Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
Appeals from a judgment of the Superior Court of Orange County Super. Ct. No. 05CC02302, Andrew P. Banks, Judge.
Brydon Hugo & Parker, Edward R. Hugo, James C. Parker and Robert W. Farrell for Plaintiff and Appellant.
Klein & Wilson and Mark B. Wilson for Defendant and Appellant.
OPINION
FYBEL, J.
INTRODUCTION
In 1983, plaintiff Price Pfister, Inc. (Price Pfister), entered into an agreement with NI Industries, Inc., whereby Price Pfister acquired the assets of NI Industries, Inc.’s “Price Pfister Division” which designed, manufactured, and sold plumbing products. The agreement contained an indemnity provision requiring, inter alia, NI Industries, Inc., to indemnify Price Pfister for judgments, settlements, court costs and reasonable attorney fees “arising out of any occurrence whereby a Product manufactured by NI was the proximate cause of death, personal injury and/or property damage.”
Price Pfister sued defendant TriMas Corporation (NI Industries, Inc.’s successor in interest) for breach of contract, express and implied indemnity, unjust enrichment, and declaratory relief. Price Pfister alleged the indemnity obligation under the agreement was triggered after Price Pfister was sued in 11 separate product liability cases, but TriMas refused “to acknowledge its indemnity obligations and reimburse . . . Price Pfister.” Following a bench trial, the trial court denied the breach of contract, express and implied indemnity, and unjust enrichment claims, concluding “[t]here is no evidence that it was established in any of the eleven cases that ‘a Product manufactured by NI was the proximate cause of death, personal injury and/or property damage.’” The trial court entered judgment, which included a declaration of the parties’ rights and duties under the agreement’s indemnity provision.
Our principal holdings are (1) the trial court correctly interpreted the indemnity provision to apply only to products manufactured by NI Industries, Inc., not to products manufactured by its predecessors in interest; (2) the trial court correctly interpreted the indemnity provision to apply only to actual occurrences of harm proximately caused by NI Industries, Inc.’s manufactured products, not to claims of such harm; (3) pursuant to Civil Code section 2778, subdivision 4, as recently interpreted by the California Supreme Court in Crawford v. Weather Shield Mfg. Inc. (2008) 44 Cal.4th 541 (Crawford), TriMas owes Price Pfister a separate duty to defend claims that a product manufactured by NI Industries, Inc., proximately caused death, injury and/or property damages; and (5) the indemnity provision requires a determination of proximate cause before the duty to indemnify is triggered even in the context of a preverdict or prejudgment settlement. Accordingly, we affirm in part, reverse in part, and remand to the trial court for the reasons discussed in detail post.
BACKGROUND
I.
Corporate History of the Price Pfister Business
The parties stipulated to the following facts regarding the corporate history of the Price Pfister business. We explain this corporate history in detail because of its impact on the meaning of the indemnity and defense provisions at issue.
In 1910, Emil Price and William Pfister founded the Price Pfister Company; the company was incorporated in California in 1946 as Price-Pfister Brass Mfg. Co. Price-Pfister Brass Mfg. Co. was acquired in 1969 and became a wholly owned subsidiary of Norris Industries, Inc., a California corporation. In 1979, Price-Pfister Brass Mfg. Co. merged into its parent corporation, Norris Industries, Inc., “which then operated the ‘Price Pfister’ business as an unincorporated division of Norris Industries, Inc.”
Norris Industries, Inc., was originally incorporated in 1940 as Norris Stamping and Manufacturing Co., changed its corporate name to Norris-Thermador Corporation in 1951, and again changed its corporate name in 1966 to Norris Industries, Inc.
On December 8, 1981, Norind Holdings, Inc., acquired Norris Industries, Inc; Norris Industries, Inc., became Norind Holding, Inc.’s wholly owned subsidiary. On December 29, 1981, Norind Holdings, Inc., changed its corporate name to Norris-NI Industries, Inc.
Norind Holdings, Inc., was incorporated in Delaware in July 1981 as Norind Corporation for the purpose of acquiring Norris Industries, Inc. In August 1981, Norind Corporation changed its corporate name to Norind Holdings, Inc.
On October 4, 1982, NI Industries, Inc., was incorporated in Delaware and was operated as a wholly owned subsidiary of Norris-NI Industries, Inc. On December 31, 1982, Norris-NI Industries, Inc., “acquired certain assets and liabilities of its [other] wholly owned subsidiary, Norris Industries, Inc., a California corporation including, but not limited to, the assets and liabilities of the Price Pfister Division of Norris Industries, Inc.”
On January 31, 1983, Norris-NI Industries, Inc., “merged its wholly-owned subsidiary, NI Industries, Inc. into itself and changed its corporate name to NI Industries, Inc.” In May 1983, Price Pfister was incorporated in Delaware as Price Pfister, NI Industries, Inc., and later changed its corporate name to Price Pfister, Inc.
II.
NI INDUSTRIES, INC., AND PRICE PFISTER ENTER STOCK SUBSCRIPTION AGREEMENT AND OPERATING AGREEMENT CONTAINING INDEMNITY PROVISION.
On June 24, 1983, NI Industries, Inc., and Price Pfister entered into an agreement, entitled “Stock Subscription Agreement and Operating Agreement” (the Agreement), through which Price Pfister agreed to issue to NI Industries, Inc., all of its outstanding shares of common stock in exchange for “all tangible and intangible personal property, except for cash, of the Price Pfister Division of NI (‘Division’) owned by NI in connection with its business of designing, manufacturing and selling plumbing valves, faucets, showerheads, waste and overflows, and spare parts thereof, marketed under the names Price Pfister or Bedford Brass.”
The Agreement contained an indemnity provision. Section 6(h) of the Agreement states: “Product Liability Claims. NI shall indemnify and save harmless [Price Pfister] from all judgments, settlements, court costs and reasonable attorney’s fees arising out of any occurrence whereby a Product manufactured by NI was the proximate cause of death, personal injury and/or property damage. [Price Pfister] shall indemnify and save harmless NI from all judgments, settlements, court costs and reasonable attorney’s fees arising out of any occurrence whereby a Product manufactured by [Price Pfister] was the proximate cause of death, personal injury and/or property damage. NI and [Price Pfister] shall each notify the other forthwith of any claim or suit for which it seeks or may seek to be indemnified and held harmless by the other.”
