As I have progressed through the years of my practice, I have liberated myself from the chains of all those words and words, in case books and treatises, dealing with indemnity. For about the first ten years of my career, I had two fundamental shortcomings: (1) I had no idea what a contract was (a deficiency I attributed to Professor Hahn, but now I know -- it was just me), and (2) I thought the concept of indemnity was the most convoluted mess of legal principles that a young attorney could encounter. This was made even more pitiful by the fact I had written my law review article on good faith settlements under CCP 877.6. The reader is undoubtedly aware that CCP 877.6 focuses almost exclusively on the concept of indemnity. What a mess I made in my brain, and no wonder that (so far as I know) no one has ever cited my law review article!
I want you to avoid the struggles I encountered.
There are two primary types of indemnity:
Written indemnity is the simplest to handle. Written indemnity only exists when two parties spell out in writing how they want to manage risk between themselves. When there is a written, express indemnity clause, it trumps all. Express indemnity guides the risk management between the parties. There is no need to resort to theories of “implied equitable indemnity,” “equitable subrogation,” “contribution,” “indemnity based on comparative fault,” “implied indemnity,” or any of the other myriad variations that might come into play where the parties have not committed risk management to writing. The writing predominates. There is a case saying so. Call me if you need the cite.
When my client is subject to, or the beneficiary of, a written indemnity provision, I try to advocate as simply as I am able: whatever it is my client did, it is not nearly so bad as what your client did, and therefore, my client is going to be able to recover everything, absolutely everything, from your client. In express indemnity, the parties have agreed to manage risk -- in writing. The written clause becomes the “Constitution” for determining who will bear the risk.
Virtually no written indemnity clauses ever impose 100% of the risk on the party to be charged. So long as there is any possibility that my client can foist responsibility for what happened, and can conceivably pass that risk along to the other party, then my client gets to argue that all expenses, all fees, all damages, all costs, all money, all risk (based on the best spin we can put on the facts) are to be borne by the other side.
Some written indemnity clauses, though, are longer in length than this article. Wading through all the words is difficult. Know this: if you read the clause based on the specific parties and the specific facts, and if you consciously omit the words that have nothing to do with your specific facts (for instance, omit “property damage” when the facts arise from “bodily injury”), you will ultimately come to a few words which can only help your client. For example: “Party . . . agrees . . . to . . . indemnify . . . for . . . bodily injury . . . except when . . . Other Party . . . is solely at fault.”
Now, how to protect your client when your client is subject to this type of indemnity clause? Dang, your client has the obligation to indemnify in every situation other than when the other party is solely at fault. But the solution is super simple. Just argue that the other party is solely at fault. Argue that, by virtue of the clause, the other party is going to have to bear the entire risk being managed by the indemnity clause. It is an all or nothing equation. Any lawyer worth their salt should be able to work up an argument as to why the other party is the party solely at fault. The other party being solely at fault is the heaviest burden your own client can be ever forced to prove under any of the various versions of an indemnity clause. So, get used to finding any and all reasons why the other party is solely at fault, and stick to your guns!
More complicated is the situation where there is no writing. Then, comparative equitable indemnity, or comparative contribution as it is also called, based on relative degrees of fault, must be determined. I guess this approach isn’t actually so complicated. However, it causes your own client to stay in the mix and, potentially on the hook, so long as there is any valid argument that your client is a cause of the problem. Most lawyers think of comparative equitable indemnity as a question for the jury. The jury must determine whether your client is some percentage at fault, while the other parties are another percentage at fault, with all fault totaling up to 100%. There can always be haggling over the relative degrees of fault during negotiation and trial, but again, so long as a tenable argument can be made that the other party is solely at fault, ride that horse all the way to the finish line.
Since this issue of For the Record is focusing on insurance-related issues, a quick comment on the duty to indemnify under an insurance policy should be offered. Carriers are typically less worried about the potential ramifications of their duty to indemnify their insured, than they are about the ramifications of having to defend their insured. Indemnification and defense are duties of the carrier in virtually every liability insurance policy. The potential, upper-most, cost of indemnifying the insured is generally a known – merely apply the insurance policy limits within the participating coverage. If the policy provides coverage of $100,000 per accident, then the indemnity expense should never exceed $100,000.
On the other hand, carriers are always less certain what their defense expense might be when they give their insured counsel in the proceeding. Accordingly, those of us in the insurance defense business often must give detailed budgets to the carrier for the carrier’s cost-management guidance. And, often, the carrier reserves the right to audit the insurance defense attorney’s invoices, to keep a finger on the otherwise unknowable defense expense which might be incurred during the case.
Carriers are not so much different compared to all contracting parties who put an indemnity clause in their agreements. They are trying to manage risk. If it is able, the carrier wants to say it has no duty to defend or indemnify. The carrier will say the exclusions in the policy take away the duty to defend or indemnify. Though the words are different in an insurance policy compared to a contract between two construction companies, nevertheless the clever attorney must find arguments shifting all the blame onto the carrier, just as it must onto the other party. Hang on to your reasonable argument that the other side has the duty long enough, and you are certain to gain an advantage for your client at the conclusion of the matter.
Professor Hahn, I owe you an apology, sir: It was never you, it was me all along. But strangely, that Socratic method you used made me realize that by examining things to understand them, we are forever given the opportunity to learn.
Contracts are cool, and there is a lot of fun in leveraging an indemnity clause. Amazing.