Opinion
A154578
01-27-2020
SIERRA PACIFIC PROPERTIES, INC., et al. Cross-Complainants and Appellants, v. OTIS ELEVATOR COMPANY, Cross-Defendant and Respondent.
Case No.: A154578 ORDER MODIFYING OPINION AND DENYING REHEARING
[NO CHANGE IN JUDGMENT]
BY THE COURT:
It is ordered that the opinion filed herein on January 27, 2020, be modified as follows:
On page 10, the last two sentences:
"We reverse the judgment as to the cross-complaint and the award of costs and attorney's fees to Otis. We remand for the trial court to apply the equitable contribution doctrine, determine Otis and Schindler's equitable shares of the defense costs, and allocate the defense costs among Otis and Schindler accordingly."
are replaced with:
The modification clarifies the disposition but does not change the judgment. The petition for rehearing is denied. Dated: __________"We reverse the portion of the judgment on the cross-complaint as to Otis's duty to defend and the award of costs and attorney's fees to Otis. We affirm the portion of the judgment on the cross-complaint as to Otis's duty to indemnify. We remand to the trial court to (1) determine the prevailing party for the purposes of awarding attorney's fees; (2) apply the equitable contribution doctrine; (3) determine Otis's and Schindler's equitable shares of the defense costs; and (4) allocate the defense costs among Otis and Schindler accordingly."
/s/_________
Simons, Acting P.J.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Contra Costa County Super. Ct. No. MSC14-01279)
Amy Zapotoczny was injured while riding in an elevator that suddenly malfunctioned. She sued Sierra Pacific Properties, Inc. (Sierra), the building owner, and Schindler Elevator Corp. (Schindler), the contractor servicing the elevators at the time. Sierra tendered its defense to Schindler and to Otis Elevator Company (Otis), who maintained the elevator prior to Schindler. Schindler accepted the tender; Otis did not. Sierra and Schindler cross-complained against Otis for contractual and equitable indemnity. A jury found Sierra and Schindler negligent but absolved Otis. The trial court then adjudicated the cross-complaint and concluded Otis had no duty to defend Sierra. In this appeal, Schindler contends the trial court erred. We agree and reverse the judgment on the cross-complaint as well as an award of costs and attorney fees to Otis.
BACKGROUND
A.
Sierra owned a commercial office building where Zapotoczny worked. In 2005, Sierra contracted with Otis to modernize the three elevators in the building (the modernization contract). The project involved "replacement of elevator motion and supervisory control systems" with new ones.
The modernization contract has an indemnity clause: "[Otis] shall indemnify and hold harmless [Sierra] . . . from all . . . claims . . . brought for, or on account of, any actual or alleged personal injury, . . . arising out of, the negligent performance of the work by [Otis] . . . or the materials used in such work of performance, including all attorney's fees . . . and to pay all costs, expenses, attorneys' fees . . . attributable to such defense." It further states, "It is understood and agreed that [Otis] shall have no obligation to defend any claim, suit or proceeding which is brought due to the negligence of [Sierra] or any other party."
In October 2007, Sierra contracted with Otis to maintain the elevators until September 2012 (the maintenance contract). The maintenance contract also has an indemnity clause: "[Otis] shall indemnify, defend, and hold harmless [Sierra] from and against any and all claims, . . . which directly or indirectly relate to or result wholly or in part from, or are alleged to relate or result wholly or in part from: [¶] 1. Services performed or required to be performed by [Otis]. [¶] 2. Any violation of this Agreement by [Otis]. [¶] 3. Any action or omission of [Otis] outside the scope of this Agreement." The indemnity clause further states that "[Otis] shall initially defend claims hereunder on behalf of [Sierra] through counsel approved in writing by [Sierra] . . . until such time as such counsel determines that exclusion in Item 1.13, D. may apply, or such counsel otherwise has a conflict of interest, or [Sierra] or [Sierra's] insurer reasonably determines that such counsel's performance is unsatisfactory." Subdivision D of Paragraph 1.13 provides that "[s]uch indemnity shall not apply to the extent of claims caused by the negligence or willful misconduct of the party, parties, seeking to be indemnified." It also states that "[f]or purposes of this clause 'negligence' by [Sierra] shall not include its passive failure to supervise [Otis]."
Otis maintained the elevators until November 30, 2012. Thereafter, Sierra retained Schindler to maintain the elevators.
B.
In March 2013, Zapotoczny was in one of the elevators when she heard a "metal scraping noise at the doors." Suddenly, the elevator dropped and abruptly stopped, then dropped and abruptly stopped a second time, then shot upwards and stopped. Zapotoczny was badly injured and required several surgeries.
