Reyburn Lawn v. Plaster Development Co.

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Nevada Supreme Court Rejects Application of Crawford to Construction Settings

The Nevada Supreme Court recently issued an important decision affecting a subcontractor’s defense and indemnity obligation to a developer in construction defect cases. The case is called Reyburn Lawn v. Plaster Development Co., and it involves a holding on issues similar to those in California’s Crawford decision.

Homeowners at Marble Canyon development sued Plaster Development, the developer and general contractor, alleging defective perimeter retaining walls. Plaster tendered its defense to Reyburn Lawn, the rough and finish grading subcontractor, and sued Reyburn for contractual indemnity when Reyburn refused to defend Plaster. The contract required Reyburn to defend and indemnify Plaster against all claims and liabilities, “except claims or litigation arising through the sole negligence or sole willful misconduct” of Plaster. The indemnity clause said nothing else regarding any effect of Plaster’s own joint negligence.

At trial, Plaster argued that Reyburn contributed to defects in the retaining walls by obstructing drainage at the base of the walls during final grading. Reyburn’s owner admitted in testimony that Reyburn had improperly placed sand over the drainage openings during final grading. Based on that testimony, Plaster moved for judgment against Reyburn on the indemnity claim. The trial court granted the motion, finding that this testimony showed that Plaster was not solely negligent. The court prevented Reyburn from arguing to the jury that Reyburn was not negligent, or that Plaster may have been comparatively negligent. Based on the indemnity provision, the court required Reyburn to pay all of Plaster’s defense expenses – over $950,000 plus $580,000 in interest – and indemnify Plaster for the full amount of Plaster’s liability to the homeowners.

Reyburn appealed and the Nevada Supreme Court reversed the award.

Scope of Indemnity Clause: Because the indemnity clause created an exception only for Plaster’s sole negligence, the trial court interpreted the clause to mean that Reyburn was required to indemnify Plaster in full, unless Plaster was solely negligent. The Supreme Court disagreed. If an indemnity clause is to require full indemnity, even to the extent of the indemnitee’s partial or contributory negligence, that must have been expressed explicitly and unequivocally in the contract. The indemnity clause here referenced Plaster’s sole negligence, but made no reference to full indemnity of Plaster even where Plaster was partially at fault. The Supreme Court thus concluded that Reyburn was not required to indemnify Plaster for its own negligence and was only required to indemnity Plaster to the extent of Reyburn’s negligence. It was therefore erroneous not to allow Reyburn to argue Plaster’s comparative negligence to the jury.

Scope of the Obligation to Defend: The Supreme Court ruled that the defense obligation in the indemnity provision applied only if the homeowners’ complaint sufficiently alleged Reyburn’s negligence or at least alleged facts implicating Reyburn’s scope of work. That was a question of fact, so the trial court was wrong not to allow Reyburn to argue to the jury that the homeowners’ allegations did not implicate Reyburn’s work and was wrong not to let the jury decide that factual issue.

Defense Costs – Crawford Issue: Under California’s 2008 Crawford decision, a subcontractor must defend a developer so long as the indemnity provision is invoked. The Nevada Supreme Court put its own mark on this issue in this case. It held that a subcontractor is required to defend the developer only against those claims falling within the subcontractor’s scope of work and is not required to defend against those claims arising from the negligence of other subcontractors or from the developer’s own negligence. The Supreme Court therefore reversed Plaster’s award of the full amount of its $950,000 defense expenses, requiring Reyburn to pay only the portion of defense expenses directly attributable to Reyburn’s scope of work.

We wanted to make you aware of this important decision which will have a broad effect on construction defect cases and other indemnity claims generally in Nevada. If you have any questions or would like to discuss the case further, please contact either Brian P. Worthington or Sarah K. Suter.