The Agreement also contained an integration provision stating: “This Agreement constitutes the entire agreement between the parties relating to the subject matter hereof, and this Agreement supersedes and cancels any prior written or oral, expressed or implied understandings relating to the subject matter hereof. This Agreement can be amended only by a writing signed on behalf of each of the parties hereto.”
III.
PRICE PFISTER SUES TRIMAS BASED ON INDEMNITY PROVISION OF THE AGREEMENT.
In 2005, Price Pfister filed a complaint against TriMas (as successor in interest to NI Industries, Inc.) and Metaldyne Corporation (TriMas’s immediate predecessor in interest) for express indemnity, breach of contract, implied indemnity/equitable indemnity, unjust enrichment, and declaratory relief. The complaint stated that, beginning in October 2000, Price Pfister has been sued in 11 product liability cases in California, “alleging injury from ‘Price Pfister’ products, which allegedly incorporated asbestos-containing gaskets, washers, and/or packings.” The complaint stated, “[b]ased on exposure periods, product histories, and sales volume[,] any such products were likely manufactured prior to June 24, 1983.” The complaint further alleged TriMas and Metaldyne “are liable to . . . Price Pfister for defense and indemnity costs for any product liability claims brought against it arising out of the products manufactured under the ‘Price Pfister’ trade name prior to June 24, 1983.”
In May 2006, Price Pfister voluntarily dismissed Metaldyne as a defendant, and judgment was thereafter entered in Metaldyne’s favor.
In February 2006, Price Pfister filed a motion for summary judgment on the ground there were no triable issues of material fact as to TriMas’s and Metaldyne’s liability under the indemnity provision of the Agreement. TriMas filed a motion for summary judgment or, in the alternative, summary adjudication challenging, inter alia, Price Pfister’s claim for implied indemnity/equitable indemnity on the ground the Agreement prohibited Price Pfister from pursuing that claim.
In June 2006, the trial court denied Price Pfister’s motion for summary judgment stating, “the court cannot grant partial summary judgment on liability only, as [Price Pfister] requested.” In November 2006, the trial court granted TriMas’s motion in part, stating it “granted TriMas’s motion as to the third cause of action for implied indemnity/equitable indemnity and fourth cause of action for unjust enrichment because the express indemnity provision in the parties’ contract prohibits Price Pfister from pursuing these claims.” The court further stated it “denied TriMas’s motion as to the other causes of action because there was insufficient evidence for the court to determine how all the underlying asbestos cases have been resolved.”
Later in November 2006, Price Pfister filed the first amended complaint against TriMas for (1) express indemnity, (2) breach of contract, (3) implied indemnity/equitable indemnity, (4) unjust enrichment, and (5) declaratory relief. The first amended complaint sought declaratory relief in the form of a judgment stating (1) as a result of the Agreement’s indemnification provision in section 6(h), TriMas, as successor to NI Industries, Inc., must indemnify and save harmless Price Pfister for all product liability claims involving Price Pfister products manufactured prior to June 24, 1983; and (2) TriMas is successor in interest to the corporate entities that are legally responsible for all claims, lawsuits, demands, etc., arising out of Price Pfister products manufactured prior to June 24, 1983.
IV.
JUDGMENT IS ENTERED IN FAVOR OF TRIMAS ON BREACH OF CONTRACT, INDEMNITY, AND UNJUST ENRICHMENT CLAIMS, AND CONTAINED A DECLARATION OF THE PARTIES’ INDEMNITY RIGHTS AND OBLIGATIONS UNDER THE AGREEMENT’S SECTION 6(H); PRICE PFISTER AND TRIMAS APPEAL.
Following a bench trial, the court rendered a tentative decision which became the court’s final statement of decision. The judgment (which incorporated verbatim the statement of decision) stated, in part:
“[Price Pfister] claims in its express indemnity cause of action that it ‘is entitled to be indemnified by Defendants in the amount of any sums that it may become obliged to pay as a result of product liability claims alleging injury from Price Pfister products manufactured prior to June 24, 1983, and, likewise, it is entitled to recovery of the defense costs it has incurred and continues to incur defending these claims.’ . . . [Price Pfister] fails to meet its burden of proof on this cause of action.
“The indemnity claim (indeed all of [Price Pfister]’s claims) arises from the language of Section 6(h) of Exhibit 10 (The Agreement) . . . . [¶] . . . [¶]
“Simply put, [Price Pfister] over-reads the indemnity language. The language entitles [Price Pfister] to be indemnified, in certain circumstances, for judgments (the evidence shows no judgments against [Price Pfister] in the underlying asbestos cases) and settlements, court costs and reasonable attorney fees (collectively hereinafter ‘recoverable expenditures’) when those recoverable expenditures arise out of any occurrence whereby a Product manufactured by NI was the proximate cause of death, personal injury and/or property damage.
“The evidence established that all eleven of the underlying cases resolved either with a Judgment in favor of [Price Pfister] herein or a dismissal (in some cases with prejudice and in others without prejudice, but in all cases with a mutual waiver of costs). There is no evidence that it was established in any of the eleven cases that ‘a Product manufactured by NI was the proximate cause of death, personal injury and/or property damage.’
“Indeed the evidence is just the opposite. [Price Pfister] herein won the underlying actions—no one can seriously argue that a defendant obtaining a dismissal for a waiver of costs has lost the litigation—and such a result is a far cry from a finding of proximate cause of injury resulting from a defendant’s product.
“The evidence before the Court does not support a finding that [Price Pfister] is entitled to indemnification for any of the attorney’s fees or court costs incurred in successfully defending the underlying eleven cases.
“[Price Pfister]’s arguments to extend the provisions of 6(h) of Exhibit 10 to include indemnity for attorney’s fees and court costs incurred in defending all claims of product liability arising from products manufactured before June 24, 1983, is undercut by the language of Section 6(h) of the Agreement. Interestingly, the last sentence speaks of ‘claim or suit’ with respect to notification obligations. If the parties had intended to include recoverable expenditures incurred in defending ‘any claim’ as argued by [Price Pfister], they would have included that language in the preceding indemnification sentences. The parties to the Agreement understood the difference in the terms (i.e. settlements, judgments, claims, suits) they chose to use, and they used them selectively and narrowly in the indemnity language of the first and second sentences of 6(h).
