Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County No. LC068582, Michael B. Harwin, Judge. Reversed with directions.
Robie & Matthai, Edith Matthai, Kyle Kveton, and Ronald P. Funnell for Cross-defendant and Appellant.
Dunbar & Associates and Kevin T. Dunbar for Cross-complainant and Respondent.
SUZUKAWA, J.
In this action on a cross-complaint for breach of an indemnity agreement, we conclude that the indemnitor had no duty to defend the indemnitee in the underlying personal injury action. The judgment on the cross-complaint is reversed.
“Indemnity means ‘the obligation resting on one party to make good a loss or damage another party has incurred.’ (Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 628.) An indemnitor is the party who is obligated to pay another. An indemnitee is the party who is entitled to receive the payment from the indemnitor.” (Maryland Casualty Co. v. Bailey & Sons, Inc. (1995) 35 Cal.App.4th 856, 864.)
BACKGROUND
Both the indemnitee, respondent Thrifty Payless, Inc., doing business as Rite Aid (Rite Aid), and the indemnitor, Tyler Refrigeration, a division of appellant Carrier Commercial Refrigeration, Inc. (Tyler), were sued by plaintiff Bradley Lesley in the underlying personal injury action (slip and fall). (Lesley is not a party to this appeal.) The final judgment in the underlying action conclusively established that neither Rite Aid nor Tyler was negligent or at fault with regard to Lesley’s accident. In this appeal by Tyler from the adverse judgment on Rite Aid’s cross-complaint, the issue is whether the parties’ indemnity agreement required Tyler to defend Rite Aid against the underlying action regardless of Tyler’s negligence. We conclude it did not.
I. The Indemnity Clause
Rite Aid and Tyler entered into an “HVAC Service Agreement” (the Agreement) that required Tyler to inspect, service, and maintain Rite Aid’s air conditioning equipment. Among other things, the Agreement required Tyler to check and clean the drain lines and pans in Rite Aid’s air conditioning equipment. The Agreement also contained an indemnity clause.
HVAC stands for heating, ventilation, and air conditioning.
The indemnity clause provided: “To the extent of [its] fault or negligence, [Tyler] acknowledges and agrees to indemnify, defend and hold Rite Aid harmless from and against any and all claims, losses, liability, damages, and expenses, including reasonable attorney’s fees arising or resulting, to the extent that same are caused by an intentional or negligent act or omission of [Tyler] or [Tyler’s] agents, employees or subcontractors with respect to the performance of its obligations under this Agreement or the allegation by any third party of any state of facts concerning such Services which, if true, would constitute a breach of any representation, warranty or other obligation of [Tyler] under this Agreement.”
“Services” was defined in the Agreement as “performing preventative maintenance and service (‘Services’) at the Rite Aid locations listed in Exhibit A (the ‘Locations’).”
Lesley sued Rite Aid for personal injuries sustained as a result of a slip and fall accident at a Rite Aid store. During discovery, Lesley claimed that he had slipped and fallen on a puddle of water that had leaked from the store’s air conditioning unit. Lesley named Tyler as a Doe defendant on the theory that the leak had been caused by Tyler’s failure to clean the drain lines.
Rite Aid tendered its defense in the underlying action to Tyler on the theory that: (1) the Agreement required Tyler to provide a defense against third party allegations regarding its performance under the Agreement that, if true, would constitute a breach of the Agreement; and (2) the leak, if caused by Tyler’s failure to clean the drain lines, constituted a breach of the Agreement. Tyler refused to provide Rite Aid with a defense. Tyler contended that its duty to defend was limited to the extent of its fault or negligence, which was still at issue.
II. The Cross-Complaint and Summary Adjudication Order
Claiming that it was owed a defense regardless of Tyler’s negligence or fault, Rite Aid filed a cross-complaint against Tyler for breach of contract and other claims. Rite Aid alleged that Tyler was required by the Agreement “to defend and indemnify [Rite Aid] from any and all losses associated with the work performed by” Tyler, and that Tyler had breached the Agreement by “failing to perform [its] work in a safe and reasonable manner, [and] failing to indemnify and/or hold [Rite Aid] harmless from the allegations alleged in [Lesley’s] Complaint.”
