Owner's Claim Asserting Faulty Construction Insufficient To Trigger Subcontractor's Duty To Indemnify General
Boulder Plaza Residential, LLC v. Summit Flooring, LLC (Colo. App. 2008)
The Colorado Court of Appeals holds that an owner's claim of alleged defective workmanship is not sufficient, under the particular subcontract at issue, to trigger the subcontractor's duty to indemnify the general. Instead, the subcontractor only has to indemnify the general contractor if there is damage caused by the subcontractor's actual negligent acts, breach of contract, or intentional torts.
Project owner Boulder Plaza Residential, LLC (BPR), contracted with McCrerey & Roberts Construction Company, Inc. (McCrerey), to act as the general contractor on a residential condominium construction project. McCrerey subcontracted the hardwood floor installation to Summit Flooring, LLC (Summit).
After installation of the floors, BPR complained to McCrerey of cupping, disbanding, panelizing, and splitting of the floor boards installed by Summit. McCrerey in turn contacted Summit, and the two unsuccessfully attempted to repair the floors.
BPR and the HOA filed lawsuits against McCrerey and Summit due to the alleged defective installation of the hardwood floors, and McCrerey and Summit filed cross-claims against each other. McCrerey later settled with BPR (which had been assigned the HOA's claims). As part of the settlement, in exchange for a release, McCrerey paid BPR $800,000 and also assigned to BPR its claims against Summit. Thereafter, BPR stood in the shoes of McCrerey.
BPR then pursued the claims assigned to it by McCrerey against Summit: Namely, claims for indemnity and breach of contract. Summit pursued its cross-claim for breach of contract, based on nonpayment by McCrerey.
The trial court interpreted the subcontract between McCrerey and Summit to require an actual showing of fault -- either negligence or breach of contract -- by Summit to trigger Summit's contractual obligation to indemnify McCrerey. It therefore instructed the jury that, in order to find against Summit on the indemnity claim, the jury would have to find, among other things, that Summit was negligent or breached the subcontract. The jury found that Summit was not negligent and did not breach the subcontract, and accordingly found in Summit's favor.
The Court of Appeals agreed with the trial court's interpretation of the subcontract. The subcontract provided, in relevant part, that Summit agreed to the following:
1. To . . . indemnify and save contractor harmless against all claims for damage to persons and property growing out of the execution of the work, including any costs and fees incurred by Contractor, should any claims be made. . . .
. . .
13. To protect and indemnify Contractor against any loss or damage suffered by anyone arising through the negligence of Subcontractor, or those employed by it or its agent or servants; to bear any expense which Contractor may have by reason of the negligence, or on account of being charged with negligence . . . .
Because these two provisions appear to cover common ground, the Court of Appeals determined that they must both be interpreted so as to not render either of them meaningless.
Although provision 1 requires Summit to indemnify McCrerey "against all claims for damage to persons and property growing out of the execution of the work", the Court of Appeals held that, when read together with provision 13, this means that Summit's indemnity obligation is limited to damages arising only from its own negligent acts, breach of contract, or intentional torts.
In a companion case decided the same day, the Court of Appeals affirmed the award of attorney's fees in Summit's favor pursuant to the prevailing party provision of the subcontract between McCrerey and Summit. Summit had purchased an insurance policy from USF&G, and McCrerey was named as an additional insured. USF&G had paid for Summit's defense in the lawsuit. Thus, the fees awarded Summit against BPR were actually paid by USF&G. BPR argued that the anti-subrogation rule barred an award of fees in this situation. The anti-subrogation rule provides that an insurer has no right of subrogation against its own insured. But the Court of Appeals held that it did not apply to protect BPR. Although McCrerey may have assigned its claims against Summit to BPR, this did not render BPR an "insured" insofar as the anti-subrogation rule is concerned.
Read slip opinion re: the indemnification claim
Read slip opinion re: Summit's award of attorney's fees