“Further evidence of their decision to draft a narrow indemnity provision is found in Section 6(i) of The Agreement with the decision to only allow for indemnity to [Price Pfister] by NI when a ‘Product manufactured by NI proximately caused damage’ while calling for [Price Pfister] to honor all valid warranty claims against ‘any Product manufactured by the Division while owned by NI or any predecessor in interest to NI . . .’ (emphasis added). The Court will not ignore this clear evidence that the original parties to The Agreement understood how to write—and would have written—an indemnity provision as broadly as [Price Pfister] wishes that this one were if those parties had so desired and agreed to. The language used in The Agreement supports the conclusion that the parties to The Agreement did not intend to require NI to indemnify [Price Pfister] for products manufactured by NI’s predecessors-in-interest.
“The Court finds in favor of [TriMas] on the First Cause of Action.
“The Court finds for the Defendant Trimas Corporation on the breach of contract cause of action as well. [Price Pfister] has failed to meet its burden of proof on this claim, for the same reasons as expressed above.
“Judgment should also be entered for [TriMas] on the claims for implied indemnity (Third Cause of Action) and unjust enrichment (Fourth Cause of Action). [Price Pfister] has again failed to meet its burden of proof. Furthermore, because there is an express indemnity provision covering the claims asserted, claims for implied indemnity/equitable indemnity cannot prevail, and the contractual provisions control. Rossmoor Sanitation, Inc. [v]. Pylon, Inc. . . . (1975) 13 Cal3d 622, 628; Maryland Casualty Co. [v]. Bailey and Sons, Inc. (1995) 35 Cal.App.4th 856, 873. Likewise, the claim for unjust enrichment must fail.”
Price Pfister does not raise issues in this appeal related to judgment being entered in favor of TriMas on Price Pfister’s claims for implied/equitable indemnity and unjust enrichment.
The judgment also contained a declaration of “the respective rights and duties under the [Agreement] . . . in respect to Section 6(h),” as follows: “Trimas, as successor in interest to NI, for the purposes of this contractual provision only (i.e. 6(h) of The Agreement), must indemnify [Price Pfister] herein for all judgments (against [Price Pfister] herein) settlements (as more fully discussed below) court costs (recoverable under California Code of Civil Procedure Section 1033, 1033.5, 1034 and their successor sections if there be any) and reasonable attorney fees which arise out of any occurrence whereby a Product manufactured by NI (NI means NI Industries, Inc., a Delaware Corporation which was incorporated on October 4, 1982, and does not include any predecessor Company, person or other business entity which owned or controlled all or any portion of the Price Pfister company/business or any of its predecessors) and where such Product has been determined to have been the proximate cause of death, personal injury and/or property damage. [¶] To recover under this portion of the Agreement, [Price Pfister] herein will have to have suffered and paid an adverse verdict or judgment with a finding of causation (i.e. proximate cause) against it. It can also recover if after such a verdict and/or judgment it settles with the successful plaintiff. [¶] The more interesting issue is whether [Price Pfister] can obtain indemnity when it settles before a verdict or judgment is rendered. [¶] The Court further declares that [Price Pfister] can recover in such circumstances when it is able to establish (in a subsequent proceeding with Trimas if agreement is not reached with Trimas) that its decision to settle was made because it had reasonably become convinced that more probably than not an injured claimant or plaintiff would establish that a Product manufactured by NI (as defined above) was the proximate cause of death, personal injury and/or property damage. [¶] The parties to The Agreement did not modify or limit the term ‘settlements’ in the Agreement, and no evidence was produced at the trial to convince the Court that it should preclude indemnification in situations involving pre-verdict or prejudgment settlements. [¶] The Court further declares that neither [Price Pfister] nor its predecessor . . . assumed any of NI’s or its predecessor’s existing liabilities with respect to product liability claims as a result of . . . entering into The Agreement. [¶] The Court finds it is not necessary or proper to further exercise its power to provide declaratory relief under the circumstances present before it in this matter and, therefore, does not reach any other claimed issue or controversy.”
We commend the trial court on the excellent explanation of its analysis.
Price Pfister and TriMas have each appealed from the judgment. TriMas filed a motion for sanctions, which for reasons discussed post, we deny. Price Pfister filed a cross-motion for sanctions, but shortly thereafter withdrew it.
DISCUSSION
I.
GENERAL PRINCIPLES OF CONTRACT INTERPRETATION AND STANDARD OF REVIEW
Indemnity agreements in the noninsurance context are “construed under the same rules as govern the interpretation of other contracts.” (Crawford, supra, 44 Cal.4th 541, 551-552.) We therefore begin our analysis by reviewing general principles of contract interpretation. “The basic goal of contract interpretation is to give effect to the parties’ mutual intent at the time of contracting. [Citations.] When a contract is reduced to writing, the parties’ intention is determined from the writing alone, if possible.” (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955.) “Unless the parties have indicated a special meaning, the contract’s words are to be understood in their ordinary and popular sense. [Citations.]” (Crawford, supra, 44 Cal.4th at p. 552.) “Effect is to be given to the parties’ mutual intent [citation], as ascertained from the contract’s language if it is clear and explicit [citation].” (Ibid.)
“Extrinsic evidence is admissible to prove a meaning to which the contract is reasonably susceptible. [Citations.] If the trial court decides, after receiving the extrinsic evidence, the language of the contract is reasonably susceptible to the interpretation urged, the evidence is admitted to aid in interpreting the contract. [Citations.] Thus, ‘[t]he test of admissibility of extrinsic evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.’ [Citation.] [¶] The threshold issue of whether to admit the extrinsic evidence—that is, whether the contract is reasonably susceptible to the interpretation urged—is a question of law subject to de novo review. [Citations.] [¶] The ultimate construction placed on the contract might call for different standards of review. When no extrinsic evidence is introduced, or when the competent extrinsic evidence is not in conflict, the appellate court independently construes the contract. [Citations.] When the competent extrinsic evidence is in conflict, and thus requires resolution of credibility issues, any reasonable construction will be upheld if it is supported by substantial evidence.” (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., supra, 109 Cal.App.4th at pp. 955-956.)