Two days after the incident, Schindler's mechanics inspected the elevator and discovered that the elevator's clutch was loose, sliding from side to side. Zip ties had been installed to hold the clutch in position. The mechanics concluded the elevator malfunctioned because zip ties, rather than mechanical fasteners such as screws, were used to secure the clutch. The clutch moved out of position and disturbed the electric circuit, which, in turn, caused the machine to lose power, apply the brake, and come to a controlled stop. At the time of the inspection, Schindler's mechanics did not know who installed the zip ties.
C.
In July 2014, Zapotoczny filed a complaint asserting negligence against Sierra and Schindler and premises liability against Sierra. The negligence cause of action alleged the defendants "so negligently and carelessly operated, supervised, cared for, inspected, and/or maintained the elevator that when the elevator had stopped on the third floor, the elevator suddenly dropped several floors," resulting in Zapotoczny's injuries.
Sierra tendered its defense against Zapotoczny's action to both Schindler and Otis. After Otis failed to respond, Sierra and Schindler filed a cross-complaint against Otis for contractual and equitable indemnity. Otis answered the cross-complaint with a general denial and numerous affirmative defenses, thereby rejecting Sierra's tender. Schindler accepted Sierra's tender and defended Sierra in the lawsuit.
Otis moved for summary judgment on the cross-complaint, asserting among other things that it was not negligent in servicing the subject elevator because Otis was not responsible for maintaining the elevator at the time of Zapotoczny's incident. Otis also argued that Schindler's mechanics improperly repaired the subject elevator's door linkage approximately one month prior to the incident. Thus, Otis claimed it owed no duty to indemnify Sierra. Sierra and Schindler opposed the motion, contending triable issues of fact existed as to Otis's negligence. The trial court agreed with Sierra and Schindler and denied the motion.
At trial on Zapotoczny's action, the jury found Sierra and Schindler were negligent and allocated 60% of fault to Sierra and 40% to Schindler. The jury determined Otis was not negligent. It awarded Zapotoczny over $5.6 million in damages.
D.
After trial, the parties submitted briefs seeking a ruling on whether Otis had a duty to defend Sierra as a matter of law (it was undisputed Otis did not have to indemnify Sierra, as the jury found Otis not negligent). Schindler contended that Otis should have shared the costs of defending Sierra, and it sought contribution for those costs. The court found that, under the agreements, Otis generally owed a duty to defend Sierra against claims that assert negligence by Otis. However, the court concluded Otis had no duty to defend Sierra because Zapotoczny's complaint did not expressly allege negligence by Otis. The court thus rejected Schindler's claims to recover defense costs.
The court entered judgment on the underlying action and cross-complaint in March 2018. It also awarded Otis attorney fees and costs in the amount of $756,121.24 under Civil Code section 1717.
Undesignated statutory references are to the Civil Code.
DISCUSSION
A.
The main issue is whether Otis had a contractual duty to defend Sierra in the underlying action. The parties disagree on two points: (1) the scope of Otis's duty to defend Sierra, and (2) whether Zapotocozny's complaint alleged facts that fall within the scope of Otis's duty to defend. We conclude the court correctly interpreted the indemnity clauses to find that Otis generally owed a duty to defend Sierra against claims based on Otis's negligence. However, the court erred in concluding that Zapotoczny's complaint did not trigger that duty.
1.
"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. (Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541, 551 (Crawford); see § 2772.) "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." (Crawford, supra, 44 Cal.4th at p. 551.)
Section 2778 establishes rules for the interpretation of indemnity contracts "unless a contrary intention appears." (§ 2778; Crawford, supra, 44 Cal.4th at p. 553.) As relevant here, section 2778, subdivision 4, specifies that the indemnitor is bound "to defend actions or proceedings brought against the [indemnitee] in respect to the matters embraced by the indemnity." In Crawford, our Supreme Court held that, under section 2778, "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." (Crawford, supra, 44 Cal.4th at p. 555.) The duty to defend arises immediately upon a proper tender of defense by the indemnitee and thus does not depend on the outcome of the litigation. (Id., at p. 558.) If it is unclear whether a particular claim falls within the scope of the indemnity, unless the agreement states otherwise, the law implies a duty to defend claims that "allege facts that would give rise to a claim of indemnity." (Ibid.; City of Bell v. Superior Court (2013) 220 Cal.App.4th 236, 249 (City of Bell).) "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." (Crawford, supra, 44 Cal.4th at p. 555.)
