BILL NUMBER: SB 474 AMENDED
BILL TEXT
AMENDED IN SENATE MARCH 25, 2011
INTRODUCED BY Senator Evans
FEBRUARY 17, 2011
An act relating to construction insurance.
An act to amend Section 2782 of the Civil Code, relating to
indemnity.
LEGISLATIVE COUNSEL'S DIGEST
SB 474, as amended, Evans. Insurance: construction.
Commercial construction contracts: indemnity.
Existing law, applicable to residential construction contracts
entered into after January 1, 2009, makes unenforceable provisions
that purport to require a subcontractor to insure or indemnify a
builder, or a general contractor or contractor not affiliated with
the builder, against liability for claims of construction defects if
the claims relate to the negligence of the builder or contractor or
the builder's or contractor's other agents, as specified.
This bill would extend these provisions to commercial construction
contracts entered into on and after January 1, 2012.
Existing law generally regulates insurance.
This bill would express the intent of the Legislature to enact
legislation to govern the use of indemnification and
additional-insured provisions in construction contracts in order to
provide for the equitable resolution of claims fraud, willful injury,
or any other violation of law.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 2782 of the Civil
Code is amended to read:
2782. (a) Except as provided in Sections 2782.1, 2782.2, 2782.5,
and 2782.6, provisions, clauses, covenants, or agreements contained
in, collateral to, or affecting any construction contract and that
purport to indemnify the promisee against liability for damages for
death or bodily injury to persons, injury to property, or any other
loss, damage or expense arising from the sole negligence or willful
misconduct of the promisee or the promisee's agents, servants, or
independent contractors who are directly responsible to the promisee,
or for defects in design furnished by those persons, are against
public policy and are void and unenforceable; provided, however, that
this section shall not affect the validity of any insurance
contract, workers' compensation, or agreement issued by an admitted
insurer as defined by the Insurance Code.
(b) Except as provided in Sections 2782.1, 2782.2, and 2782.5,
provisions, clauses, covenants, or agreements contained in,
collateral to, or affecting any construction contract with a public
agency that purport to impose on the contractor, or relieve the
public agency from, liability for the active negligence of the public
agency are void and unenforceable.
(c) For all construction contracts, and amendments thereto,
entered into after January 1, 2009, for residential construction, as
used in Title 7 (commencing with Section 895) of Part 2 of Division
2, and for commercial construction as provided in subdivision
(i), all provisions, clauses, covenants, and agreements
contained in, collateral to, or affecting any construction contract,
and amendments thereto, that purport to insure or indemnify,
including the cost to defend, the builder, as defined in Section 911,
or the general contractor or contractor not affiliated with the
builder, as described in subdivision (b) of Section 911, by a
subcontractor against liability for claims of construction defects
are unenforceable to the extent the claims arise out of, pertain to,
or relate to the negligence of the builder or contractor or the
builder's or contractor's other agents, other servants, or other
independent contractors who are directly responsible to the builder,
or for defects in design furnished by those persons, or to the extent
the claims do not arise out of, pertain to, or relate to the scope
of work in the written agreement between the parties. 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. Nothing in this subdivision shall prevent
any party from exercising its rights under subdivision (a) of Section
910. This subdivision shall not affect the obligations of an
insurance carrier under the holding of Presley Homes, Inc. v.
American States Insurance Company (2001) 90 Cal.App.4th 571. Nor
shall this subdivision affect the obligations of a builder or
subcontractor pursuant to Title 7 (commencing with Section 895) of
Part 2 of Division 2.