“California recognizes the objective theory of contracts [citation], under which ‘[i]t is the objective intent, as evidenced by the words of the contract, rather than the subjective intent of one of the parties, that controls interpretation’ [citation]. The parties’ undisclosed intent or understanding is irrelevant to contract interpretation. [Citations.]” (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc., supra, 109 Cal.App.4th at p. 956.)
II.
CRAWFORD, SUPRA, 44 CAL.4TH 541 AND CIVIL CODE SECTION 2778
In Crawford, supra, 44 Cal.4th 541, 547, the California Supreme Court recently addressed issues concerning the contractual duties to defend and indemnify in the noninsurance context. In that case, the Supreme Court explained parties to a contract “may define therein their duties toward one another in the event of a third party claim against one or both arising out of their relationship. Terms of this kind may require one party to indemnify the other, under specified circumstances, for moneys paid or expenses incurred by the latter as a result of such claims. [Citation.] They may also assign one party, pursuant to the contract’s language, responsibility for the other’s legal defense when a third party claim is made against the latter. [Citation.] [¶] As befits the contractual nature of such arrangements, but subject to public policy and established rules of contract interpretation, the parties have great freedom to allocate such responsibilities as they see fit. [Citations.] ‘When the parties knowingly bargain for the protection at issue, the protection should be afforded.’ [Citations.] Hence, they may agree that the promisor’s indemnity and/or defense obligations will apply only if the promisor was negligent, or, conversely, even if the promisor was not negligent.” (Id. at p. 551, fn. omitted.)
The Supreme Court further stated: “Though indemnity agreements resemble liability insurance policies, rules for interpreting the two classes of contracts do differ significantly. Ambiguities in a policy of insurance are construed against the insurer, who generally drafted the policy, and who has received premiums to provide the agreed protection. [Citations.] In noninsurance contexts, however, it is the indemnitee who may often have the superior bargaining power, and who may use this power unfairly to shift to another a disproportionate share of the financial consequences of its own legal fault. [Citations.] [¶] This public policy concern influences to some degree the manner in which noninsurance indemnity agreements are construed. For example, it has been said that if one seeks, in a noninsurance agreement, to be indemnified for his or her own active negligence, or regardless of the indemnitor’s fault—protections beyond those afforded by the doctrines of implied or equitable indemnity—language on the point must be particularly clear and explicit, and will be construed strictly against the indemnitee. [Citations.]” (Crawford, supra, 44 Cal.4th at p. 552.)
Here, it is undisputed that NI Industries, Inc.’s general counsel, R. James Shaffer, drafted the Agreement.
The Supreme Court also addressed the application of Civil Code section 2778 in interpreting indemnity agreements: “Finally, Civil Code section 2778, unchanged since 1872, sets forth general rules for the interpretation of indemnity contracts, ‘unless a contrary intention appears.’ If not forbidden by other, more specific statutes, the obligations set forth in section 2778 thus are deemed included in every indemnity agreement unless the parties indicate otherwise. Several subdivisions of this statute touch specifically on the indemnitor’s obligations with respect to the indemnitee’s defense against third party claims. [¶] In this regard, the statute first provides that a promise of indemnity against claims, demands, or liability ‘embraces the costs of defense against such claims, demands, or liability’ insofar as such costs are incurred reasonably and in good faith. [Citation.] Second, the section specifies that the indemnitor ‘is bound, on request of the [indemnitee], to defend actions or proceedings brought against the [indemnitee] in respect to the matters embraced by the indemnity,’ though the indemnitee may choose to conduct the defense. [Citation.] Third, the statute declares that if the indemnitor declines the indemnitee’s tender of defense, ‘a recovery against the [indemnitee] suffered by him in good faith, is conclusive in his favor against the [indemnitor].’ [Citation.] On the other hand, section 2778 provides, if the indemnitor got no reasonable notice of the action, or was not allowed to control the indemnitee’s defense, recovery by the third party against the indemnitee is only presumptive evidence against the indemnitor. [Citation.]” (Crawford, supra, 44 Cal.4th at p. 553, italics added.)
Civil Code section 2778 provides: “In the interpretation of a contract of indemnity, the following rules are to be applied, unless a contrary intention appears: [¶] 1. Upon an indemnity against liability, expressly, or in other equivalent terms, the person indemnified is entitled to recover upon becoming liable; [¶] 2. Upon an indemnity against claims, or demands, or damages, or costs, expressly, or in other equivalent terms, the person indemnified is not entitled to recover without payment thereof; [¶] 3. An indemnity against claims, or demands, or liability, expressly, or in other equivalent terms, embraces the costs of defense against such claims, demands, or liability incurred in good faith, and in the exercise of a reasonable discretion; [¶] 4. The person indemnifying is bound, on request of the person indemnified, to defend actions or proceedings brought against the latter in respect to the matters embraced by the indemnity, but the person indemnified has the right to conduct such defenses, if he chooses to do so; [¶] 5. If, after request, the person indemnifying neglects to defend the person indemnified, a recovery against the latter suffered by him in good faith, is conclusive in his favor against the former; [¶] 6. If the person indemnifying, whether he is a principal or a surety in the agreement, has not reasonable notice of the action or proceeding against the person indemnified, or is not allowed to control its defense, judgment against the latter is only presumptive evidence against the former; [¶] 7. A stipulation that a judgment against the person indemnified shall be conclusive upon the person indemnifying, is inapplicable if he had a good defense upon the merits, which by want of ordinary care he failed to establish in the action.”
III.
PRICE PFISTER’S ISSUES ON APPEAL
Price Pfister contends the trial court erred by interpreting the indemnity provision to (1) apply only to products actually manufactured by NI Industries, Inc., not to products manufactured by NI Industries, Inc.’s predecessors in interest; (2) apply only after a determination that a product manufactured by NI Industries, Inc., proximately caused death, personal injury, or property damage; (3) not permit Price Pfister to recover defense costs in defending claims in violation of Civil Code section 2778, subdivision 4; and (4) refer to a company, entitled NI Industries, Inc., that was incorporated October 1982. We review each of Price Pfister’s arguments in turn.
A.
The Trial Court Correctly Interpreted the Agreement’s Section 6(h)’s Reference to “Product Manufactured by NI” as Products Manufactured by NI Industries, Inc., Itself, Not by NI Industries, Inc.’s Predecessors in Interest.
