BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 972|
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UNFINISHED BUSINESS
Bill No: SB 972
Author: Wolk (D)
Amended: 8/24/10
Vote: 21
SENATE JUDICIARY COMMITTEE : 4-0, 5/4/10
AYES: Corbett, Harman, Hancock, Leno
NO VOTE RECORDED: Walters
SENATE FLOOR : 30-3, 6/1/10
AYES: Aanestad, Alquist, Ashburn, Cogdill, Corbett, Correa,
Cox, DeSaulnier, Dutton, Florez, Hancock, Harman,
Hollingsworth, Huff, Kehoe, Leno, Liu, Lowenthal, Negrete
McLeod, Padilla, Pavley, Price, Runner, Simitian,
Steinberg, Strickland, Wolk, Wright, Wyland, Yee
NOES: Calderon, Denham, Ducheny
NO VOTE RECORDED: Cedillo, Oropeza, Romero, Walters,
Wiggins, Vacancy, Vacancy
ASSEMBLY FLOOR : Not available
SUBJECT : Indemnity: design professionals
SOURCE : American Council of Engineering Companies
DIGEST : This bill revises the existing indemnity statute
regarding public works contracts with design professionals
to clarify that the duty to indemnify, including the duty
and the cost to defend, is regulated by the statute. The
bill further requires that all contracts and all
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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 statute 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.
Assembly Amendments (1) 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 entitles with respect to public works of
improvement, (2) 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,
(3) provide 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)
declare that the foregoing statutes does not abrogate the
provisions of Section 1104 of the Public Contract Code.
These amendments remove all opposition.
ANALYSIS : 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.
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
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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.)
This bill:
1.Declares that the duty to indemnify, including the duty
and the cost to defend is 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 statute 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.
Background
During the last five years, the Legislature has enacted
several measures intended to address the use of certain
types of risk shifting in indemnity agreements,
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particularly those that appear in contracts for residential
construction.
In 2005, AB 758 (Calderon, Chapter 394, Statutes of 2005)
was enacted to address alleged abuses of "Type I"
indemnification clauses in contracts imposed on
subcontractors by builders. These clauses typically
required the subcontractor to assume liability for the
builder's negligence and misconduct, beyond what the
subcontractor would be obligated to pay under tort law in
the absence of the Type I agreement. Under AB 758, all
provisions contained in residential construction contracts
entered into after January 1, 2006 that purport to
indemnify the builder by a subcontractor against liability
for claims of construction defects are unenforceable to the
extent the claims pertain to, or relate to the negligence
of the builder or his or her agents. These provisions of
existing law may not be waived or modified by contractual
agreement, act, or omission of the parties. AB 758 was the
product of lengthy negotiations and discussions between
stakeholders.
The following year, the Legislature built upon AB 758 by
enacting AB 573 (Wolk, Chapter 455, Statutes of 2006) in
response to concerns that local public agencies were
requiring broad indemnity agreements in contracts with
design professionals. Those agreements were generally
requiring the design professional to hold the public agency
harmless against the conduct of the public agency or other
third parties in a public works project. AB 573 provided
that, for contracts entered into on or after January 1,
2007, with a public agency for design professional
services, all provisions that purport to indemnify the
public agency 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.
Subsequently, AB 2738 (Jones, Chapter 467, Statutes of
2008) was enacted as a follow up to AB 758 due to concerns
that builders had been circumventing the clear intent of AB
758 by requiring subcontractors to pay for the builder's
defense costs that had no relation to the contractor's
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work. AB 2738, among other things, provided that a
subcontractor would have no defense or indemnity obligation
to a builder or general contractor for a construction
defect claim unless, and until, the builder or general
contractor provides a written tender of the claim to the
subcontractor which includes all of the information
provided to the builder or general contractor by the
claimant or claimants relating to claims caused by that
subcontractor's scope of work.
This bill seeks to address issues left unresolved by prior
legislation with respect to a design professional's
exposure to liability for defense costs in indemnity
agreements contained in contracts with public agencies.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/27/10)
American Council of Engineering Companies (source)
American Institute of Architects, CA Council
CA Geotechnical Engineers Association
CA Council of the American Society of Landscape Architects
Green Valley Consulting Engineers
Provost & Richard Engineering Group
Structural Engineers Association of CA
ARGUMENTS IN SUPPORT : According to the author's office,
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
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common law liability - i.e., negligent acts, errors, or
omissions.
RJG:nl 8/27/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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