BILL ANALYSIS SB 972 Page 1 SENATE THIRD READING SB 972 (Wolk) As Amended August 20, 2010 Majority vote SENATE VOTE :30-3 JUDICIARY 9-1 -------------------------------------- |Ayes:|Feuer, Tran, Brownley, | | | |Evans, Hagman, Huffman, | | | |Jones, Monning, Saldana | | | | | | |-----+--------------------------+-----| |Nays:|Knight | | | | | | -------------------------------------- SUMMARY : Revises the design professional indemnity statute. Specifically, this bill: 1)Declares that there are separate duties to indemnify and to defend, and that both are within the existing statutory regulation of contractual indemnity provisions between specified design professionals and public entities with respect to public works of improvement. 2)Requires that all contracts and all solicitation documents, including requests for proposal, invitations for bid, and other solicitation documents between a public agency and a design professional are deemed to incorporate the foregoing statue by reference. 3)Provides that the bill applies only prospectively to services offered pursuant to a design professional contract or amendment entered into on or after January 1, 2011. 4)Declares that the foregoing statute does not abrogate the provisions of section 1104 of the Public Contract Code. 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, SB 972 Page 2 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. 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. 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.) FISCAL EFFECT : None COMMENTS : According to the author, this bill is in response to the 2008 California Supreme Court decision in Crawford v. Weather Shield in which the Court held that Civil Code Section 2778 allows indemnity contracts that require defense of lawsuits against others even if the person providing the indemnity and defense has no liability. Supporters of the bill also generally assert that, although Crawford construed a contract that was not covered by AB 573 (Wolk and Jones) of 2006, the decision has particularly grave implications for design professionals because professional liability insurance, in contrast to general liability insurance typically used by owners, contractors and subcontractors, does not cover contractually assumed liability. Instead, professional liability insurance will cover a design professional's common law liability - i.e., negligent acts, errors, or omissions. This bill amends Section 2782.8 of the Civil Code (originally SB 972 Page 3 added by AB 573 of 2006) to declare that there are separate duties to indemnify and to defend, and that both are within the existing statutory regulation of contractual indemnity provisions between specified design professionals and public entities with respect to public works of improvement. The bill further require that all contracts and all solicitation documents, including requests for proposal, invitations for bid, and other solicitation documents between a public agency and a design professional are deemed to incorporate the foregoing statue by reference. The bill expressly applies only prospectively to services offered pursuant to a design professional contract or amendment entered into on or after January 1, 2011, and does not abrogate the provisions of section 1104 of the Public Contract Code. Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334 FN: 0006600