer and builder of a 239-unit community in San Marcos. Baldwin subcontracted a portion of the work to Coast Plastering Corporation and T&M Framing. The subcontractors entered into indemnity agreements which stated in relevant part “The undersigned subcontractor hereby agrees to indemnify [Baldwin]… against any claim, loss, damage, expense or liability arising out of subcontract… unless due to Baldwin’s negligence…. Subcontractor shall, on request of [Baldwin]…but at subcontractor’s own expense defend any suit asserting a claim covered by this indemnity. Subcontractor shall pay all costs including attorney’s fees, incurred and enforcing this indemnity agreement.”

The homeowners association for the development sued Baldwin for construction defects. Baldwin in turn sued the subcontractors including Coast and T&M. The jury found Baldwin negligent but determined that neither Coast nor T&M was negligent.

Despite the existence of the indemnity clause, the Court awarded Coast and T&M all of their attorney’s fees.

Baldwin appealed arguing that the indemnity agreement required Coast and T&M to reimburse it for its attorney’s fees defending itself against the homeowner association lawsuit. Code of Civil Procedure section 1717 provides that a party who successfully defends itself against a unilateral attorney’s fees provision is entitled to reciprocal attorney’s fees. However, there has been a long-standing exception to this rule where attorney’s fees are provided pursuant to an indemnity agreement for fees and costs incurred by the general contractor in defending itself against third party lawsuits.

The trial court found that the indemnity clause between Baldwin and Coast/T&M provided not just for fees incurred in the defense of a third party lawsuit but also for fees incurred in enforcing the indemnity agreement against the subcontractors. As the contract required reimbursement of fees incurred in enforcing the indemnity clause it was subject to CCP section 1717 and the subcontractors were entitled to reciprocal fees.

The Court further found that under the holding of Heppler v. J.M. Peters Co. (1999) 73 Cal.App.4th 1265, a subcontractor would not be liable or have a duty to defend the general contractor pursuant to the terms of an indemnity agreement unless the subcontractor was negligent in performing its work under the subcontract. The only exception is where the subcontract agreement specifically states that the subcontractor owes indemnity irrespective of its negligence. However, an indemnity agreement that merely says the subcontractor is liable for indemnity for damages “arising out of or in connection with the subcontractor’s performance of the work” is insufficient to establish indemnity without proving negligence. Accordingly, the Appellate Court found that Coast and T&M were not required to indemnify Baldwin in the absence of their own fault or negligence. The Court indicated that the bulk of the attorney’s fees would be awarded to the subcontractors. However, it remanded the case for further rulings by the Court on the allocation of attorney’s fees.

In light of this case general contractors should strengthen their indemnity agreements by requiring subcontractor indemnification and recovery of fees and costs irrespective of subcontractor negligence or the general contractor’s negligence. Defense counsel should also carefully review the scope of the indemnity and fee and cost reimbursement agreements before suing subcontractors where evidence of subcontractor negligence is weak.

More Construction Articles

The material appearing in this web site is for informational purposes only and is not legal advice. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship. The information provided herein is intended only as general information which may or may not reflect the most current developments. Although these materials may be prepared by professionals, they should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.

The opinions or viewpoints expressed herein do not necessarily reflect those of Lorman Education Services. All materials and content were prepared by persons and/or entities other than Lorman Education Services, and said other persons and/or entities are solely responsible for their content.

Any links to other web sites are not intended to be referrals or endorsements of these sites. The links provided are maintained by the respective organizations, and they are solely responsible for the content of their own sites.