Steven M. Cvitanovic and Omar Parra | Haight Brown & Bonesteel LLP | April 5, 2017
In California, it is well-established that the extent of a party’s obligation under an indemnity agreement is an issue of contractual interpretation, and it is therefore the intent of the parties that should control. What is the parties’ intent, then, when a subcontractor (indemnitor) agrees to indemnify the general contractor (indemnitee) “except to the extent the claims arise out of the general contractor’s active negligence or willful misconduct”? Does this mean the general contractor is barred entirely from recovering any indemnity if its active negligence contributed to the injury? Not according to the First Appellate District of the California Court of Appeal, which recently held that an actively negligent general contractor may still recover indemnity for the portion of liability attributable to the fault of others. Oltmans Construction Co. v. Bayside Interiors, Inc., No. A147313, 2017 WL 1179391, at *1 (Cal. Ct. App. Mar. 30, 2017).
In Oltmans Construction, an employee of O’Donnell Plastering, Inc. (“O’Donnell”), a sub-subcontractor of Bayside Interiors, Inc. (“Bayside”), which was a subcontractor to Oltmans Construction Company (“Oltmans”), sustained injuries when he fell through a skylight opening in the roof of a building under construction. The employee filed suit against Bayside, Oltmans, and the building’s owner, arguing Oltmans negligently cut and left unsecured the skylight opening. Oltmans subsequently filed a Cross-Complaint against Bayside and O’Donnell, contending it was entitled to indemnification under the governing agreements.
Bayside moved for summary judgment against Oltmans. In support, Bayside relied on the indemnity provision in its contract with Oltmans, which stated in relevant 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] 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.” (Emphasis added.)
Bayside argued that Oltmans was actively negligent by leaving uncovered a partially cut skylight on the roof for several days, and, consequently, Bayside’s duty to indemnify and hold Oltmans harmless is precluded by Oltmans’ own active negligence. The trial court agreed.
On appeal, the First Appellate District questioned whether there was sufficient evidence before the trial court to support a finding that Oltmans was actively negligent. It chose not to resolve that issue, however, concluding instead there was a “more fundamental error in the premise on which the summary judgment was granted.” Specifically, the First Appellate District held the trial court misinterpreted the indemnity provision at issue since it was “unmistakably clear” that “the provision limits the right to indemnification only ‘to the extent’ of Oltmans’ active negligence, and no more.” In doing so, the Court was guided by the cardinal rule of contractual interpretation: what did the parties intend? Under this guidance, the Court found that “[h]ad the parties intended to prohibit Oltmans from obtaining any indemnification if it was actively negligent, that prohibition could have been stated simply and straightforwardly.”
While Oltmans concerned an indemnity provision, its implication is broader: when entering into agreements, make sure the language is simple and straightforward. As Bayside learned, it may not be in your best interest to allow a court to interpret what you meant.