The cross-complaint’s other causes of action are no longer at issue.
Rite Aid and Tyler filed competing motions for summary adjudication of the breach of contract claim, each seeking to establish that its interpretation of the indemnity clause was correct. Rite Aid argued that under the final provision of the indemnity clause, Tyler was obligated to defend Rite Aid against “ any allegation by a third party of any facts, which if true, would constitute . . . [a] breach of [Tyler’s] obligations under the terms of the contract.” Rite Aid argued that Lesley’s allegation of an injury caused by an air conditioning leak fulfilled this requirement because the allegation, “if true, would constitute [a] breach of [Tyler’s] obligations under” the Agreement.
Tyler, on the other hand, argued that Rite Aid was ignoring the fact that the indemnity clause contained an initial limiting provision that limited both the duty to defend and the duty to indemnify to the extent of its fault or negligence. Tyler argued that the initial limiting provision clearly applied to the entire indemnity clause: “ To the extent of its fault or negligence,[Tyler] . . . agrees to indemnify [and] defend . . . Rite Aid . . . from and against any claims . . . to the extent that same are caused by an intentional or negligent act or omission of [Tyler] or [Tyler’s] agents, employees or subcontractors with respect to the performance of its obligations under this Agreement . . . .” (Emphasis added.)
Tyler contended that it did not owe a duty to defend under the indemnity clause until its fault or negligence was established. (Citing Heppler v. J.M. Peters Co. (1999) 73 Cal.App.4th 1265, 1282 (Heppler); Civ. Code, § 2778, subd. (4).) Tyler argued that the indemnity provision must be strictly construed against Rite Aid, both as indemnitee and drafter of the contract (citing Heppler, supra, 73 Cal.App.4th at p. 1278). Tyler asserted that if Rite Aid had wished to impose an unlimited duty to defend, it should not have limited the duty to defend by including it within the initial limiting provision.
Heppler stated that unlike insurers, which “have a distinct and free-standing duty to defend their insureds (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263) . . ., indemnitors [have a duty] to defend [that] is not triggered until it is determined that the proceeding against the indemnitee is ‘embraced by the indemnity.’ (Civ. Code, § 2778, subd. 4; see also Regan Roofing Co. v. Superior Court (1994) 24 Cal.App.4th 425, 436-437 [duty to defend stemming from insurance policy is broader in part because it is an adhesion contract].)” (Heppler v. J.M. Peters Co., supra, 73 Cal.App.4th at p. 1282.)
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:
The trial court found there were no triable issues of material fact and granted Rite Aid’s motion for summary adjudication. In its May 27, 2005 summary adjudication order, the trial court stated: (1) Tyler must defend, indemnify and hold Rite Aid harmless against third party allegations, which, if true, would constitute a breach by Tyler of any representations, warranty, or other obligation under the Agreement; (2) Tyler’s refusal to defend, indemnify, and hold Rite Aid harmless from Lesley’s personal injury action constituted a breach of the Agreement; and (3) Rite Aid is entitled to recover all claims, losses, liability, damages, and expenses, including reasonable attorney fees, arising from Tyler’s breach of the Agreement.
III. The Prior Appeal (No. B184467)
In our July 19, 2006 unpublished opinion (No. B184467), we considered two prior appeals in this matter: (1) Lesley’s appeal from the summary judgment for Rite Aid on the personal injury complaint, which we reversed; and (2) Tyler’s appeal from the May 27, 2005 summary adjudication order, which we dismissed. We dismissed Tyler’s prior appeal on the ground that the May 27 order was not yet final for purposes of appeal.
