No Negligence? No Causation? No Problem. Arizona Appellate Court Holds General Contractor Need Not Prove Subcontractor’s Negligence or Causation To Be Indemnified

Amberwood Dev., Inc. v. Swann’s Grading, Inc., No. 1 CA-CV 15-0786, 2017 Ariz. App. Unpub. LEXIS 207 (Ct. App. Feb. 23, 2017)

This case arose out of a housing development project, with Amberwood Development Inc. (“Amberwood”) acting as the general contractor and Swann’s Grading, Inc. (“SGI”), as a subcontractor. In their subcontract agreement, SGI agreed to defend, indemnify and hold harmless Amberwood from claims and “liability of every kind whatsoever arising out of or in connection with [SGI’s] work.”  This indemnity extended to any claims asserted by any subsequent owner alleging improper or defective workmanship.

After construction concluded, eighteen homeowners sued Amberwood, alleging numerous construction defects. Amberwood then sought indemnification from its subcontractors, including SGI. Ten of the eighteen homeowners arbitrated their claims to award and the remaining eight settled with Amberwood.  Amberwood then settled with all of its subcontractors except SGI.

Before trial, Amberwood and SGI each moved for partial summary judgment regarding the scope of SGI’s indemnity obligations. The trial court granted Amberwood’s motion, finding that the provision obligated SGI to defend and indemnify Amberwood for claims related to SGI’s work; thus, to recover on its indemnity claim, Amberwood would need only prove that its settlements with homeowners were reasonable and that the allocated amount “arose out of or was in connection with [SGI’s] work.”

SGI and Amberwood stipulated to the reasonableness of the settlements before the bench trial commenced and at trial the court determined that SGI was obligated to indemnify Amberwood for 72.7% of the arbitration award and 70.6% of its litigation settlements. The court also granted SGI an offset for the amount Amberwood had received in settlement from its other subcontractors.  SGI’s motion for a new trial or to amend the judgment was denied, and SGI filed an appeal.  Amberwood cross-appealed, challenging the offset awarded SGI.

On appeal, SGI argued that it should only be required to indemnify Amberwood if Amberwood could prove that SGI was negligent in performing its work and further, that the indemnification amount should be limited to the damages that SGI had actually caused. The appellate court rejected both of these arguments, finding that under the subcontract, SGI’s indemnity obligation reached any claim arising out of or in connection with its work.  Thus, the court held that Amberwood did not have to show SGI was negligent in order to be indemnified, and its indemnity would not be limited to the amount of damages SGI had actually caused. The court also rejected SGI’s argument that, under the Uniform Contribution Among Tortfeasors Act, it could only be liable for its pro rata share of Amberwood’s damages, because the Act does not affect or impair contractual indemnity rights.  Finally, the court upheld the trial court’s grant of an offset to SGI for the amount Amberwood received from its other subcontractors so as to prevent double recovery.  With these conclusions, the court affirmed the trial court’s judgment and denied Amberwood’s cross-appeal.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

John J. Gazzola

This entry was posted in Indemnity, Uncategorized and tagged , , , , , , , . Bookmark the permalink.