Construction, Fee Clause Interpretation, Indemnity, Insurance: Subcontractors Not Liable For Gen. Developer Defense Fees Not Relating To Their Work, And Equitable Subrogation Action Fees For Developer Not Recoverable Under Ambiguous Clause

At The End, Joint/Several Liability Theory On The First Issue Was Rejected, And Ambiguity Construed Against Developer Drafter On The Second Issue.

            This next post might interest construction and insurance practitioners, although it involves the interesting intersection of contractual and insurance equitable subrogation issues—with complexities teeming!

            In Berg v. Pulte Home Corp., Case No. C086890 (3d Dist. July 30, 2021) (partially published; fee discussions not published), developer Pulte was defended by insurer St. Paul in a residential construction lawsuit where cross-claims or intervention claims were asserted against various Pulte subcontractors.  St. Paul sued three of Pulte’s subcontractors for equitable subrogation based on the subcontractors’ failure to defend Pulte (such that the insurer had to come out of pocket) to the tune of $193,137.68 in attorney’s fees.  The lower court trifurcated the resolution:  the first phase was a bench trial on equitable subrogation entitlement (found in St. Paul’s favor); the second phase was a jury trial on amounts to be awarded insurer under equitable subrogation (the jury did award certain amounts to St. Paul); and the third phase was another bench trial on the settlement offsets/credits to be factored into the ultimate award (with St. Paul getting some positive judgments, but small amounts after offsets/credits).  However, along the way, the lower court (1) denied that the subcontractors were jointly and liable to St. Paul (as subrogaee to Pulte) for general defense costs not related to the subcontractors’ specific scope of work; and (2) denied insurer’s request for fees in prosecuting the equitable subrogation claim based on a performance default clause in a master agreement between Pulte and the subcontractors.

            The Third District affirmed the lower court’s fee determinations.  As to the first issue, the appellate court followed two prior decisions finding that the subcontractors are only liable for fees relating to their specific scopes of work, not general attorney’s fees relating to the overall defense of the case on behalf of Pulte.  (Pulte Home Corp. v. CBR Electrics Inc., 50 Cal.App.5^th 216, 225 (2020); Carter v. Pulte Home Corp., 52 Cal.App.5^th 571, 586-587 (2020).)

            With respect to issue #2, the appellate court did note that the default clause was ambiguous so that both sides had a colorable argument on whether it encompassed general equitable subrogation fees.  However, the killer for St. Paul/Pulte was that it was ambiguous such that the ambiguity was construed against drafter Pulte—with the absence of a specific attorney’s fees clause in the default provision not clearly establishing the basis for fee entitlement.