Price Pfister challenges the portion of the judgment reflecting the trial court’s interpretation of section 6(h) of the Agreement to limit NI Industries, Inc.’s indemnity obligation so as “not [to] include any predecessor Company, person or other business entity which owned or controlled all or any portion of the Price Pfister company/business or any of its predecessors.” Price Pfister argues the “more reasonable interpretation” of the phrase “Product manufactured by NI” is to include not only products literally manufactured by NI Industries, Inc., but also “those products for which the corporate entity NI Industries, Inc., was the legally responsible manufacturer, (i.e. all Price Pfister Products manufactured prior to the Agreement.)”
But the Agreement clearly and expressly limits NI Industries, Inc.’s contractually created indemnity obligations to products manufactured by NI Industries, Inc., which have proximately caused death, personal injury, or property damage. As discussed ante, the California Supreme Court in Crawford, supra, 44 Cal.4th 541 reiterated that, in entering indemnity agreements, “parties have great freedom to allocate such responsibilities as they see fit” and that “they may agree that the promisor’s indemnity and/or defense obligations will apply only if the promisor was negligent, or, conversely, even if the promisor was not negligent.” (Id. at p. 551.)
As pointed out by the trial court, its conclusion the parties intended section 6(h)’s reference to NI Industries, Inc., to not include products manufactured by NI Industries, Inc.’s predecessors in interest finds further support in section 6(i) of the Agreement, which, in addressing the subject of warranties, expressly includes NI Industries, Inc.’s predecessors in interest. Section 6(h) did not do so. Section 6(i) of the Agreement states: “[Price Pfister] shall after the issuance of the Shares honor all valid claims that any Product manufactured by the Division while owned by NI or any predecessor in interest to NI, breaches any express or implied warranty made in respect to any such Product. [Price Pfister] shall have the authority to pay and/or settle any such claims and shall indemnify and save harmless NI from any such warranty claims.” (Italics added.)
We agree with the trial court’s analysis contained in the portion of the judgment stating: “[E]vidence of [the parties’] decision to draft a narrow indemnity provision is found in Section 6(i) of The Agreement with the decision to only allow for indemnity to [Price Pfister] by NI when a ‘Product manufactured by NI proximately caused damage’ while calling for [Price Pfister] to honor all valid warranty claims against ‘any Product manufactured by the Division while owned by NI or any predecessor in interest to NI . . .’ (emphasis added). The Court will not ignore this clear evidence that the original parties to The Agreement understood how to write—and would have written—an indemnity provision as broadly as [Price Pfister] wishes that this one were if those parties had so desired and agreed to. The language used in The Agreement supports the conclusion that the parties to The Agreement did not intend to require NI to indemnify [Price Pfister] for products manufactured by NI’s predecessors-in-interest.”
Price Pfister argues the term “NI” in section 6(h) necessarily included NI Industries, Inc.’s predecessors in interest in light of the definition of “product” as set forth in section 2(a) of the Agreement. Thus, Price Pfister’s argument continues, section 6(h) should have been interpreted to impose a duty on NI Industries, Inc., to indemnify Price Pfister in connection with “all ‘Price Pfister’ products manufactured prior to June 24, 1983.” Section 2(a), entitled “Consideration for the Shares,” states in relevant part: “The consideration for the Shares is: [¶] (a) all tangible and intangible personal property, except for cash, of the Price Pfister Division of NI (‘Division’) owned by NI in connection with its business of designing, manufacturing and selling plumbing valves, faucets, showerheads, waste and overflows, and spare parts thereof, marketed under the names Price Pfister or Bedford Brass, the current models of which are shown in Price Pfister Full-Time Quick Reference Catalog No. QR782 , (‘Products’), with its principal facility located at 13500 Paxton Street, Pacoima, California . . . .”
Price Pfister next argues, “[i]n defining the term ‘Products,’ the drafter plainly did not limit that term to those products manufactured during the limited timeframe that TriMas’s predecessor was called NI Industries, Inc. Instead, the opposite is true. The definition states that ‘the current models’ of the products implicated by the Agreement and the indemnity provision were contained in ‘Price Pfister[’s] Full-Time Quick Reference Catalog No. QR782 [Quick Reference, July 1982].’ [¶] Accordingly, the definition of ‘Products’ is not limited to the products covered in the single catalog referenced in the Agreement. Even the products in that catalog were manufactured prior to the limited date range the lower court applied. Rather, this language clearly establishes that the parties intended to cover prior models as well as current models. Reference to the products in the specified catalog was merely intended to serve as an illustration of those products in their current model form. . . . To interpret the definition of ‘Product’ in any way other than all ‘Price Pfister’ products manufactured prior to June 24, 1983 (for which NI unquestionably was the party responsible) would render this language meaningless and frustrate the intentions of the parties at the time of contracting.” (Italics omitted.)
Even if it were shown that the term “product” as defined in section 2(a) of the Agreement included items manufactured by NI, Industries, Inc.’s predecessors in interest, section 6(h) nevertheless limited NI Industries, Inc.’s indemnity obligation to a subset of those “products”—namely, to those products actually manufactured by NI Industries, Inc. Whether NI Industries, Inc., might be legally responsible to a third party for a product manufactured by one of its predecessors in interest is irrelevant to the interpretation of the scope of NI Industries, Inc.’s separate contractual agreement to indemnify Price Pfister in the event the latter was sued directly.
Price Pfister also argues undisputed extrinsic evidence of the parties’ conduct supported the conclusion that section 6(h)’s reference to “a Product manufactured by NI” contemplated products not only manufactured by NI Industries, Inc., but all Price Pfister products for which NI Industries, Inc., had the manufacturing liabilities at the time the parties entered the Agreement. Price Pfister cites Universal Sales Corp. v. Cal. etc. Press Mfg., Co. (1942) 20 Cal.2d 751, 761-762, in support of the proposition: “[W]hen a contract is ambiguous, a construction given to it by the acts and conduct of the parties with knowledge of its terms, before any controversy has arisen as to its meaning, is entitled to great weight, and will, when reasonable, be adopted and enforced by the court. [Citation.] The reason underlying the rule is that it is the duty of the court to give effect to the intention of the parties where it is not wholly at variance with the correct legal interpretation of the terms of the contract, and a practical construction placed by the parties upon the instrument is the best evidence of their intention.” (See also Employers Reinsurance Co. v. Superior Court (2008) 161 Cal.App.4th 906, 921 [same].)