(d) Subdivision (c) does not prohibit a subcontractor and builder
or general contractor from mutually agreeing to the timing or
immediacy of the defense and provisions for reimbursement of defense
fees and costs, so long as that agreement does not waive or modify
the provisions of subdivision (c) subject, however, to paragraphs (1)
and (2). A subcontractor shall owe 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, or portion thereof, to the
subcontractor which includes all of the information provided to the
builder or general contractor by the claimant or claimants,
including, but not limited to, information provided pursuant to
subdivision (a) of Section 910, relating to claims caused by that
subcontractor's scope of work. This written tender shall have the
same force and effect as a notice of commencement of a legal
proceeding. If a builder or general contractor tenders a claim for
construction defects, or a portion thereof, to a subcontractor in the
manner specified by this provision, the subcontractor shall elect to
perform either of the following, the performance of which shall be
deemed to satisfy the subcontractor's defense obligation to the
builder or general contractor:
(1) Defend the claim with counsel of its choice, and the
subcontractor shall maintain control of the defense for any claim or
portion of claim to which the defense obligation applies. If a
subcontractor elects to defend under this paragraph, the
subcontractor shall provide written notice of the election to the
builder or general contractor within a reasonable time period
following receipt of the written tender, and in no event later than
90 days following that receipt. Consistent with subdivision (c), the
defense by the subcontractor shall be a complete defense of the
builder or general contractor of all claims or portions thereof to
the extent alleged to be caused by the subcontractor, including any
vicarious liability claims against the builder or general contractor
resulting from the subcontractor's scope of work, but not including
claims resulting from the scope of work, actions, or omissions of the
builder, general contractor, or any other party. Any vicarious
liability imposed upon a builder or general contractor for claims
caused by the subcontractor electing to defend under this paragraph
shall be directly enforceable against the subcontractor by the
builder, general contractor, or claimant.
(2) Pay, within 30 days of receipt of an invoice from the builder
or general contractor, no more than a reasonable allocated share of
the builder's or general contractor's defense fees and costs, on an
ongoing basis during the pendency of the claim, subject to
reallocation consistent with subdivision (c), and including any
amounts reallocated upon final resolution of the claim, either by
settlement or judgment. The builder or general contractor shall
allocate a share to itself to the extent a claim or claims are
alleged to be caused by its work, actions, or omissions, and a share
to each subcontractor to the extent a claim or claims are alleged to
be caused by the subcontractor's work, actions, or omissions,
regardless of whether the builder or general contractor actually
tenders the claim to any particular subcontractor, and regardless of
whether that subcontractor is participating in the defense. Any
amounts not collected from any particular subcontractor may not be
collected from any other subcontractor.
(e) Notwithstanding any other provision of law, if a subcontractor
fails to timely and adequately perform its obligations under
paragraph (1) of subdivision (d), the builder or general contractor
shall have the right to pursue a claim against the subcontractor for
any resulting compensatory damages, consequential damages, and
reasonable attorney's fees. If a subcontractor fails to timely
perform its obligations under paragraph (2) of subdivision (d), the
builder or general contractor shall have the right to pursue a claim
against the subcontractor for any resulting compensatory and
consequential damages, as well as for interest on defense and
indemnity costs, from the date incurred, at the rate set forth in
subdivision (g) of Section 3260, and for the builder's or general
contractor's reasonable attorney's fees incurred to recover these
amounts. The builder or general contractor shall bear the burden of
proof to establish both the subcontractor's failure to perform under
either paragraph (1) or (2) of subdivision (d) and any resulting
damages. If, upon request by a subcontractor, a builder or general
contractor does not reallocate defense fees to subcontractors within
30 days following final resolution of the claim as described above,
the subcontractor shall have the right to pursue a claim against the
builder or general contractor for any resulting compensatory and
consequential damages, as well as for interest on the fees, from the
date of final resolution of the claim, at the rate set forth in
subdivision (g) of Section 3260, and the subcontractor's reasonable
attorney's fees incurred in connection therewith. The subcontractor
shall bear the burden of proof to establish both the failure to
reallocate the fees and any resulting damages. Nothing in this
section shall prohibit the parties from mutually agreeing to
reasonable contractual provisions for damages if any party fails to
elect for or perform its obligations as stated in this section.
(f) A builder, general contractor, or subcontractor shall have the
right to seek equitable indemnity for any claim governed by this
section.
(g) Nothing in this section limits, restricts, or prohibits the
right of a builder, general contractor, or subcontractor to seek
equitable indemnity against any supplier, design professional, or
product manufacturer.
(h) As used in this section, "construction defect" means a
violation of the standards set forth in Sections 896 and 897.
(i) This section shall apply to commercial construction contracts
entered into on and after January 1, 2012.
SECTION 1. It is the intent of the Legislature
to enact legislation to govern the use of indemnification and
additional-insured provisions in construction contracts in order to
provide for the equitable resolution of claims fraud, willful injury,
or any other violation of law.