A car driver drove over a downed telecommunications line owned by Cox Company, resulting in claimed damages to the individual and his car. The driver filed suit against Cox and Cable Man, Inc., a company under contract to Cox to provide maintenance and repair of lines. Cox sent a demand to Cable Company to provide indemnification and defense as required by a contractual indemnity clause in their contract. Cable Man refused to indemnify. Cox then filed a cross claim against Cable Man asserting that it was required to indemnify and defend. In response, Cable Man filed what is known as “Exception of Prematurity”, arguing that the indemnity claim was premature until a finding of liability in the underlying claim was rendered. The trial court denied the exception – meaning Cable Man would have to immediately defend and indemnity. That decision was reversed by an intermediate appellate court, but the final level appellate court reversed and held that indemnity obligations begin immediately and are not premature when demanded before parties have suffered final judgment on the underlying action. Bennett v. DEMCO Energy Services, LLC, 2024 WL 2097634, 2023-01358 (La 2024).
The Agreement between Cox and Cable Man contained an indemnity provision which sets forth an obligation assumed by Cable Man in connection with the work assigned by Cox, in which Cable Man contractually agreed it will indemnify, hold harmless, release and defend Cox and its related companies from “any and all claims, demands, suits, actions….” related to Cable Man’s “performance or failure of performance of any Work or its obligations under this Agreement…”
The appellate court held that a claim for indemnity raised during the pendency of the litigation and before a finding of liability is not premature. “Not only does our finding comport with principles of judicial economy and efficiency, the relevant Code of Civil Procedure articles pertaining to third party practice dictate this result.” The court stated: “we now clarify that such a claim for indemnity is not prohibited before a liability adjudication. The court further explained its holding as follows:
“Practical aspects of third-party practice dictate that a claim for indemnity asserted before a finding of liability is not premature. The fact that the indemnity claim in this matter arises out of a cross-claim rather than a third-party claim does not change our analysis. The principles are the same: to avoid wasting judicial resources on a “circuity of proceeding[s]” and to promote judicial economy, asserting a claim for indemnity prior to a finding of liability is not premature.”
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“The right to collect on an indemnity agreement is determined upon judgment or finding of liability or loss, but there is no prohibition on asserting a claim for indemnity in the same proceeding. Again, to require a party to file a separate indemnification action after a finding of liability runs afoul of our well-established principles of judicial efficiency.”
Comment: Most courts explain that when a party agrees to indemnify and defend a client, it basically acts like an insurer. Just as an insurer that has agreed in the insurance policy to a duty to defend and indemnity the insured must begin defending the insured when an action is filed – so must an Indemnitor promptly begin defending its Indemnitee pursuant to the terms of its contractually agreed upon indemnity agreement when the Indemittee makes a “tender” or demand for it to do so.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 26, No. 6 (July 2024).
Copyright 2024, ConstructionRisk, LLC
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