Subcontract agreements often include provisions requiring a subcontractor to defend and to indemnify a general contractor. If properly phrased in the subcontract agreement, the duty to defend can be triggered more easily than, and is distinct from, the duty to indemnify. In Lafarge North America, Inc. v. KECI Colorado, Inc., 2010 WL 726052 (Colo. App., March 4, 2010), a subcontractor was in breach of its agreement for failing to provide a defense to the general contractor, even though the subcontractor’s liability and duty to indemnify the general contractor had not been decided.
In that case, Lafarge was the general contractor for a Colorado Department of Transportation (CDOT) highway construction project, and KECI provided traffic control services pursuant to a subcontract with Lafarge. A motorcyclist, with his wife riding as a passenger, collided with a Lafarge vehicle parked on the only traffic lane of a highway entrance ramp. The motorcyclist was killed and the wife was seriously injured. The wife sued Lafarge, the Lafarge employee who parked the vehicle, and KECI for negligence.
Lafarge demanded that KECI provide a defense to, and indemnify, Lafarge, as required in the subcontract agreement. KECI refused to do either, stating that it was not at fault for the accident. Lafarge settled with the wife for $700,000 and sued KECI and its insurers for failure to provide defense and indemnity. At the trial court level, Lafarge won on summary judgment and the court ruled KECI breached both its duty to defend and duty to indemnify. KECI appealed.
The Colorado Court of Appeals found that KECI’s duty to defend Lafarge was triggered more easily than, and existed independently of, its duty to indemnify. The indemnification and defense provision in the Lafarge/KECI agreement required KECI to indemnify Lafarge and defend it from any and all claims, suits, or liabilities for injuries arising in whole or in part of any act or omission of KECI. The wife’s complaint included the mere allegation that KECI was negligent. As such, the Court of Appeals found that the subcontract unambiguously required KECI to indemnify Lafarge where Lafarge’s liability arises out of any incident which was at least partially the result of KECI’s acts or omissions. The Court of Appeals agreed with KECI, however, that the district court erred in ruling that KECI was liable to Lafarge under a duty to indemnify. KECI’s liability for indemnity would be based on its actual fault, which was never determined.
The obligation to defend may arise from allegations in a complaint, which, if proven, would impose liability covered by the indemnification provision. It is not necessary to arrive at an ultimate determination of liability or indemnity for the duty to defend to be triggered. In the event a general contractor is sued, subcontractors, whose work is implicated in the plaintiff’s allegations, may already owe the general contractor a duty to defend. A subcontractor’s assertion that it did nothing wrong is insufficient at that stage to avoid its obligation to provide a defense for the general contractor.
A second issue in the case is also instructive. Lafarge’s contract required KECI to obtain liability coverage and name Lafarge as an additional insured. KECI provided Lafarge an insurance certificate which noted that any coverage provided to Lafarge was excess (i.e., that any coverage from KECI’s insurers would be required only after Lafarge’s own policies were exhausted). In deposition, a Lafarge representative stated that he obtained the certificate, but did nothing to require KECI to obtain primary coverage, as Lafarge had intended. The Court of Appeals reviewed the contract and found that it did not unambiguously require KECI to provide primary insurance. The Court of Appeals found that KECI did not breach its subcontract by failing to provide primary insurance. Therefore, if it is important for a builder or general contractor to have primary additional insured coverage, it must (1) explicitly require such in its subcontract agreements and (2) follow-up with subcontractors to ensure that the proper coverage is actually obtained.
Also, while we are on the topic of additional insurance requirements, and although it was not discussed in the Lafarge case, it is important that builders and general contrators require that the additional insurance coverage supplied by subcontractors cover both ongoing and completed operations. All too often we tender the defense of a case to a builder or general contractor’s putative AI carrier only to find that the subcontractor obtained additional insured coverage for ongoing operations only. While this may seem like a detail too small to be trifled with, it makes all the difference in the world if you find yourself on the wrong side of a lawsuit.
If you have any questions regarding the Lafarge opinion, please contact Bret Cogdill by phone at (303) 653-0046 or by e-mail at cogdill@hhmrlaw.com. For a more full explanation of construction law in 
