Morrison Law Journal


The Morrison Law Journal July 2021 Volume XVI, Edition 7 A Win for Subcontractors in Developer Construction Defect Subrogation Cases: Court of Appeal Rules That Subcontractors Have A Right To Jury Trial By: Edward F. Morrison, Jr., Esq. Larry A. Schwartz, Esq.
As we previously reported, a California Court of Appeal ruled last month in Pulte Home Corp. v. CBR Electric, Inc. (2020) 50 Cal.App.5th 216 ("CBR Electric") that construction subcontractors, in the context of a construction defect subrogation claim arising from a contractual indemnity dispute with a developer based upon a construction defect lawsuit, were not entitled to a jury trial. Since then, another Court of Appeal has ruled otherwise. In Berg v. Pulte Home Corporation (2021) Westlaw 3240294 ("Berg"), a Court of Appeal ruled that a right to jury trial does indeed exist. In Berg, just as with CBR Electric, St. Paul Mercury Insurance Company ("St. Paul") defended Pulte Home Corporation ("Pulte") as an additional insured under a general liability policy issued to St. Paul's named insured and one of Pulte's subcontractors, Groundbreakers Landscaping, Inc. St. Paul later sued three of Pulte's subcontractors -- Vaca Valley Roofing, Inc., Norman Masonry, Inc., and Colorific Painting, Inc. (collectively defendants) -- for equitable subrogation through a complaint in intervention in the Berg litigation. In essence, St. Paul sought to pursue Pulte's breach of contract claims against the subcontractor defendants for their failure to defend Pulte in the Berg case. Standing in Pulte's shoes, St. Paul asserted the subcontractor defendants were jointly and severally liable for the reimbursement of the money it expended in defending Pulte, which totaled $193,137.68. The resolution of the subrogation claims against the Berg defendants proceeded in three phases: i) the Trial Court conducted a bench trial to determine whether St. Paul was entitled to equitable subrogation (it found St. Paul had proven the eight elements necessary to entitle it to relief); ii) a second phase consisted of a jury trial regarding the amount of St. Paul's recoverable damages (the jury returned a verdict in favor of St. Paul, but only awarded a small amount of damages); and iii) the Trial Court reduced damages awarded by the jury to account for setoffs and/or credits for prior settlements. St. Paul was awarded $4,217.82 against Vaca Valley Roofing, $2,100.11 against Norman Masonry, and $3,121.02 against Colorific Painting (about 5% of the damages sought by St. Paul). 1 St. Paul appealed. St. Paul argued the Trial Court erred in granting the Request for Jury Trial by the Berg defendants, the Trial Court erred by failing to instruct the jury that the Berg defendants were jointly and separately liable for mixed offenses (i.e., attorney's fees and costs incurred in defense in the entire Berg litigation), that the Trial Court erred in denying St. Paul's Motion for Prejudgment Interest, and the Trial Court erred in denying St. Paul's request for attorney's fees. As relevant to this article, the Court in Berg acknowledged the opinion in CBR Electric, but concluded that the Court in CBR Electric had erred, and ruled that the Berg defendants had a right to a jury trial involving the legal claims pursued against them by an insurer (St. Paul in this case) standing in the shoes of Pulte, after the insurer's equitable subrogation entitlement had been adjudicated by a Court sitting in equity. Insofar as the ruling involving a right to a jury trial, this is significant. There are now conflicting opinions as to whether there is a right to a jury trial in the context of an equitable subrogation claim against a subcontractor. If the opinion in Berg holds the day, this type of litigation will require three phases of trial and the expenditure of significant sums for legal fees by the insurer seeking reimbursement. A great deal of money is involved, and it is expected that the California Supreme Court may decide to weigh in on this issue. 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. Publication Note: The Morrison Law Group wishes to disseminate this publication to all clients and colleagues of the Firm who wish to receive it. Should any recipient desire to be removed from the distribution list, or wishes to have a colleague added, please contact Jim Van Dusen at The Morrison Law Group at 213 356-5504. Disclaimer Note: The legal article presented above is intended to provide general information which may be of interest or use to clients and colleagues of The Morrison Law Group and should not be construed as legal advice on any matter. 2

As we previously reported, a California Court of Appeal ruled last month in Pulte Home Corp. v. CBR Electric, Inc. (2020) 50 Cal.App.5th 216 ("CBR Electric") that construction subcontractors, in the context of a construction defect subrogation claim arising from a contractual indemnity dispute with a developer based upon a construction defect lawsuit, were not entitled to a jury trial. Since then, another Court of Appeal has ruled otherwise.

