2012-00131888-CU-BC

North Natomas Apartments I LP vs. USA Properties Fund Inc

Nature of Proceeding:    Motion for Summary Adjudication (Five Star Concrete)

Filed By:  Mallen, Theresa L.
Defendant, Cross-Complainant and Cross-Defendant USA Properties Fund, Inc.’s
(“UPF”) Motion For Summary Adjudication regarding Five Star Concrete’s Duty To
Defend is DENIED.

The notice of motion does not provide notice of the Court’s tentative ruling system as
required by with C.R.C., Rule 3.1308 and Local Rule 1.06(D).  Local Rules for the
Sacramento Superior Court are available on the Court’s website at
<http://www.saccourt.ca.gov/local-rules/local-rules.aspx> Counsel for moving party is
ordered to notify opposing party immediately of the tentative ruling system and to be
available at the hearing, in person or by telephone, in the event opposing party
appears without following the procedures set forth in Local Rule 1.06(B).

Counsel have failed to comply with the requirements of C.R.C., Rule 3.1354 (as
amended 2007) in asserting their evidentiary objections.  Counsel shall provide
separate documents containing their objections in compliance with such rule, and
separate orders for the Court’s ruling on each objection.

Pleadings

On September 14, 2012, Plaintiffs filed suit against the general contractor, USA
properties Fund, Inc. (“UPF”) for breach of construction contract and negligence.
Plaintiffs’ complaint against UPF alleges that there may be construction defects,
design errors, and/or maintenance problems (that have caused resulting property
damage) relating to concrete slabs, among others, that resulted in property damage,
due to water leaks, moisture migration, dry rot, rust, damaged building paper, and
fungal growth. (Compl., para. 7.)

UPF filed a cross-complaint against Five Star (among other subcontractors) on
January 28, 2013 for breach of contract, express contractual indemnity, breach of
express warranty, breach of implied warranty, negligence, total equitable indemnity,
equitable indemnity – comparative fault, and declaratory relief.  UPF’s motion for
summary adjudication is only to its eighth cause of action for declaratory relief.

Material Facts

The underlying action is for construction defects at the North Natomas I and North
Natomas II Apartments (“Apartments).  In May 25, 2001, UPF entered into two
separate Standard Form Agreements between Owner and Contractor for the
construction of the Apartments.  UPF was the general contractor and entered into a
subcontract agreement with Five Star to perform work on the Apartments.

UPF argues that Five Star has a duty to defend based on the following provision.

Paragraph 10 – Indemnity: Subcontractor shall protect, hold free and harmless, defend
and indemnify General Contractor and Owner, including their officers, agents and
employees, and the Jobsite, from all liability, penalties, costs, losses, damages,
expenses, causes of action, claims or judgments (including attorneys’ fees) resulting
from . . . damage to property of any kind, which injury, death or damages arises out of
or is in any way connected with Subcontractor’s performance of the Work on this
project. Subcontractor’s aforesaid indemnity and hold harmless agreement shall apply
to any acts or omissions, willful misconduct or negligent conduct, whether active or
passive, on its part or on the part of General Contractor, or its agents, Subcontractors
or employees, except that said agreement shall not be applicable to … damage to
property arising from the sole negligence or the sole willful misconduct of General
Contractor or its officers, agents, servants, or independent Subcontractors who are
directly responsible to General Contractor, or for defects of designs furnished by such
persons. Subcontractor shall further indemnify General Contractor and Owner, and
save them harmless from any and all losses, damages, costs, expenses and attorneys’
fees suffered or incurred on account of any breach of Subcontractor’s obligations and
covenants hereunder…(Declaration of Michael McCleery, Ex. B.)

Applicable Law

UPF argues that pursuant to Crawford, et al. v. Weather Shield Mfg, Inc. (2008) 44
th
Cal.4   541, Five Star’s duty to defend was triggered by the allegations in the
underlying complaint even if the Five Star is not ultimately found to be negligent.

