Indemnity: When Judgment In Favor Of Cross-Defendant Defending Against Indemnity Claim Is Reversed On Appeal, So Too Is The $756,121.24 Awarded In Attorneys’ Fees And Costs

The Trial Court Erred In Concluding That Duty To Indemnify Was Not Triggered By The Filing Of Underlying Lawsuit Wherein Plaintiff Did Not Expressly Allege Negligence By Cross-Defendant.

            In Sierra Pacific Properties, Inc. v. Otis Elevator Co., Case No. A154578 (1^st Dist., Div. 5 January 27, 2020) (unpublished) a commercial office building employee was seriously injured when the elevator she was riding in suddenly malfunctioned – requiring her to undergo several surgeries.

            She sued the building owner and Schindler – the contractor that serviced the elevators at the time of the incident.  Building Owner tendered its defense to both Schindler and Otis Elevator Co.  Otis had maintained the elevators until approximately three months prior to the incident.  Schindler accepted Building Owner’s tender and defended it in the lawsuit, but Otis did not.    

            The jury returned a verdict finding negligence – allocated fault at 60% to Building Owner and 40% to Schindler – and awarded Plaintiff over $5.6 million in damages.  The jury found Otis was not negligent.

            After trial, the parties submitted briefs on the cross-complaint Building Owner and Schindler had filed against Otis for contractual and equitable indemnity.  While the parties agreed that Otis did not have to indemnify Building Owner based on the jury’s findings, Schindler alleged that Otis should have shared the costs of defending Building Owner.  However, the trial court found Otis had no duty to defend Business Owner because Plaintiff did not expressly allege negligence by Otis in her complaint.  Additionally, the trial court awarded Otis $756,121.24 in attorney fees and costs under Civil Code section 1717.

            The 1/5 DCA reversed – finding Otis had a duty to defend Building Owner pursuant to indemnity clauses in the contract between the parties, and that the duty had been triggered by Plaintiff’s complaint even though she had not named Otis as negligent.  Pursuant to Civil Code section 2778, which imposes a duty to defend when a plaintiff alleges facts that would give rise to a duty of indemnity, the 1/5 DCA determined the proper focus was not on who Plaintiff named in her complaint. Rather, the proper focus was on the facts alleged in Plaintiff’s complaint which clearly implicated Otis’s work and made it potentially liable on the indemnity.  That duty arose immediately upon Building Owner’s tender of defense and was not dependent on the outcome of the litigation.  (See also, Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4^th 541, 553-558 and UDC-Universal Development, L.P. v. CH2M Hill (2010) 181 Cal.App. 4^th 10, 21.)

            Reversal of the judgment in favor of Otis necessitated reversal of the attorney fees/costs it had been awarded.  On remand, the 1/5 DCA instructed the trial court to apply the equitable contribution doctrine in determining Schindler and Otis’s defense costs shares.