Opinion ID: 1234083
Heading Depth: 1
Heading Rank: 6

Heading: Indemnity Claim

Text: (7a) The principal contention of Bay and Bowen is that even if the trial court properly found that the settlement was in good faith, the court nonetheless erred in dismissing their cross-complaint for indemnity. As we noted earlier, in the trial court Bay and Bowen maintained that their indemnity claim fell outside the bar of section 877.6, subdivision (c) because it sought total equitable indemnity, and because it sought indemnity on an implied contractual indemnity theory. In Far West Financial Corp. v. D & S Co. (1988) 46 Cal.3d 796 [251 Cal. Rptr. 202, 760 P.2d 399], we held that section 877.6, subdivision (c) encompasses claims for total, as well as partial, equitable indemnity. Bay and Bowen no longer challenge the trial court's dismissal of their claim for total equitable indemnity. They maintain, however, that the trial court erred in dismissing their claim for implied contractual indemnity, arguing that such a claim should be equated with a claim for express contractual indemnity. Although the appellate decisions are divided on this issue (see ante, at p. 1020, fn. 3), our decision in E.L. White, Inc. v. City of Huntington Beach, supra, 21 Cal.3d 497 ( E.L. White ), supports the trial court's and the Court of Appeal's rejection of this contention by Bay and Bowen. E.L. White, supra, 21 Cal.3d 497, was decided shortly after we first recognized and applied the comparative equitable indemnity doctrine in American Motorcycle Assn. v. Superior Court, supra, 20 Cal.3d 578. In E.L. White, supra, Justice Manuel, writing for a unanimous court, discussed the various sources from which a duty to indemnify could arise under California law: The obligation of indemnity, which we have defined as `the obligation resting on one party to make good a loss or damage another has incurred' [citation] may arise under the law of this state from either of two general sources. First, it may arise by virtue of express contractual language establishing a duty in one party to save another harmless upon the occurrence of specified circumstances. Second, it may find its source in equitable considerations brought into play either by contractual language not specifically dealing with indemnification or by the equities of the particular case. [Citations.] ( E.L. White, supra, 21 Cal.3d at pp. 506-507, italics added.) As this passage indicates, in E.L. White we recognized a distinction between an indemnity claim based on an express contract to indemnify, that is, an express contractual indemnity claim, and an indemnity claim based on contractual language not specifically dealing with indemnification ( E.L. White, supra, 21 Cal.3d at p. 507), that is, an implied contractual indemnity claim. We explained that, unlike express contractual indemnity, implied contractual indemnity is a form of equitable indemnity. ( Ibid. ) [10] In E.L. White, we applied the distinction between express indemnity and equitably based indemnity to the facts presented in a manner that recognized implied contractual indemnity as a form of equitable indemnity subject to comparative principles. E.L. White was the last of a series of lawsuits arising out of a construction site accident in which one worker had been killed and another seriously injured. The first lawsuit was brought by the injured worker and the heirs of the deceased worker. The plaintiffs in that case sued both E.L. White, Inc. (the general contractor), and the City of Huntington Beach (the owner of the project). The city then filed a declaratory judgment action to establish that E.L. White, Inc., had an obligation to indemnify the city. The city based its declaratory relief action on an express indemnity clause contained in its contract with E.L. White, Inc. The trial court, however, found that the accident had resulted, in part, from the active negligence of the city's own inspectors. Because the express indemnity clause in question was a general indemnity clause, which did not specifically provide for indemnification for the city's own negligence, the trial court ruled that the city was not entitled to indemnity under the express indemnity provision. (See generally Rossmoor Sanitation, Inc. v. Pylon, Inc., supra, 13 Cal.3d 622, 628.) The trial court's ruling was affirmed on appeal. The E.L. White case decided by this court ( supra, 21 Cal.3d 497) was a separate appeal from a judgment against E.L. White, Inc., rendered in a subsequent indemnity action it brought against the city. In that action, E.L. White, Inc., sought indemnity and equitable contribution, for the damages it had paid caused by [the city's] active negligence. (21 Cal.3d at pp. 503-504.) In response, the city contended that even if, as the initial proceeding had established, it (the city) was not entitled to indemnity under the express contractual indemnity agreement of the parties, the express indemnity provision nevertheless barred E.L. White, Inc., from seeking indemnity. We rejected the city's contention and held that E.L. White, Inc., could maintain an action for implied equitable indemnity. (21 Cal.3d at pp. 506-510.) Furthermore, in remanding the matter for trial of the indemnity claim, we held that the indemnity claim was to be determined in light of the teaching set forth in our recent decision in American Motorcycle Assn. v. Superior Court . ... (21 Cal.3d at p. 510.) American Motorcycle, of course, held that a party's liability for equitable indemnity is based on its proportional share of responsibility for the damages. (20 Cal.3d at p. 598.) E.L. White, supra, 21 Cal.3d 497, thus supports the Court of Appeal decisions in IRM Corp. v. Carlson, supra, 179 Cal. App.3d 94, 109-110, and Stratton v. Peat, Marwick, Mitchell & Co., supra, 190 Cal. App.3d 286, 291-292, which hold that under section 877.6, subdivision (c), a good faith settlement relieves a settling defendant from a further claim for indemnity based on an implied contractual indemnity theory. Both IRM Corp. and Stratton recognize that in E.L. White this court viewed a claim for implied contractual indemnity as a form of equitable indemnity, subject to the comparative indemnity principles established in American Motorcycle. (8) (See fn. 11.), (7b) Under section 877.6, subdivision (c), such an indemnity claim, like other equitable indemnity claims, may not be pursued against a party who has entered into a good faith settlement. [11] The two Court of Appeal decisions that reached a contrary conclusion ( County of Los Angeles v. Superior Court, supra, 155 Cal. App.3d 798, and Bear Creek Planning Com. v. Title