Price Pfister argues NI Industries, Inc.’s general counsel, R. James Shaffer, testified “that he had suggested a marking system be put in place to identify pre- and post-June 24, 1983 products for the purpose of assessing the parties’ indemnity rights.” Price Pfister argues, “[a]dding these ‘+’ signs to products manufactured after the effective date of the Agreement, June 24, 1983, created a ‘bright line[’:] if the product was made before that date, claims for personal injury or property damage would be the responsibility of NI (now TriMas) and if made after that date then Price Pfister would be responsible . . . . [¶] Significantly, no ‘bright line’ existed for products manufactured by NI prior to June 24, 1983.”
Shaffer’s testimony showed that the parties agreed to mark post-Agreement Price Pfister products to help narrow down which entity manufactured the product. Products already manufactured at the time of the Agreement (by NI Industries, Inc., or by any predecessor in interest of NI Industries, Inc.) could not bear such a mark. Shaffer’s testimony does not show that the parties intended NI Industries, Inc., would indemnify Price Pfister in connection with any Price Pfister products manufactured before June 24, 1983 regardless of who manufactured such products. Furthermore, Shaffer testified that section 6(h) means what it says—that NI Industries, Inc., only agreed to indemnify Price Pfister for products it manufactured during the six-month period it produced such products.
Price Pfister also argues, “[a]ccording to the testimony of Milton Meler [one of Price Pfister’s employees], when a claim involving a ‘Price Pfister’ product arose post-acquisition, Price Pfister would tender the claims involving products not marked with a ‘+’ sign to NI for defense or resolution and would likewise retain and resolve all claims that involved products marked with a ‘+’ sign.” But Meler did not testify that NI Industries, Inc., ever acknowledged that it was required to indemnify Price Pfister for death, personal injury and/or property damage caused by a product manufactured by NI Industries, Inc.’s predecessors in interest. On the other hand, Meler testified that he did not negotiate the terms of the Agreement, and did not know what NI Industries, Inc., “did with any of the claims that Price Pfister sent it.”
Price Pfister further argues, “Norris” accepted the tender of a lawsuit (referred to by the parties as the Ortiz case), which named Price Pfister and Norris as defendants and alleged that a plumbing product produced by an unknown manufacturer caused personal injury. Price Pfister contends, “[t]hese events reflect accurately, Price Pfister’s interpretation of the indemnity provision and demonstrate clearly, the parties’ intentions at the time of contracting.” But Price Pfister tendered the Ortiz case to a Norris entity, not to NI Industries, Inc., under section 6(h) of the Agreement. Norris’s acceptance of Price Pfister’s tender of this lawsuit does not in any way inform the proper interpretation of section 6(h) of the Agreement.
Furthermore, to the extent Price Pfister suggests NI Industries, Inc., in any way waived the limited nature of its duty to indemnify Price Pfister under section 6(h) by subsequent conduct, section 7 of the Agreement expressly states that the “[f]ailure of either party to enforce any provision of this Agreement shall not be deemed a waiver of that provision and that party may thereafter enforce each and every provision of this Agreement.” We find no error.
B.
The Trial Court Properly Interpreted Section 6(h) to Require TriMas to Indemnify Price Pfister for Actual, Not Merely Claimed, Occurrences of Death, Personal Injury and/or Property Damage Proximately Caused by Products Manufactured by NI Industries, Inc.
Price Pfister also challenged the trial court’s conclusion that TriMas was not required to indemnify Price Pfister under section 6(h) of the Agreement absent a determination that a product manufactured by NI Industries, Inc., actually caused death, personal injury and/or property damage. Price Pfister contends TriMas is required to indemnify Price Pfister for claimed occurrences of death, personal injury and/or property damage caused by a NI Industries, Inc., manufactured product.
As discussed ante, the judgment contains a declaration of the parties’ respective rights and duties under section 6(h) of the Agreement, which includes the following: “To recover under this portion of the Agreement, [Price Pfister] herein will have to have suffered and paid an adverse verdict or judgment with a finding of causation (i.e. proximate cause) against it. It can also recover if after such a verdict and/or judgment it settles with the successful plaintiff. [¶] The more interesting issue is whether [Price Pfister] can obtain indemnity when it settles before a verdict or judgment is rendered. [¶] The Court further declares that [Price Pfister] can recover in such circumstances when it is able to establish (in a subsequent proceeding with Trimas if agreement is not reached with Trimas) that its decision to settle was made because it had reasonably become convinced that more probably than not an injured claimant or plaintiff would establish that a Product manufactured by NI (as defined above) was the proximate cause of death, personal injury and/or property damage. [¶] The parties to The Agreement did not modify or limit the term ‘settlements’ in the Agreement, and no evidence was produced at the trial to convince the Court that it should preclude indemnification in situations involving pre-verdict or prejudgment settlements.”
TriMas filed a cross-appeal challenging this portion of the judgment, which requires TriMas to indemnify Price Pfister for settlements made because Price Pfister “had reasonably become convinced that more probably than not an injured claimant or plaintiff would establish that a Product manufactured by NI . . . was the proximate cause of death, personal injury and/or property damage.” For the reasons discussed post, we agree with TriMas that this portion of the judgment is in error.
The plain language of section 6(h) provides that NI Industries, Inc.’s duty to indemnify was limited to “judgments, settlements, court costs and reasonable attorney’s fees arising out of any occurrence whereby a Product manufactured by NI was the proximate cause of death, personal injury and/or property damage.” (Italics added.) As discussed ante, the California Supreme Court has recognized the right of parties to allocate indemnification responsibilities “as they see fit” and to “agree that the promisor’s indemnity and/or defense obligations will apply only if the promisor was negligent.” (Crawford, supra, 44 Cal.4th at p. 551.) Nothing in the Agreement and no extrinsic evidence show that NI Industries, Inc.’s duty to indemnify Price Pfister extended to claims or demands. Instead, the clear language of section 6(h) shows the parties agreed that NI Industries, Inc.’s duty to indemnify Price Pfister would not be triggered unless and until it was determined a product manufactured by NI Industries, Inc., proximately caused death, personal injury and/or property damage.