In Berg v. Pulte Home Corporation (2021) Westlaw 3240294 ("Berg"), a Court of Appeal ruled that a right to jury trial does indeed exist. In Berg, just as with CBR Electric, St. Paul Mercury Insurance Company ("St. Paul") defended Pulte Home Corporation ("Pulte") as an additional insured under a general liability policy issued to St. Paul's named insured and one of Pulte's subcontractors, Groundbreakers Landscaping, Inc. St. Paul later sued three of Pulte's subcontractors -- Vaca Valley Roofing, Inc., Norman Masonry, Inc., and Colorific Painting, Inc. (collectively defendants) -- for equitable subrogation through a complaint in intervention in the Berg litigation. In essence, St. Paul sought to pursue Pulte's breach of contract claims against the subcontractor defendants for their failure to defend Pulte in the Berg case. Standing in Pulte's shoes, St. Paul asserted the subcontractor defendants were jointly and severally liable for the reimbursement of the money it expended in defending Pulte, which totaled $193,137.68.

The resolution of the subrogation claims against the Berg defendants proceeded in three phases:

i) the Trial Court conducted a bench trial to determine whether St. Paul was entitled to equitable subrogation (it found St. Paul had proven the eight elements necessary to entitle it to relief);

ii) a second phase consisted of a jury trial regarding the amount of St. Paul's recoverable damages (the jury returned a verdict in favor of St. Paul, but only awarded a small amount of damages); and

iii) the Trial Court reduced damages awarded by the jury to account for setoffs and/or credits for prior settlements. St. Paul was awarded $4,217.82 against Vaca Valley Roofing, $2,100.11 against Norman Masonry, and $3,121.02 against Colorific Painting (about 5% of the damages sought by St. Paul).

1

St. Paul appealed. St. Paul argued the Trial Court erred in granting the Request for Jury Trial by the Berg defendants, the Trial Court erred by failing to instruct the jury that the Berg defendants were jointly and separately liable for mixed offenses (i.e., attorney's fees and costs incurred in defense in the entire Berg litigation), that the Trial Court erred in denying St. Paul's Motion for Prejudgment Interest, and the Trial Court erred in denying St. Paul's request for attorney's fees.

As relevant to this article, the Court in Berg acknowledged the opinion in CBR Electric, but concluded that the Court in CBR Electric had erred, and ruled that the Berg defendants had a right to a jury trial involving the legal claims pursued against them by an insurer (St. Paul in this case) standing in the shoes of Pulte, after the insurer's equitable subrogation entitlement had been adjudicated by a Court sitting in equity.

Insofar as the ruling involving a right to a jury trial, this is significant. There are now conflicting opinions as to whether there is a right to a jury trial in the context of an equitable subrogation claim against a subcontractor. If the opinion in Berg holds the day, this type of litigation will require three phases of trial and the expenditure of significant sums for legal fees by the insurer seeking reimbursement. A great deal of money is involved, and it is expected that the California Supreme Court may decide to weigh in on this issue.

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.

Publication Note: The Morrison Law Group wishes to disseminate this publication to all clients and colleagues of the Firm who wish to receive it. Should any recipient desire to be removed from the distribution list, or wishes to have a colleague added, please contact Jim Van Dusen at The Morrison Law Group at 213 356-5504.

Disclaimer Note: The legal article presented above is intended to provide general information which may be of interest or use to clients and colleagues of The Morrison Law Group and should not be construed as legal advice on any matter.

The Morrison Law Journal July 2021 Volume XVI, Edition 7 A Win for Subcontractors in Developer Construction Defect Subrogation Cases: Court of Appeal Rules That Subcontractors Have A Right To Jury Trial By: Edward F. Morrison, Jr., Esq. Larry A. Schwartz, Esq.

The Morrison Law Journal
July 2021
Volume XVI, Edition 7

A Win for Subcontractors in Developer Construction Defect Subrogation Cases:
Court of Appeal Rules That Subcontractors Have A Right To Jury Trial

By: Edward F. Morrison, Jr., Esq.
Larry A. Schwartz, Esq.