Ins. & Trust Co., supra, 164 Cal. App.3d 1227) failed to analyze our E.L. White decision properly. [12] Our conclusion that a good faith settlement bars a claim for implied contractual indemnity is not at all inconsistent with the principle that such a settlement would not preclude an indemnity action based on an express indemnity agreement. (See C.L. Peck Contractors v. Superior Court, supra, 159 Cal. App.3d 828, 834.) (9) As the C.L. Peck court observed, neither section 877.6 nor American Motorcycle, supra, 20 Cal.3d 578, limits the authority of parties voluntarily to enter into express indemnification agreements. Such agreements often provide an efficient means of allocating responsibility. When an indemnitee under such an agreement reasonably relies on express terms in the agreement in conducting its affairs, it would be unfair to permit a party that has agreed to indemnify to escape its express contractual obligations by entering into a partial settlement. These considerations do not apply, however, when a settling defendant has not entered into an indemnification agreement with the nonsettling defendant, and the nonsettling defendant's claim for indemnity is based on equitable considerations brought into play ... by contractual language not specifically dealing with indemnification. ( E.L. White, supra, 21 Cal.3d 497, 507.) The contention that a claim for implied contractual indemnity should be equated with a claim for express contractual indemnity cannot be reconciled with case law involving express indemnification clauses in circumstances where both the indemnitor and the indemnitee bear some responsibility for the loss. (10) As our earlier discussion of the factual background of E.L. White, supra, 21 Cal.3d 497, demonstrates, even when parties have entered into an express indemnification agreement, an indemnitee's culpability may still affect its right to obtain indemnity. As we said in E.L. White: [W]hereas the parties to an express indemnity provision may, by the use of sufficiently specific language, establish a duty in the indemnitor to save the indemnitee harmless from the results of even active negligence on the part of the latter [citations], in the absence of this a provision will be construed to provide indemnity to the indemnitee only if he has been no more than passively negligent. [Citation.] [And][e]ven an indemnitee who has been only passively negligent may be precluded from indemnification if the contractual provision agreed upon provides indemnity only for liabilities resulting from acts of the indemnitor and not from those of others. (21 Cal.3d at p. 507, italics in original, citations and fn. omitted; see also Rossmoor Sanitation, Inc. v. Pylon, Inc., supra, 13 Cal.3d 622, 628-633; Gonzales v. R.J. Novick Constr. Co. (1978) 20 Cal.3d 798, 809-810 [144 Cal. Rptr. 408, 575 P.2d 1190].) Thus, while parties remain free to enter into contractual agreements providing for total indemnity, governing case law seeks to assure that, when they do, the contractual language is sufficiently specific to alert the potential indemnitor to the full scope of its obligation. (7c) When an indemnity claim is based on an implied contractual indemnity theory, however, there is no written indemnification clause to which the parties or the court may refer. As a consequence, if, as Bay and Bowen contend, we were to consider a claim for implied contractual indemnity as analogous to a claim for express contractual indemnity, an implied contractual indemnity claim could accord an indemnitee greater rights than it would have under an express indemnification contract. This anomaly would arise because in an implied indemnity situation a court could not apply the rules requiring specificity in express indemnification clauses. (11) (See fn. 13.), (7d) Thus, the legal rules applicable to the interpretation of express indemnification contracts provide further support for the conclusion that a claim for implied contractual indemnity is a form of equitable indemnity subject to the rules governing equitable indemnity claims. [13] Finally, it should be noted that considering a claim for implied contractual indemnity as a form of equitable indemnity does not leave the nonsettling defendant without substantial protection. In a series of decisions beginning with Tech-Bilt, supra, 38 Cal.3d 488, we have emphasized that a settlement will be in good faith under section 877.6, subdivision (c) only if the trial court determines it to be within the reasonable range of the settling defendant's proportionate liability. Such a determination provides assurance to a nonsettling defendant that a settling defendant will be relieved from claims for equitable indemnity only if the nonsettling defendant will receive the benefit of a setoff that does not leave it to bear a grossly disproportionate share of liability. (See Far West Financial Corp. v. D & S Co., supra, 46 Cal.3d 796, 814-816; Abbott Ford, Inc. v. Superior Court, supra, 43 Cal.3d 858, 874.) (12) In evaluating the settling defendant's potential proportionate liability for purposes of this determination of good faith, the trial court must take into account any contractual relationship between the settling and nonsettling defendants, and must consider how each party's performance of its contractual obligations relates to its share of liability. Thus, if the trial court finds that the settling defendant rather than the nonsettling defendant is primarily responsible for the plaintiff's damages because the loss is largely attributable to the settling defendant's failure to properly fulfill its contractual obligations, the court should find the settlement in good faith only if the settlement requires the settling defendant to bear an appropriate share of the damages and leaves the nonsettling defendant with a remaining liability that is not grossly disproportionate to its own responsibility for the loss. (Cf. Far West Financial Corp. v. D & S Co., supra, 46 Cal.3d 796, 815-816.) Indeed, if the trial court concludes that the nonsettling defendant's liability to the plaintiff is wholly attributable to the settling defendant's contractual breach, the court may decline to find a settlement in good faith unless the settlement provides for the dismissal of the action against the nonsettling defendant. (Cf. id. at pp. 815, fn. 15, & 816, fn. 17.) The trial court's obligation to take into account such considerations in making its good faith determination serves to ensure that a nonsettling defendant will receive the benefit of the substantive loss allocation principles embodied in the implied contractual indemnity doctrine.