For our purposes, then, Otis owed Sierra a duty to defend any claims potentially within the scope of the indemnification unless a contrary intention appears in the agreements. We construe the agreements using the standard rules of contract interpretation. (United States Elevator Corp. v. Pacific Investment Co. (1994) 30 Cal.App.4th 122, 125.) In the absence of extrinsic evidence, our review is de novo. (Ibid.)
2.
Regarding the scope of its duty to defend, Otis argues that the parties bargained for a duty to defend that was more narrow than the scope of the indemnity and that excluded the claim brought by Zapotoczny. We disagree.
In the modernization contract, Otis agreed to indemnify Sierra from all "liability . . . claims, suits, and actions of every type . . . arising out of, the negligent performance of the work by [Otis] . . . or the materials used in such work of performance." Otis concedes that this language requires it to indemnify Sierra for injuries caused by Otis's negligence. Under section 2778, subdivision 4, therefore, Otis had a duty to defend Sierra against such claims unless the parties agreed otherwise. (See Crawford, supra, 44 Cal.4th at p. 553; § 2778, subd. 4.)
Otis argues that the parties did agree otherwise, pointing to language stating that Otis "shall have no obligation to defend any claim, suit or proceeding which is brought due to the negligence of [Sierra] or any other party." Otis says this language excludes any lawsuit alleging that the negligence of Sierra or another party caused the harm, even if Otis is also potentially liable. Thus, Otis reasons, because Zapotoczy's complaint did not name Otis as a negligent party, but instead named Sierra and Schindler, Otis had no duty to defend Sierra. The trial court rejected this interpretation, concluding the language at issue "cannot reasonably be taken as letting Otis entirely off the hook for its own negligence simply because Sierra Pacific or Schindler were also negligent."
We agree with the trial court. The parties could have easily written that Otis has no duty to defend Sierra unless a plaintiff names Otis in a lawsuit. But they did not do so. It would be odd indeed to let Otis off the hook for defending a claim that implicates Otis's work, and thus makes it potentially liable on the indemnity, simply because the plaintiff chose not to name Otis in the complaint. (See UDC-Universal Development, L.P. v. CH2M Hill (2010) 181 Cal.App.4th 10, 21 (UDC) ["An indemnitee should not have to rely on the plaintiff to name a particular subcontractor or consultant in order to obtain a promised defense."].) Rather than focus on who the plaintiff named, the more reasonable interpretation is that a claim is "brought due to the negligence of [Sierra] or another party" if the claim's underlying facts implicate Sierra or another party but cannot implicate Otis. This interpretation is consistent with section 2778, which imposes a duty to defend when, at the time of tender, a plaintiff alleges facts that would give rise to a duty of indemnity. (Crawford, supra, 44 Cal.4th at p. 558; City of Bell, supra, 220 Cal.App.4th at pp. 249-250.)
In light of our conclusion regarding the modernization contract, we need not address the parties' arguments regarding the maintenance contract. Otis does not contend that the latter somehow alters or nullifies the duty to defend in the former.
3.
We next address whether, at the time of Sierra's tender, Zapotoczny alleged facts that made Otis potentially liable for indemnification and thus triggered its duty to defend. (Crawford, supra, 44 Cal.4th at p. 558; City of Bell, supra, 220 Cal.App.4th at pp. 249-251.) We conclude that she did, and the trial court erred by concluding otherwise.
In her complaint, Zapotoczny alleged that "[Defendants] so negligently and carelessly operated, supervised, cared for, inspected, and/or maintained the elevator that when the elevator had stopped on the third floor, the elevator suddenly dropped several floors causing plaintiff to hurt her back and neck, and sustain serious injuries." Although the complaint does not name Otis, these allegations assert claims (negligent maintenance and operation of the elevator) that potentially fall within the scope of Otis's duty to indemnify for claims "arising out of [Otis's] negligent performance" of its work on the elevators.
Otis contends that the allegations are insufficient because she did not name Otis or allege facts specifically implicating Otis's work, and the trial court agreed. But the duty to defend does not require such particularity in the pleadings. "[B]are allegations of the claimant's complaint do not control. If the broad charge made. . . . contains within it the potentiality of a judgment . . . , the indemnitor becomes liable to defend." (Davidson v. Welch (1969) 270 Cal.App.2d 220, 234 (Davidson), citing Gray v. Zurich Ins. Co. (1966) 65 Cal.2d 263, 276-277 (Gray); see also City of Bell, supra, 220 Cal.App.4th at p. 251 ["[T]here is no duty for the [indemnitor] to defend any claims which do not, at the time of tender, allege facts which would, at least potentially, fall within the scope of the duty to indemnify."].)