We denied Tyler’s request to treat the matter as a writ petition, given that Tyler’s prior notice of appeal was not filed within the time period required by Code of Civil Procedure section 437c, subdivision (m)(1). (See Abadjian v. Superior Court (1985) 168 Cal.App.3d 363, 369.)
IV. Judgment on the Complaint
After the matter was remanded to the superior court, the personal injury action was tried to a jury. The jury found by special verdict that neither Rite Aid nor Tyler was negligent. The trial court entered judgment for Rite Aid and Tyler on the complaint.
V. Judgment on the Cross-Complaint
Rite Aid moved “for an order awarding reasonable costs and attorney’s fees” of $167,747.80 under the May 27, 2005 summary adjudication order. In opposition, Tyler argued that it did not owe a duty to defend unless it was negligent, because the indemnity clause “clearly states, in two places, that [Tyler] must only defend and indemnify Rite Aid to the extent of [Tyler’s] negligence.” Tyler contended that “[b]ecause the jury returned a special verdict finding that Tyler Refrigeration was not negligent at all, [Tyler] is not required to fund any part of Rite Aid’s defense costs.” (Fn. omitted.)
The trial court rejected Tyler’s arguments. It entered judgment for Rite Aid on the cross-complaint in the amount of $168,665.30. Tyler has timely appealed from the judgment on the cross-complaint.
The May 27, 2005 summary adjudication order is reviewable on appeal from the final judgment on the cross-complaint. (Jacobs-Zorne v. Superior Court (1996) 46 Cal.App.4th 1064, 1070-1071.)
DISCUSSION
I. Standard of Review
The standard of review for summary judgment is well established. The motion “shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (Code Civ. Proc., § 437c, subd. (c).)
“In an appeal from a summary judgment, the order which granted that judgment must be reviewed de novo. (Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465, 474.)” (Milazo v. Gulf Ins. Co. (1990) 224 Cal.App.3d 1528, 1534.) Where, as here, the indemnity clause “was construed by the trial court without the aid of extrinsic evidence, the interpretation of the clause is a question of law for this court. (Price v. Shell Oil Co. [(1970)] 2 Cal.3d [245,] 256; Myers Building Industries, Ltd. v. Interface Technology, Inc. [(1993)] 13 Cal.App.4th [949,] 974.)” (Maryland Casualty Co. v. Bailey & Sons, Inc., supra, 35 Cal.App.4th at p. 868.)
II. Interpretation of Indemnity Agreements
“An indemnity obligation . . . may arise from ‘express contractual language establishing a duty in one party to save another harmless upon the occurrence of specified circumstances.’ (E. L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 506.) Courts interpret contractual indemnity provisions under the same rules governing other contracts, with a view to determining the actual intent of the parties. (Myers Building Industries, Ltd. v. Interface Technology, Inc.[, supra,] 13 Cal.App.4th 949, 968-969; Ralph M. Parsons Co. v. Combustion Equipment Associates, Inc. (1985) 172 Cal.App.3d 211, 221.)” (Maryland Casualty Co. v. Bailey & Sons, Inc., supra, 35 Cal.App.4th at p. 864.)
“[C]ourts must give a ‘“reasonable and commonsense interpretation”’ of a contract consistent with the parties’ apparent intent. (Cf. Renee J. v. Superior Court (2001) 26 Cal.4th 735, 744 . . . .) The language ‘“‘in a contract must be construed in the context of that instrument as a whole.’”’ (Palmer [v. Truck Ins. Exchange (1999)] 21 Cal.4th [1109,] 1118.) Further, if possible, the court should give effect to every provision of the contract. (National City Police Officers’ Assn. v. City of National City (2001) 87 Cal.App.4th 1274, 1279 . . . .)” (People ex rel. Lockyer v. R.J. Reynolds Tobacco Co. (2003) 107 Cal.App.4th 516, 526.)
