BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 972
                                                                  Page  1

           Date of Hearing:   June 29, 2010

                           ASSEMBLY COMMITTEE ON JUDICIARY
                                  Mike Feuer, Chair
                      SB 972 (Wolk) - As Amended:  June 23, 2010

                              As Proposed to be Amended

           SENATE VOTE  :  30-3
           
          SUBJECT  :  INDEMNITY: DESIGN PROFESSIONALS

           KEY ISSUE  :  SHOULD THIS "PLACEHOLDER" BILL BE ADVANCED WHILE THE  
          AUTHOR CONTINUES HER WORTHY EFFORTS TO ADDRESS CONCERNS THAT  
          EXISTING PUBLIC WORKS INDEMNITY OBLIGATIONS ARE IMPOSSIBLE OR  
          COSTLY FOR DESIGN PROFESSIONALS TO INSURE?

           FISCAL EFFECT  :  As currently in print this bill is keyed  
          non-fiscal.

                                      SYNOPSIS

          This bill is sponsored by the American Council of Engineering,  
          growing out of strong concerns that existing contractual  
          indemnity obligations routinely included in public works  
          contracts are impossible or costly to insure because of the  
          nature of the commercial insurance products available to them.   
          Previous versions of the bill have generated wide opposition  
          throughout the construction industry in light of the difficulty  
          of legislating in this complicated area where a change in the  
          rules for one group may cause cascading pressures and concerns  
          among other participants.  As proposed to be amended, the author  
          has greatly reduced if not completely alleviated the basis for  
          the opposition.  Although there may not be consensus among all  
          observers, it is believed that the proposed amendments  
          paraphrase rather than substantively change existing law.  As  
          the bill moves forward, it will be incumbent on the parties to  
          continue their discussions in an effort to reach an agreement.   
          If the bill is subsequently amended, the author has pledged to  
          return to Committee to present that proposal. 

           SUMMARY  :  Revises the design professional indemnity statute.   
          Specifically,  this bill  makes a technical change to refer to the  
          duty to defend as an element of contractual indemnity.









                                                                  SB 972
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           EXISTING LAW  :

          1)Provides, for all contracts, and amendments to contracts,  
            entered into on or after January 1, 2007, with a public agency  
            for design professional services, all provisions, clauses,  
            covenants, and agreements contained in, collateral to, or  
            affecting these contracts, that purport to indemnify,  
            including the cost to defend, the public agency by a design  
            professional against liability for claims against the public  
            agency, are unenforceable, except for claims that arise out  
            of, pertain to, or relate to the negligence, recklessness, or  
            willful misconduct of the design professional.  (Civ. Code  
            Sec. 2782.8.)

          2)Provides that specified rules are to be applied in the  
            interpretation of a contract of indemnity, unless a contrary  
            intention appears.  Pursuant to these rules, the person  
            indemnifying is bound, on request of the person indemnified,  
            to defend actions or proceedings brought against the latter in  
            respect to the matters embraced by the indemnity.  However,  
            the person indemnified has the right to conduct those  
            defenses, if he or she chooses to do so.  (Civ. Code Sec.  
            2778.)

          3)Interprets, under existing case law, the above-described  
            provisions to provide that, unless otherwise provided, a duty  
            to defend arises out of an indemnity obligation as soon as the  
            litigation commences, and regardless of whether the indemnitor  
            (the person indemnifying) is ultimately found negligent.   
            (Crawford v. Weather Shield (2008) 44 Cal.4th 541; see also  
            UDC-Universal Development, L.P. v. CH2M Hill (2010) 181  
            Cal.App.4th 10.) 

           COMMENTS  :  Supporters of this bill contend that it is necessary  
          to change the law regarding the contractual indemnification  
          obligations of design professionals because they are unable to  
          obtain commercial insurance to cover the duty to defend that  
          attends that obligation, both for public entities as well as  
          residential or commercial construction.  Solving that problem by  
          changing the duty to defend, however, rather than the  
          availability of insurance, leaves other contracting parties  
          involved in a construction dispute to bear the increased risks  
          and costs.  

          As proposed to be amended, the bill would simply reference the  








                                                                  SB 972
                                                                  Page  3

          duty to defend, along with the cost to defend, as emblems of the  
          existing obligation arising out of contractual indemnity for  
          design professionals.  Existing law notes that the duty to  
          indemnify includes the cost to defend.  This bill adds a  
          reference to the duty to defend - an obligation that is  
          logically predicate to any cost to defend in that there would be  
          no costs of defense if there were no duty to defend.  This  
          revision is intended to be non-substantive, allowing the bill to  
          meet legislative deadlines while the parties continue  
          discussions in an effort to reach consensus.  

          This amendment greatly reduces, if not completely alleviates,  
          the basis for the opposition.  If the bill is subsequently  
          amended, the author has pledged to return to Committee to review  
          that proposal.

           Author's Proposed Amendment.   As the basis for moving the bill  
          forward while negotiations continue, the author appropriately  
          proposes to substitute the following amendment for the current  
          contents of the bill.

          2782.8.  (a) For all contracts, and amendments thereto, entered  
          into on or after January 1, 2007, with a public agency for  
          design professional services, all provisions, clauses,  
          covenants, and
          agreements contained in, collateral to, or affecting any such  
          contract, and amendments thereto, that purport to indemnify,  
          including the  duty and  cost to defend, the public agency by a  
          design
          professional against liability for claims against the public  
          agency, are unenforceable, except for claims that arise out of,  
          pertain to, or relate to the negligence, recklessness, or  
          willful misconduct of the design professional. This section  
          shall not be waived or modified by contractual agreement, act,  
          or omission of the parties. Contractual provisions, clauses,  
          covenants, or agreements not expressly prohibited herein are  
          reserved to the agreement of the parties.






           REGISTERED SUPPORT / OPPOSITION  :









                                                                  SB 972
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           Support (as proposed to be amended)
           
          None on file
           
            Opposition (as proposed to be amended)
           
          None on file


           Analysis Prepared by  :    Kevin G. Baker / JUD. / (916) 319-2334