I am a former water boy for an NFL team, and now a football fan and season ticketholder. At each home game for my team, two guys hold up a large white letter “D” and a small cardboard picket fence, prompting calls for “Deeee-fense!” by the crowd.
But there are times when it’s unclear if we’re spectators or players. Legally, this is not a good position to be in.
Lawyers like to say things in threes. They want you to “discharge, release, and waive” claims, or to “indemnify, hold harmless, and defend” against lawsuits. As legal counsel, what does it mean to defend a client against suits, claims, and demands (another trinity)? It means that you assemble a legal team and hit the field when a lawsuit is filed against your client. But does your insurer cover the defense of your client in a lawsuit that does not name your firm? Before there is any ruling that you are at fault?
What happens if you defend your client all the way to trial and win? You are not at fault; neither was your client. You should not have to pay the legal bill, right? Wrong.
Consider the facts in a 2008 California case, Crawford v. Weather Shield Manufacturing Inc. In this, a subcontractor, Weather Shield, contracted with JMP, the developer–builder of a large residential project, to supply wood-framed windows. The subcontract said that Weather Shield would, first, indemnify and hold JMP harmless against all claims for damages or loss growing out of the execution of Weather Shield’s work. Second, Weather Shield (at its own expense) would defend any suit or action brought against JMP founded upon the claim of damage or loss. Nothing said the sub had to actually be at fault—just that the “claims” had to “grow out” of the sub’s work.
Owners of 122 homes sued JMP, Weather Shield, and others, claiming various defects such as leaky windows. JMP then sued Weather Shield under the subcontract clause, saying that it was entitled to indemnity and defense from these claims. The jury found that Weather Shield was not negligent; the leaks were due to another sub’s work. However, the trial court said that Weather Shield had to pay $131,274 for JMP’s defense costs—and that JMP was allowed to recover an added $46,734 in attorney fees incurred to sue Weather Shield.
California’s highest court upheld that decision, holding that the subcontract says what it means and means what it says: “The duty promised is to render, or fund, the service of providing a defense on the ... [client’s] behalf—a duty that necessarily arises as soon as such claims are made against the ... [client], and may continue until they have been resolved.” Worse yet, a California statute said that when a person agrees to indemnify another against claims, demands, or liability, that means they’ve agreed to absorb the costs of defense as well, even if the word “defend” is not in the contract.
A helmet to the chest, to be sure. It is likely that an architect’s professional liability carrier would deny payment of these damages. Policies provide for the insured architect’s defense, but not for the client’s defense—especially when the insured architect is found not negligent. A common insurance clause excludes damages assumed by contract that the insured would not otherwise have under the law.
What’s the bottom line? Read your contracts. Carefully. Get your insurance agent to review the indemnity clauses. Don’t presume that just because you are not at fault, you have no liability to your client. —G. William Quatman, Esq., FAIA
Nothing in this article should be construed as legal advice. Consult your own advisers based upon your specific circumstances. | Read the first article in the series here.