In Crawford, the California Supreme Court held that the duty to defend under an
express indemnity provision arises immediately at the time of the request, and cannot
be put off until there is a finding of liability on the part of the indemnitor. The duty to
defend exists even if it is ultimately determined that the indemnitor was not at fault for
the subject loss.  Further, at footnote 12 of the opinion,  Crawford made the following
statement with regard to a trial judge’s discretion in ruling on a motion for summary
judgment or adjudication:

“If any party moves for summary judgment or adjudication (Code Civ. Proc., § 437c)
with respect to the duty to defend against litigation still in progress, the court may
proceed as it deems expedient. For example, the court may resolve legal issues then
ripe for adjudication, such as whether any of the contracts at issue include a duty to
defend, and, if so, whether the underlying suit or proceeding as to which a defense is
sought falls within the scope of any of the parties’ contractual duty to defend. If
the court finds that an ongoing duty to defend is owed by one or more parties, but the
affected parties, acting in good faith, then cannot agree on how such a defense should
be provided or financed, the court may, in its discretion, permit the underlying litigation
to proceed with counsel chosen and paid by the party to whom the duty is owed,
subject to a later determination of how damages for breach of the duty to defend
should be apportioned among the breaching parties.”  Crawford, page 565. (emphasis
added)

In opposition, Five Star does not substantively dispute UPF’s facts.  Rather, Five Star
argues that Crawford does not apply because the indemnity provision differs from the
indemnity provision at issue here.  In Crawford, the subcontractor promised: (1) “to
indemnify and save [JMP] harmless against all claims for damages … loss and/or theft
… growing out of the execution of [Weather Shield’s] work” and (2) “at [its] own
expense to defend any suit or action brought against [JMP] founded upon the claim of
th
such damage.”  (Crawford, supra, 44 Cal.4   at 547-48 [emphasis in original].)

The indemnity provision at issue here states that “[Five Star] shall . . . defend and
indemnify . . . [USA] from all . . . causes of action, claims or judgments (including
attorneys’ fees) resulting from . . . damage to property of any kind, which injury, death
or damages arises out of or is in any way connected with Subcontractor’s performance

According to Five Star, this language requires the subcontractor to defend UPF from
claims resulting from damage to property connected to the subcontractor’s
performance of work.  Thus, logically, there must be proof of damage arising out or
connected to Five Star’s performance before the duty to defend is triggered. In
Crawford, Weather Shield was found to have a contractual obligation to defend  suit
even if it was later determined, as a result of the pending litigation, that Weather Shield
was not negligent.

Express indemnity provisions are to be strictly construed against the indemnitee (i.e.
UPF).  (Heppler v. J.M. Peters Co. (1999) 73 Cal. App. 4th 1265, 1278.)  Here, the
indemnity provision is not as broad as in Crawford, which applied to “any suit or action
brought against [JMP] founded upon the claim of such damage.”  A “claim” of damage
is different from “arising out of” or in any way connected with performance of the work.
A “claim” can be any number of things, none of which rise to the formal level of a suit–
it may be a demand for payment communicated in a letter, or a document filed to
protect an injured party’s right to sue a governmental entity, or the document used to
initiate a wide variety of administrative proceedings. (Safeco Surplus Lines Co. v.
Employer’s    Reinsurance Corp. (1992) 11 Cal. App. 4th 1403, 1407 [a “claim” is ” ‘ ”
‘the assertion, demand or challenge of something as a right; the assertion of a liability
to the party making it do some service or pay a sum of money’ ” ‘ “]; Phoenix Ins. Co. v.
Sukut Construction Co. (1982) 136 Cal. App. 3d 673, 677 [a claim, both in its ordinary
meaning and as interpreted by the courts, is “a demand for something as a right, or as
due [and a] formal lawsuit is not required before a claim is made”]. Fireman’s Fund Ins.
Co. v. Superior Court (1997) 65 Cal. App. 4th 1205, 1216; Foster-Gardner, Inc. v.
National Union Fire Ins. Co. (1998) 18 Cal. 4th 857.)The Court agrees with Five Star
that, as drafted, the indemnity provision requires that there be proof of damage arising
out or connected to Five Star’s performance before the duty to defend is triggered. The
allegations in Plaintiffs’ complaint alone are not sufficient to trigger the duty to defend.

Accordingly, UPF’s motion for summary adjudication is DENIED.

The prevailing party is directed to prepare a formal order complying with C.C.P. §437c
(g) and C.R.C. Rule 3.1312.

2012-00131888-CU-BC

North Natomas Apartments I LP vs. USA Properties Fund Inc

Nature of Proceeding:   Motion for Summary Adjudication (Master Surfacing Technology)

Filed By:  Mallen, Theresa L.

Defendant, Cross-Complainant and Cross-Defendant USA Properties Fund, Inc.’s
(“UPF”) Motion For Summary Adjudication regarding Masters Surfacing Technology,
Inc.’s (“Masters”) Duty To Defend is DENIED.

