Court of Appeal holds that indemnity provision cannot be readily valued and invalidates 998 offer including indemnity provision

2021 case review: Khosravan v. Chevron Corporation, the Court of Appeal

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The Court of Appeal’s holding in this case makes it so that a Code of Civil Procedure section 998 offer to compromise can virtually never include an indemnity provision. Plaintiff Khosravan, an employee in an Iranian Oil Facility where a consortium involving a predecessor of Chevron had some control of operations, contracted mesothelioma from asbestos exposure and filed suit against Chevron. Chevron made a section 998 offer of dismissal in exchange for a waiver of costs, but that offer also included a requirement that the plaintiffs indemnify Chevron from any further claims made by the plaintiffs, their heirs, or third parties, including claims for loss of consortium. Chevron prevailed on a motion for summary judgment, was entitled to costs, and was able to recover its expert costs pursuant to its section 998 offer, as plaintiffs had to pay items of cost they would not have had they accepted Chevron’s offer including a waiver of costs.

Plaintiffs appealed the award of expert costs pursuant to section 998, arguing that the offer was invalid as they could not readily evaluate its worth in light of the inclusion of the indemnity provision. The Court agreed with plaintiffs and reversed the award of expert costs, holding that the section 998 offer to compromise made by Chevron was invalid. The Court restated the previously established rule that “[w]here a defendant’s settlement offer contains terms that make it “exceedingly difficult or impossible to determine the value of the offer to the plaintiff[,] . . . a court should not undertake extraordinary efforts to attempt to determine whether the judgment is more favorable to the plaintiff. Instead, the court should conclude that the offer is not sufficiently specific or certain to determine its value and deny cost shifting under Code of Civil Procedure section 998.” Here, the Court reasoned because of the inclusion of the indemnity provision the offer could not be valued as it was not possible to know whether claims that would trigger the indemnity obligation would be brought, and the value of those claims. In light of this decision and the sound logic it contains, indemnity provisions in section 998 offers should be avoided.