Price Pfister argues, “[t]he notice requirement within the indemnity provision and the extrinsic evidence of the parties’ conduct also does not support a requirement of a ‘finding’ of proximate cause.” The last sentence of section 6(h) provides: “NI and [Price Pfister] shall each notify the other forthwith of any claim or suit for which it seeks or may seek to be indemnified and held harmless by the other.” Price Pfister contends, “[a] newly filed lawsuit and certainly no ‘claim’ would likely ever have sufficient information or a finding of proximate cause associated with it, yet notice of those claims and lawsuits is required ‘forthwith.’”
The last sentence of section 6(h) supports the trial court’s interpretation of the portion of section 6(h) setting forth TriMas’s indemnity obligation. The parties used the word “claim” when it came to imposing a notice requirement on each other, but refrained from using that word in describing the scope of their respective indemnity obligations.
Although not argued by the parties, we note that the caption for section 6(h) reads: “Product Liability Claims.” Certainly, the notice provision contained in the last sentence of section 6(h) explains this choice of wording for the caption and the caption does not inform the proper interpretation of the scope of the indemnity provisions contained therein. In any event, section 13 of the Agreement clearly states: “The captions in this Agreement are for convenience only and shall not be considered a part of, or affect the construction of any provisions of this Agreement.”
Price Pfister argued to the trial court and contends on appeal that this interpretation of the indemnity provision violates Civil Code section 2778, subdivision 4. But section 2778, subdivision 4 does not address the interpretation of the proper scope of a contractual indemnification provision; instead, it addresses the separate and independent duty of an indemnitor to defend an indemnitee that arises by operation of that statute unless that duty is contractually modified or eliminated by the parties. Section 2778, subdivision 4 provides: “The person indemnifying is bound, on request of the person indemnified, to defend actions or proceedings brought against the latter in respect to the matters embraced by the indemnity, but the person indemnified has the right to conduct such defenses, if he chooses to do so.”
The California Supreme Court recently explained, in Crawford, supra, 44 Cal.4th 541, 554, that the duty to defend referred to in Civil Code section 2778, subdivision 4 is a separate duty from the duty to indemnify: “A duty to defend another . . . is thus different from a duty expressed simply as an obligation to pay another, after the fact, for defense costs the other has incurred in defending itself. Section 2778, the statute governing the construction of all indemnity agreements, makes the distinction clear. On the one hand, as noted above, the section specifies that a basic contractual indemnity against particular claims, demands, or liabilities ‘embraces the costs of defense’ against such claims, demands, or liabilities. [Citation.] On the other hand, the statute separately specifies the indemnitor’s duty actually ‘to defend,’ upon the indemnitee’s request, proceedings against the latter ‘in respect to the matters embraced by the indemnity,’ though ‘the person indemnified has the right to conduct such defenses . . . if he chooses to do so.’ [Citation.] Finally, section 2778 sets forth how the indemnitor’s obligations will be affected if the indemnitor fails to accept an indemnitee’s tender of defense or, alternatively, if the indemnitor is denied an opportunity to assume and control the defense.”
Consequently, the trial court properly interpreted section 6(h) to require TriMas to indemnify Price Pfister for judgments, settlements, attorney fees, and costs, incurred when a NI Industries, Inc., manufactured product proximately causes death, personal injury and/or property damage.
C.
Civil Code Section 2778, Subdivision 4 Imposes on TriMas a Duty to Defend That Was Neither Contractually Eliminated nor Modified by the Parties.
Turning now to the statutory duty to defend an indemnitee, in Crawford, supra, 44 Cal.4th 541, 554, the California Supreme Court held that contracting parties are free to eliminate or modify the duty to defend, which is otherwise automatically imposed by operation of Civil Code section 2778, subdivision 4. The California Supreme Court, in Crawford, supra, 44 Cal.4th at page 555, held, “the case law has long confirmed that, unless the parties’ agreement expressly provides otherwise, a contractual indemnitor has the obligation, upon proper tender by the indemnitee, to accept and assume the indemnitee’s active defense against claims encompassed by the indemnity provision. Where the indemnitor has breached this obligation, an indemnitee who was thereby forced, against its wishes, to defend itself is entitled to reimbursement of the costs of doing so.”
We wish to point out that judgment in this matter was entered in June 2007. Thus, the trial court, at the time judgment was entered, did not have the benefit of the California Supreme Court’s comprehensive review of this area of the law in Crawford, supra, 44 Cal.4th 541, which was filed in June 2008.
Here, the Agreement, including section 6(h), is silent as to NI Industries, Inc.’s (hence TriMas’s) duty to defend Price Pfister regarding claims encompassed by section 6(h)’s indemnity provision. Although the judgment does not specifically speak to the separate duty to defend, it also denies Price Pfister the cost of defending the 11 lawsuits based on the scope of the indemnity provision itself.
We remand the matter to the trial court to determine whether, in any of the 11 cases filed against Price Pfister, the duty to defend had been triggered, and whether Price Pfister is entitled to recover any attorney fees and/or costs pursuant to Price Pfister’s claims for express indemnity and breach of contract. As to Price Pfister’s claim for declaratory relief, the trial court shall also modify the judgment to acknowledge the existence of a duty to defend Price Pfister against claims of an occurrence whereby a product actually manufactured by NI Industries, Inc., proximately caused death, personal injury and/or property damage.
D.
The Trial Court Erred by Interpreting the Term “NI Industries, Inc.” as the Entity That Was Incorporated in October 1982.
The judgment states that the term “NI” in section 6(h) of the Agreement “means NI Industries, Inc., a Delaware Corporation which was incorporated on October 4, 1982, and does not include any predecessor Company, person or other business entity which owned or controlled all or any portion of the Price Pfister company/business or any of its predecessors.” The Agreement, dated June 24, 1983, states it is between “NI Industries, Inc., a Delaware corporation” (which the Agreement short-form references as NI) and “Price Pfister, NI Industries, Inc., a Delaware corporation.” Other than providing addresses for each entity, the Agreement does not define either entity.