A. Indemnity Agreements Embrace the Costs of Defense
Depending on the terms of the agreement, an indemnitor may agree to assume a duty to defend or a duty to indemnify for defense costs. The duty to defend arises “as soon as such claims are made against the promisee, and may continue until they have been resolved.” (Crawford v. Weather Shield Mfg. Inc. (2008) 44 Cal.4th 541, 554.) In contrast, the duty to indemnify for defense costs is an obligation to reimburse another, after the fact, for defense costs the other has incurred in defending itself. (Id. at pp. 554-555.)
Under Civil Code section 2778, which governs the construction of all indemnity agreements unless otherwise indicated, “a basic contractual indemnity against particular claims, demands, or liabilities ‘embraces the costs of defense’ against such claims, demands, or liabilities. (Id., subd. 3.)” (Crawford, supra, 44 Cal.4th at p. 554.) Civil Code section 2778, subdivision 4 provides that if the parties agree to impose a duty to defend, the indemnitee has the right to conduct his own defense. (Ibid.)
“By virtue of these statutory provisions, 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.” (Crawford, supra, 44 Cal.4th at p. 555.)
“Implicit in this understanding of the duty to defend an indemnitee against all claims ‘embraced by the indemnity,’ as specified in subdivision 4 of section 2778, is that the duty arises immediately upon a proper tender of defense by the indemnitee, and thus before the litigation to be defended has determined whether indemnity is actually owed. This duty, as described in the statute, therefore cannot depend on the outcome of that litigation. It follows that, under subdivision 4 of section 2778, claims ‘embraced by the indemnity,’ as to which the duty to defend is owed, include those which, at the time of tender, allege facts that would give rise to a duty of indemnity. [Fn. omitted.] Unless the indemnity agreement states otherwise, the statutorily described duty ‘to defend’ the indemnitee upon tender of the defense thus extends to all such claims.” (Crawford, supra, 44 Cal.4th at p. 558.)
B. Limits on Contractual Indemnity Obligations
Notwithstanding that indemnity agreements embrace the costs of defense, the parties may freely limit their indemnity and defense obligations as they wish. “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. (E. L. White, Inc. v. City of Huntington Beach[, supra,]21 Cal.3d 497, 507 (E. L. White, Inc.); Heppler v. J.M. Peters Co.[, supra,] 73 Cal.App.4th 1265, 1276-1277 (Heppler).) ‘When the parties knowingly bargain for the protection at issue, the protection should be afforded.’ (Rossmoor Sanitation, Inc. v. Pylon, Inc.[, supra,] 13 Cal.3d 622, 633 (Rossmoor); see Heppler, supra, at p. 1277.)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. (Heppler, supra, at p. 1277; Continental Heller Corp. v. Amtech Mechanical Services, Inc. (1997) 53 Cal.App.4th 500, 505 . . .; Peter Culley & Associates v. Superior Court (1992) 10 Cal.App.4th 1484, 1492 . . . .)” (Crawford, supra, 44 Cal.4th at pp. 551-552.)
In this case, the parties disagree as to whether the Agreement limited Tyler’s duty to defend to instances in which Tyler was negligent or at fault.
III. The Agreement Limited the Duty to Defend
Applying the above principles to this case, we conclude that the Agreement limited Tyler’s duty to defend to the extent of its fault or negligence. This limitation was imposed by the Agreement’s initial limiting provision, “ To the extent of [its] fault or negligence.” (Emphasis added.) The Agreement went on to state that the obligation to indemnify and defend was applicable “ to the extent” the claims and expenses were caused by: (1) Tyler’s intentional or negligent acts or omissions with respect to its performance of its obligations under the Agreement (part (1)); or (2) “the allegation by any third party of any state of facts concerning such Services which, if true, would constitute a breach of any representation, warranty or other obligation of [Tyler] under this Agreement” (part (2)). (Emphasis added.)
We conclude that the initial limiting provision—“[t]o the extent of [Tyler’s] fault or negligence”—applied to the entire indemnity clause, including part (2), which Rite Aid contends is free of all limitations. Rite Aid offers no explanation as to why part (2) is not governed by the initial limiting provision. There is nothing in the Agreement to suggest that Rite Aid is correct.