The notice of motion does not provide notice of the Court’s tentative ruling system as
required by with C.R.C., Rule 3.1308 and Local Rule 1.06(D).  Local Rules for the
Sacramento Superior Court are available on the Court’s website at
<http://www.saccourt.ca.gov/local-rules/local-rules.aspx> Counsel for moving party is
ordered to notify opposing party immediately of the tentative ruling system and to be
available at the hearing, in person or by telephone, in the event opposing party
appears without following the procedures set forth in Local Rule 1.06(B).

Masters’ counsel has failed to comply with the requirements of C.R.C., Rule 3.1354 (as
amended 2007) in asserting its evidentiary objections. Counsel shall provide a
separate order for the Court’s ruling on each objection.

Pleadings

On September 14, 2012, Plaintiffs filed suit against the general contractor, USA
properties Fund, Inc. (“UPF”) for breach of construction contract and negligence.
Plaintiffs’ complaint against UPF alleges that there may be construction defects,
design errors, and/or maintenance problems (that have caused resulting property
damage) relating to decks, among others, that resulted in property damage, due to
water leaks, moisture migration, dry rot, rust, damaged building paper, and fungal
growth. (Compl., para. 7.)

UPF filed a cross-complaint against Master (among other subcontractors) on January
28, 2013 for breach of contract, express contractual indemnity, breach of express
warranty, breach of implied warranty, negligence, total equitable indemnity, equitable
indemnity – comparative fault, and declaratory relief.  UPF’s motion for summary
adjudication is only to its eighth cause of action for declaratory relief.

Material Facts

The underlying action is for construction defects at the North Natomas I and North
Natomas II Apartments (“Apartments).  In May 25, 2001, UPF entered into two
separate Standard Form Agreements between Owner and Contractor for the
construction of the Apartments.  UPF was the general contractor and entered into a
subcontract agreement with Masters to perform work on the Apartments.

UPF argues that Masters has a duty to defend based on the following provision.

Paragraph 10 – Indemnity: Subcontractor shall protect, hold free and harmless, defend
and indemnify General Contractor and Owner, including their officers, agents and
employees, and the Jobsite, from all liability, penalties, costs, losses, damages,
expenses, causes of action, claims or judgments (including attorneys’ fees) resulting
from . . . damage to property of any kind, which injury, death or damages arises out of
or is in any way connected with Subcontractor’s performance of the Work on this
project. Subcontractor’s aforesaid indemnity and hold harmless agreement shall apply
to any acts or omissions, willful misconduct or negligent conduct, whether active or
passive, on its part or on the part of General Contractor, or its agents, Subcontractors
or employees, except that said agreement shall not be applicable to … damage to
property arising from the sole negligence or the sole willful misconduct of General
Contractor or its officers, agents, servants, or independent Subcontractors who are
directly responsible to General Contractor, or for defects of designs furnished by such
persons. Subcontractor shall further indemnify General Contractor and Owner, and
save them harmless from any and all losses, damages, costs, expenses and attorneys’
fees suffered or incurred on account of any breach of Subcontractor’s obligations and
covenants hereunder…(Declaration of Michael McCleery, Ex. B.)

Applicable Law

UPF argues that pursuant to Crawford, et al. v. Weather Shield Mfg, Inc. (2008) 44
th
Cal.4   541, Masters’ duty to defend was triggered by the allegations in the underlying

In Crawford, the California Supreme Court held that the duty to defend under an
express indemnity provision arises immediately at the time of the request, and cannot
be put off until there is a finding of liability on the part of the indemnitor. The duty to
defend exists even if it is ultimately determined that the indemnitor was not at fault for
the subject loss.

In opposition, Masters does not substantively dispute UPF’s facts.  Rather, Masters
asserts that the motion is moot, as Masters’ insurer, Lexington pursuant to the
Additional Insured endorsement to the Lexington policy accepted UPF’s tender prior to
the filing of this motion.  Lexington has retained counsel to defend UPF.  The Court
does not concur that a defense being provided to UPF by Lexington is the same as
one provided by Masters.

Secondly, Masters objects that moving party UPF has failed to provide any admissible
evidence that Masters actually performed any work on this project.  Moving party has
provided evidence of the subcontract between UPF and Masters, but submitted no
evidence that Masters actually worked on this project.

