As many are aware, pursuant to Senate Bill 474, California Civil Code § 2782.05 was enacted to address what many subcontractors in construction litigation matters perceived to be overreaching by general contractors and developers with respect to indemnity claims. In that regard, Civil Code § 2782.05 provides in part as follows:
"(a) Except as provided in subdivision (b), provisions, clauses, covenants, and agreements contained in . . . any construction contract . . . entered into on or after January 1, 2013, that purport to insure or indemnify, including the cost to defend, a general contractor, construction manager, or other subcontractor, by a subcontractor against liability for claims of death or bodily injury to persons, injury to property, or any other loss, damage, or expense are void and unenforceable to the extent the claims arise out of, pertain to, or relate to the active negligence or willful misconduct of that general contractor, construction manager, or other subcontractor, or their other agents . . ."
Many practitioners have taken the position that the existence of active negligence on the part of the indemnitee should bar an express indemnity claim in its entirety. That position was advocated successfully at the trial court level in Oltmans Construction Co. v. Bayside Interiors, Inc. (2017) WL 1179391 ("Oltmans Case"), but was then rejected by the Court of Appeal.
The facts of the Oltmans Case, a construction site personal injury accident case, are certainly familiar. In that matter, Oltmans Construction Co. ("Oltmans") was hired to act as the prime contractor for a construction project in Menlo Park, California. Oltmans retained Bayside Interiors, Inc. ("Bayside") as a subcontractor. Bayside in turn hired O'Donnell Plastering, Inc. ("O'Donnell") as a second tier subcontractor. The subcontract between Oltmans and Bayside provided in pertinent part:
"Bayside] shall, to the fullest extent permitted by law, indemnify, defend, protect and hold harmless [Oltmans] ... from and against each and all of the following: [¶] (a) Any claims ... arising out of (i) the scope of the work of [Bayside], or (ii) breach of the obligations of [Bayside]
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arising from the scope of work under this subcontract ..., or (iv) any other act or omission arising out of the work of [Bayside or its] sub-subcontractors ... resulting in or alleged to have resulted in ... bodily injury.... The indemnification and defense required by this Paragraph 11(a) shall apply in all described matters herein except to the extent the claims arise out of, pertain to, or relate to the active negligence or willful misconduct of the contractor parties ..., or to the extent such obligation is inconsistent with the provisions of California Civil Code 2782.05.”
During the course of the construction of the project in Menlo Park, an employee of O'Donnell, Gerardo Escobar, fell through an opening for a skylight (without fall protection) sustaining various injuries. Escobar filed suit against Oltmans (and the owner of the property) alleging that Oltmans negligently cut and left unsecured the skylight opening in the roof of the building under construction. Oltmans filed a cross-complaint against Bayside and O'Donnell setting forth various causes of action including express contractual indemnity. Bayside then moved for summary judgement as to the Oltmans' cross-complaint arguing, among other things, that the undisputed facts established that an Oltmans' employee was actively negligent in failing to secure the skylight curb to the roof and that the active negligence of the Oltmans' employee precluded Oltmans from obtaining any defense or indemnity under the terms of the indemnity provision. Oltmans opposed the Motion arguing that there was a material dispute of fact as to its alleged negligence and that, even if it was actively negligent, it was entitled to be indemnified for the portion of the liability incurred as a result off the negligence of others, and specifically the negligence of Escobar or O'Donnell.
Finding that there was active negligence on the part of Oltmans, and based on its interpretation of Civil Code § 2782.05, the trial court granted summary judgment in favor of Bayside. The trial court rejected Oltmans' argument that, even if actively negligent, it was entitled to indemnification for any portion of fault that may be apportioned to O'Donnell and others. In that regard, the trial court ruled that the parties' subcontract was a general indemnity agreement and that the actively negligent indemnitee (in this case Oltmans) could not recover even where other parties were contributorily negligent citing to McCrary Construction Co. v. Metal Deck Specialists, Inc. (2005) 133 Cal.App.4th 1528, 1541. Oltmans timely appealed.
On appeal, the First District Court of Appeal reversed, holding that the parties intended to limit the indemnitee's right to indemnification for liability arising out of the scope of the indemnitor's work only “to the extent” the claims arose out of Oltmans' active negligence or willful misconduct. The Court noted, that had the parties intended to prohibit Oltmans from obtaining any indemnification if it was actively negligent, that prohibition could have been "stated simply and straightforwardly". The Court went on to hold that the provision at issue limited the right to indemnification only “to the extent” of Oltmans' active negligence. As for Civil Code § 2782.05, the Court noted that the purpose of this statute (as well as an amendment enacted in 2011) was to apportion liability on an equitable basis in proportion to the fault of the various parties, and not to
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bar, in toto, indemnity claims where the indemnitor is actively negligent. The Court also rejected the assertion by Bayside that the subject agreement was a general indemnity agreement.
The Oltmans Case is disappointing for subcontractors who had hoped to bar express contractual indemnity claims where the indemnitee is actively negligent (and not solely the cause of the injury). Pending any further Appellate Court action, however, the Oltmans Case will stand for the proposition that new Civil Code § 2782.05 will not bar an indemnity claim, in its entirety, if there is active negligence, but would instead limit the scope of the indemnity claim.
About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at www.morrisonlawgroup.com.
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