Contractual indemnity provisions are critical in determining the extent of liability in a wide range of litigation contexts, including construction defect, earth movement, toxic tort/mold, real estate, business, product liability, premises liability, personal injury, and any other matter wherein a contractual relationship includes such a provision.

In 1972, the California Court of Appeal, Second Appellate District, attempted to simplify the interpretation of indemnification provisions by creating a classification system. (MacDonald & Kruse, Inc. v. San Jose Steel Co., 29 Cal. App. 3d 413 (Cal. Ct. App. 1972).) This organizational structure, created by the Court of Appeal, groups indemnification provisions into three types, as follows:

• Type I – This type of indemnification provision provides “expressly and unequivocally” that the indemnitor is to indemnify the indemnitee for the negligence of the indemnitee, even if the indemnitee’s liability arises from its sole and active negligence.

• Type II – This type of indemnification provision provides that the indemnitor is to indemnify the indemnitee for the negligence of the indemnitee, be it sole or contributory, but only if the indemnitee’s liability arises from its passive negligence, as opposed to active negligence.

• Type III – This type of indemnification provision provides that the indemnitor is to indemnify the indemnitee for the indemnitor’s own negligence (as with all indemnification provisions); however, the indemnitor has no duty to indemnify the indemnitee if the indemnitee was in any way negligent, either active or passive, regardless of whether the indemnitor was also negligent. In short, regardless of the indemnitor’s negligence, if the indemnitee was negligent as well, the indemnitor will owe no duty to the indemnitee.

While the three-type classification system set forth in MacDonald & Kruse is widely utilized, it has not been expressly approved by the California Supreme Court. The high Court has explained that the analysis of an indemnification provision is a matter of contract interpretation and that classification systems are not capable of final determinations; rather, the final determination must turn on the particular language of the contract, the intent of the parties, and the facts of the case. (Rossmoor Sanitation, Inc. v. Pylon, Inc., 13 Cal. 3d 622, 633 (Cal. 1975).)

Notwithstanding the Supreme Court’s reluctance to utilize dispositive classifications in interpreting indemnity provisions, the Court has presented its own “active-passive dichotomy” to be used as a general guide in construing such provisions. (Rossmoor, at pp. 628-632.) According to this dichotomy, a particular indemnification provision may either be express and specific in how it is to be applied if an indemnitee is negligent, or it may be identified as “general” if it does not endeavor to address the issue of an indemnitee’s negligence. From this point, the California Supreme Court’s dichotomy operates as follows:

• If an indemnification provision is express and specific in how it is to be applied if an indemnitee is negligent, then the provision will operate in accordance with the express language.

• If an indemnification provision is ‘general’ in that it does not endeavor to address the issue of an indemnitee’s negligence, the indemnitor may still be required to indemnify an indemnitee that was passively negligent, but will not be required to indemnify an indemnitee that was actively negligent. (Rossmoor, at p. 628.)

On November 14, 2005, the Court of Appeal of California, First Appellate District, decided a case entitled McCrary Construction Co. v. Metal Deck Specialists, Inc., wherein the Court discussed both the appellate court trichotomy in MacDonald & Kruse and the subsequent Supreme Court dichotomy in Rossmoor. (133 Cal. App. 4th 1528 (Cal. Ct. App. 2005).)

In McCrary Construction Co., a worker died after falling through a hole in a metal roof at a construction site. The jury apportioned fault to the general contractor (McCrary) and to the metal deck system subcontractor (Metal Deck) that cut the hole, but not to an additional subcontractor (Horizon) that had covered the hole at the request of the general contractor. The indemnity provision at issue provided: "Subcontractor agrees to defend and indemnify Contractor against…any and all claims…on account of, or related to, any act or omission, or alleged act or omission of the Subcontractor…" (Id. at 1533.)

At the trial level, the Superior Court determined that Metal Deck was obligated to indemnify McCrary for the full amount of the judgment, pursuant to the terms of the indemnity provision. (Id. at 1534) The Court also determined that Horizon owed no duty to indemnify McCrary, due to the fact that no fault had been attributed to Horizon. (Id.)

Metal Deck filed an appeal contending that it was not obligated to indemnify McCrary; and McCrary filed a cross-appeal contending that it was entitled to be indemnified by Horizon, in addition to Metal Deck. (Id. at 1531.) The California Court of Appeal, First Appellate District, took the opportunity to examine and clarify the existing law on the application of indemnity provisions to the joint negligence of a general contractor and subcontractors:

Pursuant to the trichotomy in MacDonald & Kruse, the indemnity provision at issues in McCrary Construction Co. would be characterized as type III, in that it makes no provision for a situation where the indemnitee, McCrary, has been negligent. Thus, according to the holding of MacDonald & Kruse, McCrary’s negligence works to relieve the indemnification obligations owed by Metal Deck and Horizon, regardless of whether Metal Deck and/or Horizon were also negligent. Accordingly, while the subcontractors may be liable for their own negligence, they will not be made to pay for the general contractor’s negligence.

Pursuant to the dichotomy in Rossmoor, the same result is achieved. The above-cited indemnity provision would be characterized as “general,” in that it does not endeavor to address the issue of an indemnitee’s negligence. At this point, the inquiry turns to whether the indemnitee’s negligence was active or passive. Under the facts of McCrary Construction Co., McCrary had become actively involved in supervising the covering of the hole in the metal roof. Thus, according to the holding of Rossmoor, just as if MacDonald & Kruse were applied, McCrary’s active negligence likewise works to obviate the indemnification obligations owed by Metal Deck and Horizon, regardless of whether Metal Deck and/or Horizon were also negligent. Irrespective of which case law is applied, the type III/general indemnity provision at issue in McCrary Construction Co. provides the indemnitee with no protection where that indemnitee has been actively negligent in causing the loss.

The result in McCrary Construction Co. being the same regardless of the classification system utilized, the First Appellate District ultimately chose to ground its decision on the higher authority of the California Supreme Court in Rossmoor. (Id. at 1541.) In determining that neither Metal Deck nor Horizon owed an indemnification obligation to McCrary, the appellate court relied upon “the general rule that an actively negligent indemnitee cannot recover under a general indemnity contract,” but was also careful to recognize “that the general rule may not always apply and is merely a tool to be used to ascertain the intent of the parties.” (Id. at 1539, 1541.).




Frank T. Sabaitis
Louis Chao
David V. Moore