Thirdly, Masters objects that UPF has provided no evidence that it has actually
incurred any defense costs in this litigation.  Any controversy arising out of a contract
claim requires that the claimant suffered damages.  Bramalea California, Inc. v.
Reliable Interiors, Inc. (2004) 119 Cal. App. 4th 468, 473. Where attorney fees are
entirely paid for by an insurer and it has suffered no out-of-pocket loss, any recovery it
might receive from the subcontractors would be a prohibited double recovery unless
allowed by the collateral source rule. Id. at 472.

Further, Masters argues that Crawford is distinguishable, as UPF’s defense is being
provided by several insurers in this action.

The holding in Crawford also does not apply because the indemnity provision differs
from the indemnity provision at issue here.  In  Crawford, the subcontractor promised:
(1) “to indemnify and save [JMP] harmless against all claims for damages … loss
and/or theft … growing out of the execution of [Weather Shield’s] work” and (2) “at [its]
own expense to defend any suit or action brought against [JMP] founded upon the
th
claim of such damage.”  (Crawford, supra, 44 Cal.4   at 547-48 [emphasis in original].)

Further, at footnote 12 of the opinion,  Crawford made the following statement with
regard to a trial judge’s discretion in ruling on a motion for summary judgment or
adjudication:

“If any party moves for summary judgment or adjudication (Code Civ. Proc., § 437c)
with respect to the duty to defend against litigation still in progress, the court may
proceed as it deems expedient. For example, the court may resolve legal issues then
ripe for adjudication, such as whether any of the contracts at issue include a duty to
defend, and, if so, whether the underlying suit or proceeding as to which a defense is
sought falls within the scope of any of the parties’ contractual duty to defend. If
the court finds that an ongoing duty to defend is owed by one or more parties, but the
affected parties, acting in good faith, then cannot agree on how such a defense should
be provided or financed, the court may, in its discretion, permit the underlying litigation
to proceed with counsel chosen and paid by the party to whom the duty is owed,
subject to a later determination of how damages for breach of the duty to defend
should be apportioned among the breaching parties.”  Crawford, page 565. (emphasis
added)

The indemnity provision at issue here states that “[Masters] shall . . . defend and
indemnify . . . [USA] from all . . . causes of action, claims or judgments (including
attorneys’ fees) resulting from . . . damage to property of any kind, which injury, death
or damages arises out of or is in any way connected with Subcontractor’s performance

According to Masters, this language requires the subcontractor to defend UPF from
claims resulting from damage to property connected to the subcontractor’s
performance of work.  Thus, there must be proof of damage arising out or connected
to Masters’ performance, not UPF’s sole negligence or willful misconduct or design
defect, before the duty to defend is triggered.

Express indemnity provisions are to be strictly construed against the indemnitee (i.e.
UPF).  (Heppler v. J.M. Peters Co. (1999) 73 Cal. App. 4th 1265, 1278.)  Here, the
indemnity provision is not as broad as in Crawford, which applied to “any suit or action
brought against [JMP] founded upon the claim of such damage.”   A “claim” of damage
is different from “arising out of” or in any way connected with performance of the work.
A “claim” can be any number of things, none of which rise to the formal level of a suit–
it may be a demand for payment communicated in a letter, or a document filed to
protect an injured party’s right to sue a governmental entity, or the document used to
initiate a wide variety of administrative proceedings. (Safeco Surplus Lines Co. v.
Employer’s    Reinsurance Corp. (1992) 11 Cal. App. 4th 1403, 1407 [a “claim” is ” ‘ ”
‘the assertion, demand or challenge of something as a right; the assertion of a liability
to the party making it do some service or pay a sum of money’ ” ‘ “]; Phoenix Ins. Co. v.
Sukut Construction Co. (1982) 136 Cal. App. 3d 673, 677 [a claim, both in its ordinary
meaning and as interpreted by the courts, is “a demand for something as a right, or as
due [and a] formal lawsuit is not required before a claim is made”]. Fireman’s Fund Ins.
Co. v. Superior Court (1997) 65 Cal. App. 4th 1205, 1216; Foster-Gardner, Inc. v.
National Union Fire Ins. Co. (1998) 18 Cal. 4th 857.)

The Court agrees with Masters that, as drafted, the indemnity provision requires that
there be proof of damage arising out or connected to Masters’ performance before the
duty to defend is triggered. The allegations in Plaintiffs’ complaint alone are not
sufficient to trigger the duty to defend.

Accordingly, UPF’s motion for summary adjudication is DENIED.

The prevailing party is directed to prepare a formal order complying with C.C.P. §437c
(g) and C.R.C. Rule 3.1312.