The parties submitted to the trial court a stipulation, entitled “Re: Corporate History of the Price Pfister Business.” The parties’ stipulation shows the entity that was incorporated on October 4, 1982 as “NI Industries, Inc.” merged into its parent company, Norris-NI Industries, Inc., in January 1983. The parties’ stipulation further establishes that Norris-NI Industries, Inc., which had been incorporated in July 1981, acquired in December 1982 certain assets and liabilities of its wholly owned subsidiary, Norris Industries, Inc., which included the assets and liabilities of the Price Pfister division of Norris Industries, Inc. After Norris-NI Industries, Inc., merged its wholly owned subsidiary, NI Industries, Inc., into itself in January 1983, it changed its corporate name to that former subsidiary’s name—NI Industries, Inc. The evidence shows that entity entered into the Agreement and is the “NI” referenced in section 6(h). On remand, therefore, the judgment shall be modified to delete the phrase “which was incorporated on October 4, 1982.”
IV.
TRIMAS’S ISSUE ON CROSS-APPEAL
TriMas challenges on cross-appeal the portion of the judgment declaring the parties’ rights and obligations under section 6(h) of the Agreement in the event of the settlement of a dispute prior to a jury verdict or judgment. That portion of the judgment states: “The more interesting issue is whether [Price Pfister] can obtain indemnity when it settles before a verdict or judgment is rendered. [¶] The Court further declares that [Price Pfister] can recover in such circumstances when it is able to establish (in a subsequent proceeding with Trimas if agreement is not reached with Trimas) that its decision to settle was made because it had reasonably become convinced that more probably than not an injured claimant or plaintiff would establish that a Product manufactured by NI (as defined above) was the proximate cause of death, personal injury and/or property damage. [¶] The parties to The Agreement did not modify or limit the term ‘settlements’ in the Agreement, and no evidence was produced at the trial to convince the Court that it should preclude indemnification in situations involving pre-verdict or prejudgment settlements.” (Italics added.)
TriMas argues: “The Agreement does not provide Price Pfister a right to indemnity when it becomes ‘reasonably convinced’ that it is likely an injured party would be able to prove an NI product proximately caused injury. Instead, the Agreement provides that before NI/TriMas’s indemnity obligation is triggered, Price Pfister must show that an NI product actually caused injury.” We agree.
In Heppler v. J.M. Peters Co. (1999) 73 Cal.App.4th 1265, 1278, the appellate court stated: “Indemnity provisions are to be strictly construed against the indemnitee, and had the parties intended to include an indemnity provision that would apply regardless of the subcontractor’s negligence, they would have had to use specific, unequivocal contractual language to that effect.” In Ralph M. Parsons Co. v. Combustion Equipment Associates, Inc. (1985) 172 Cal.App.3d 211, 227, the appellate court stated, “[i]f an indemnitor is to be made responsible for the negligent acts of an indemnitee or others over whose conduct it has no control, the language imposing such responsibility should do so expressly and unequivocally so that the contracting party is advised in definite terms of the liability to which it is exposed.”
Here, section 6(h) clearly states that NI Industries, Inc.’s duty to indemnify is triggered when a NI Industries, Inc., product has caused death, personal injury and/or property damage—regardless of whether Price Pfister reasonably believes it was more likely than not such proximate cause would have been proved.
In Lamb v. Belt Casualty Co. (1935) 3 Cal.App.2d 624, 631, the California Supreme Court held, “where there is no trial and no judgment establishing the liability of the insured, but a settlement of the litigation has been made, the question whether the liability of the insured was one which the contract of insurance covered is still open, as is also the question as to the fact of liability and the extent thereof, and these questions may be litigated and determined in the action brought by the insured to recover the amount so paid in settlement.” In Peter Culley & Associates v. Superior Court (1992) 10 Cal.App.4th 1484, 1497, the appellate court relied on Lamb v. Belt Casualty Co., in concluding that when an indemnitee settles without trial, “the indemnitee must show the liability is covered by the contract, that liability existed, and the extent thereof.”
Therefore, on remand, the trial court shall modify the judgment to reflect the requirement of establishing proximate cause before TriMas’s duty to indemnify is triggered in the context of a preverdict or prejudgment settlement.
V.
TriMas’s Motion for Sanctions
During the pendency of this appeal, TriMas filed a motion for sanctions in this court against Price Pfister on the ground the appeal is frivolous. TriMas also contends Price Pfister’s appellate briefs violated rule 8.204 of the California Rules of Court and misrepresented the holding of Crawford, supra, 44 Cal.4th 541.
Section 907 of the Code of Civil Procedure permits recovery of costs when an appeal is “frivolous or taken solely for delay” and rule 8.276(a)(1) of the California Rules of Court permits the imposition of sanctions including costs for “[t]aking a frivolous appeal or appealing solely to cause delay.” We cannot conclude Price Pfister’s appeal was frivolous. Furthermore, to the extent Price Pfister failed to comply with the Rules of Court in preparing its appellate briefs, we do not find any such failures, individually or cumulative, to rise to the level of sanctionable conduct. TriMas’s motion is therefore denied.
DISPOSITION
We affirm the portion of the judgment in which the trial court interpreted the indemnity provision contained in section 6(h) of the Agreement to apply only to (1) products manufactured by NI Industries, Inc., not to products manufactured by NI Industries, Inc.’s predecessors in interest and (2) actual occurrences of death, personal injury and/or property damage proximately caused by a NI Industries, Inc., manufactured product.
On remand, the trial court shall modify the judgment to delete the phrase “which was incorporated on October 4, 1982” in reference to NI Industries, Inc.
We reverse the portion of the judgment denying Price Pfister defense costs with directions to the trial court to determine whether, in any of the 11 cases filed against Price Pfister, the duty to defend had been triggered, and whether Price Pfister is entitled to recover attorney fees and/or costs pursuant to Price Pfister’s claims for express indemnity and breach of contract. We further direct the trial court on remand to modify the portion of the judgment declaring the parties’ rights and duties under the indemnity provision to acknowledge the existence of a duty to defend Price Pfister against claims of an occurrence whereby a product manufactured by NI Industries, Inc., proximately caused death, personal injury and/or property damage.
We also reverse the portion of the judgment declaring that, in the context of a preverdict or prejudgment settlement, the indemnity provision is triggered if Price Pfister establishes that its decision to settle was made because it had reasonably become convinced that more probably than not an injured claimant would establish proximate cause. On remand, the trial court shall modify the judgment to state that the indemnity provision requires a determination of proximate cause before the duty to indemnify is triggered, in the context of a preverdict or prejudgment settlement.
As each party prevailed in part, in the interests of justice, no party shall recover costs on appeal.
WE CONCUR: O’LEARY, ACTING P. J., MOORE, J.