Absent contrary language in the indemnity clause, the indemnitee under an express indemnity agreement is entitled to be defended by the indemnitor whether or not the indemnitor is ultimately held liable to indemnify the indemnitee against his damages.

The California Supreme Court has just handed down a decision that significantly expands the rights of those who are indemnified under non-insurance contracts.

The indemnity clauses found in most contracts typically obligate the indemnifying party (indemnitor) to indemnify the indemnified party (indemnitee) against any claims for damages arising out of the contract, and also to defend the indemnitee against any suit claiming such damages. But it was long thought that a promise to “defend” does not obligate the indemnitor to immediately defend the indemnitee from the time of the tender, and does not obligate the indemnitor to pay for the indemnitee’s defense at all if the indemnitor is ultimately adjudged not liable to indemnify the indemnitee against the judgment. This view was affirmed in Regan Roofing v. Superior Court (1994) 24 Cal.App.4th 425.

But recently the California Supreme Court disapproved Regan Roofing and held that, absent language to the contrary in the indemnity clause, an indemnitor has an immediate and ongoing duty to defend his indemnitee from the time the defense is tendered, and is responsible for the costs of the indemnitee’s defense whether or not he is ultimately found obligated to indemnify the indemnitee against the judgment or settlement. In other words, the defense obligation in an indemnity clause operates in pretty much the same way it does in a liability policy. Crawford v. Weather Shield Mfg, Inc.

This is good news for general contactors and their carriers, bad news for subcontractors and their carriers. It is bad news for the subs' carriers because the sub’s indemnity obligations are covered under the standard Commercial General Liability policy, and those obligations just got expanded.

Subcontractors, tenants, and other indemnitors can avoid this immediate defense obligation by disavowing it in the indemnity clause, if they can get the general contractor or premises owner to agree. That could be difficult, as most indemnitees have the economic power to insist on the broadest indemnity the law allows, and do.

NO EFFECT ON ADDITIONAL INSUREDS

Many contracts, particularly in construction, require not only that subcontractor indemnify the general contractor, but also that the general be named an additional insured on the sub's liability policy. The sub normally complies by having his liability carrier add the general contractor onto his policy by endorsement as an Additional Insured for losses arising out of the sub’s work. The Crawford decision does not affect the scope of the liability insurer’s defense obligation under an Additional Insured endorsement, because an insurer’s duty to defend an Additional Insured has always been immediate and independent of its obligation to indemnify the Additional Insured against the judgment.

CAVEAT: In order to reap the benefit of the Crawford holding the indemnitee must tender its defense to the indemnitor as soon as the underlying action is served. If the defense is not tendered until the underlying action has been resolved the indemnitee may recoup his defense costs only if the indemnitor is held liable to indemnify him against the underlying judgment. -- mam