We distinguish the agreement in Crawford, in which the duty to defend and the duty to indemnify were addressed in separate provisions. The first provision required the indemnitor “(1) ‘to indemnify and save [JMP] harmless against all claims for damages[,] . . . loss, . . . and/or theft . . . growing out of the execution of [Weather Shield’s] work.’” (Crawford, supra, 44 Cal.4th at pp. 547-548.) The second provision required the indemnitor “(2) ‘at [its] own expense to defend any suit or action brought against [JMP] founded upon the claim of such damages[,] . . . loss, . . . or theft.’” (Ibid.) In this case, on the other hand, the indemnity clause jointly addressed the duties to defend and indemnify, and subjected them both to the same limitation, “[t]o the extent of [Tyler’s] fault or negligence.” The agreement in Crawford did not contain a similar limitation.
Adopting Rite Aid’s interpretation of the indemnity clause would eviscerate the initial limiting provision from the Agreement. We decline to do so because, wherever possible, we are to “give effect to every provision of the contract. [Citation.]” (People ex rel. Lockyer v. R.J. Reynolds Tobacco Co., supra, 107 Cal.App.4th at p. 526.) To the extent that part (2) is susceptible of the interpretation urged by Rite Aid, it is ambiguous in light of the other provisions and, therefore, must be construed against Rite Aid, as indemnitee and drafter of the Agreement.
“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. (See, e.g., Buss [v. Superior Court (1997)] 16 Cal.4th 35, 47-48; La Jolla Beach & Tennis Club, Inc. v. Industrial Indemnity Co. (1994) 9 Cal.4th 27, 37-38.) 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. (E.g., Goldman v. Ecco-Phoenix Elec. Corp. (1964) 62 Cal.2d 40, 49 (Goldman); see Regan Roofing Co. v. Superior Court[, supra,] 24 Cal.App.4th 425, 436 . . . .)
“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. (E.g., E. L. White, Inc., supra, 21 Cal.3d 497, 507; Rossmoor, supra, 13 Cal.3d 622, 628; Goldman, supra, 62 Cal.2d 40, 44; Centex Golden [Construction Co. v. Dale Tile Co. (2000)] 78 Cal.App.4th 992, 998; Heppler, supra, 73 Cal.App.4th 1265, 1278.)” (Crawford, supra, 44 Cal.4th at p. 552.)
We conclude the summary adjudication order and resulting judgment must be reversed because, under the express terms of the Agreement, the duty to defend was clearly limited to the extent of Tyler’s fault or negligence, of which it was absolved in the underlying action.
Rite Aid contends that in the event of a reversal, it is entitled to a new trial on the issue of Tyler’s negligence. The contention lacks merit. Tyler’s negligence was fully litigated in the underlying personal injury trial at which Rite Aid participated and had an opportunity to present evidence. Although Rite Aid argues that it was precluded from presenting evidence of Tyler’s negligence, it has provided no record references to support this assertion, thereby failing to furnish us with an adequate record to assess error. (See Ketchum v. Moses (2001) 24 Cal.4th 1122, 1140-1141.) The judgment that absolved Tyler of negligence liability is final and, under the doctrine of res judicata, may not be relitigated. (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896-897.)
DISPOSITION
The judgment on the cross-complaint is reversed with directions to enter judgment for Tyler. Tyler is awarded its costs on appeal.
We concur: EPSTEIN, P. J., WILLHITE, J.
“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.”
In support of its motion for an order awarding attorney fees and costs under the summary adjudication order, Rite Aid mischaracterized our prior opinion as having “dismissed Cross Defendant’s appeal [for] . . . having no legal basis. [Record citation omitted.]” Rite Aid also misstated that Tyler “was forever time barred from challenging” the summary adjudication order, and that we “upheld” the order on appeal. We obviously never reached the merits of the summary adjudication order in the prior appeal.