When putting together construction projects, most general contractors will require (1) that any subcontractor indemnify or "hold harmless" the general contractor for any liabilities other than those caused entirely by the general contractor's own negligence and (2) that the subcontractor provide liability insurance coverage in which the general contractor is named as an additional insured. In such an arrangement, the Court of Appeal has ruled that the subcontractor's "hold harmless" agreement also operates to bar the subcontractor's insurer from pursuing a reimbursement claim against the general contractor's insurer. "To hold otherwise," the court remarks, "would negate the indemnity provision in the construction contract."
PCS, a general contractor, entered into an agreement of this sort with a subcontractor, Valley Metal. When a Valley Metal employee was injured on the job, he brought suit againt PCS. [He could not bring a claim against his own employer, against which his sole remedy is workers' compensation.] Valley Metal's insurer, Hartford, defended PCS -- which was named as an additional insured under its policy -- and settled the claim. Hartford then turned to PCS' own insurer, Mt. Hawley, and sought to obtain reimbursement of half of the amounts it had spent on PCS' defense and the settlement. The trial court found that Hartford was entitled to be reimbursed, based on principles of "equitable contribution." The Court of Appeal reversed:
[I]n this case, the indemnity provision in the subcontract stated that PCS would not be liable for any claims or damages unless caused by its sole negligence or willful misconduct. In its complaint, Hartford alleged that PCS was solely negligent in causing the accident. The complaint did not allege nor does Hartford contend on appeal that PCS engaged in willful misconduct. In moving for summary judgment,
Mt. Hawley established as an undisputed fact that PCS was not solely negligent.... Valley Metal included PCS as an additional insured under the Hartford policy as part of the consideration for the construction job. And it appears both insurers knew that they might have to satisfy a full judgment. In short, the indemnity provision precludes any recovery by Valley Metal against PCS.* * *
Just as Valley Metal has no right of recovery against PCS, so Valley Metal’s insurer, Hartford, has no right to recover from PCS’s insurer, Mt. Hawley. It would be unjust to 'impose liability on [Mt. Hawley] when [PCS] bargained with [Valley Metal] to avoid that very result as part of the consideration for the construction agreement.' [Citation] Hartford does not point to any language in the subcontract or the insurance policies suggesting otherwise.
Given that their respective insureds clearly intended, by the indemnity agreement, that PCS would pay nothing to Valley Metal in the circumstances of the case, the court concludes that there is no basis on which PCS' insurer should be held to pay what PCS does not owe.
The decision in Hartford Casualty Ins. Co. v. Mt. Hawley Ins. Co. (Oct. 21, 2004), Case No. B172449, can be accessed at these links in PDF and Word formats. [Note: The links will expire in approximately 120 days; the opinion should still be accessible thereafter by substituting "archive" for "documents" in the URL.]
It's great to see another insurance blog.
There is lots to talk about in the insurance world.
Great work.
Monty Loree
http://www.quality-ins.com
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Posted by: Monty Loree | November 09, 2004 at 05:02 AM