UDC, supra, 181 Cal.App.4th 10 illustrates the point. In UDC, the general contractor sued a subcontractor for breach of express contractual indemnity for claims in an underlying suit by a group of homeowners. (Id., at p. 14.) The court held the subcontractor had a duty to defend, even though, as here, the complaint did not name it as a defendant or describe its role in the project and the jury found that it was not negligent. (Id., at pp. 15, 20-21.) The subcontractor agreed to indemnify the contractor for claims that "arise out of or are in any way connected with" a negligent act or omission by the subcontractor. (Id., at p. 20.) The court held that general allegations in the complaint sufficed to trigger the subcontractor's duty to defend: "Although the [homeowners] complaint did not specifically identify each subcontractor or the details of each role in the project, its general description of the defects in the project implicated the [subcontractor's] work." (Id., at p. 21.) It added, "An indemnitee should not have to rely on the plaintiff to name a particular subcontractor or consultant in order to obtain a promised defense by the one the indemnitee believes is responsible for the plaintiff's damages." (Ibid.) We agree with this analysis and conclude it applies equally to Otis.
Finally, Otis's motion for summary judgment further supports a duty to defend. (See Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1083 ["Any doubts as to whether the complaint gave rise to a duty to defend . . . were resolved by materials adduced in the summary judgment proceedings."].) In its motion, Otis argued that it was not negligent and therefore owed no duty to indemnify. Otis's expert opined that Schindler's mechanics caused the accident by incorrectly repairing a door mount. Sierra and Schindler opposed the motion, citing their expert's opinion that the accident was caused by the incorrect use of zip ties installed prior to Schindler's involvement. The court denied the motion, finding triable issues of fact on the negligence of both parties. Otis is simply wrong when it argues that there was no basis for its potential liability on the indemnity and, hence, no duty to defend.
In short, we hold that the trial court erred by concluding Otis had no duty to defend Sierra.
B.
Our reversal of the judgment on the cross-complaint necessarily compels the reversal of the award of costs, including attorney fees, to Otis. (Allen v. Smith (2002) 94 Cal.App.4th 1270, 1284 (Allen); Merced County Taxpayers' Assn. v. Cardella (1990) 218 Cal.App.3d 396, 402.) "After reversal of a judgment 'the matter of trial costs [is] set at large.' " (Allen, supra, 218 Cal.App.3d at p. 1284.)
C.
Schindler seeks to recover from Otis costs in defending Sierra under equitable subrogation and equitable contribution theories. We conclude that, while equitable subrogation does not apply here, the equities entitle Schindler to contribution from Otis for defense costs.
"In the insurance context, equitable subrogation and equitable contribution doctrines each pertain to the allocation of costs when there is more than one potentially responsible insurance company." (Maryland Casualty Co. v. Nationwide Mutual Ins. Co. (2000) 81 Cal.App.4th 1082, 1088 (Maryland).) "Equitable subrogation allows an insurer that paid coverage or defense costs to be placed in the insured's position to pursue a full recovery from another insurer who was primarily responsible for the loss." (Ibid.) "[T]the moving party insurer must show the other insurer was primarily liable for the loss and that the moving party's equitable position is inferior to that of the second insurer." (Ibid., italics omitted.)
By contrast, equitable contribution "applies to apportion costs among insurers that share the same level of liability on the same risk as to the same insured." (Maryland, supra, 81 Cal.App.4th at p. 1089.) This " 'arises when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others.' " (Ibid., citing Fireman's Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279, 1293-1294.)
Equitable subrogation does not apply in this case because Schindler does not establish that Otis was "primarily liable" for defending Sierra. However, because both Schindler and Otis equally had a duty to defend Sierra under separate contracts, equitable contribution is appropriate. (See Maryland, supra, 81 Cal.App.4th at p. 1089.) Schindler, who " 'defended the action without any participation by the others,' " is therefore entitled to a partial reimbursement from an equally responsible Otis. (Ibid.)
DISPOSITION
We reverse the judgment as to the cross-complaint and the award of costs and attorney's fees to Otis. We remand for the trial court to apply the equitable contribution doctrine, determine Otis and Schindler's equitable shares of the defense costs, and allocate the defense costs among Otis and Schindler accordingly.
/s/_________
BURNS, J. WE CONCUR: /s/_________
JONES, P. J. /s/_________
SIGGINS, J.
Presiding Justice of the Court of Appeal, First Appellate District, Division Three, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.