BILL NUMBER: SB 474 AMENDED
BILL TEXT
AMENDED IN SENATE MAY 2, 2011
AMENDED IN SENATE MARCH 25, 2011
INTRODUCED BY Senator Evans
FEBRUARY 17, 2011
An act to amend Section 2782 of the Civil Code, relating
to indemnity. An act to amend Section 2782 of, and to
add Section 2782.05 to, the Civil Code, relating to indemnity.
LEGISLATIVE COUNSEL'S DIGEST
SB 474, as amended, Evans. Commercial construction contracts:
indemnity.
Existing law provides that provisions in construction contracts
that purport to indemnify the promisee against liability for damages
for death or bodily injury to persons, injury to property, or any
other loss arising from the sole negligence or willful misconduct of
the promisee or the promisee's agents 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. Existing
law excepts from these provisions agreements to indemnify with
professional engineers and geologists, among others. Existing law
prescribes different requirements and prohibitions for residential
construction contracts entered on and after January 1, 2009.
This bill would provide, for construction contracts executed on
and after January 1, 2012, that are not for residential construction,
that any provision in a contract purporting to indemnify, hold
harmless, or defend another person against actual or claimed
liability, damage, or expense arising, in whole or in part, from the
negligence, willful misconduct, defective design, violation of law,
or other fault of that person or that person's agents, employees,
independent contractors, subcontractors, or representatives is
against public policy and is void and unenforceable. The bill would
require that California law be applied to these contracts regardless
of any choice-of-law rules that might otherwise apply. The bill would
except certain contractual provisions and types of insurance from
its provisions. The bill would provide that waiver of these
provisions is contrary to public policy, void, and unenforceable.
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.
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. The Legislature finds and declares all
of the following:
(a) It is in the best interests of this state and its citizens and
consumers to ensure that every construction business in the state is
financially responsible under the tort liability system for losses
that it, as a business, may cause.
(b) The duty of a business to be responsible for its own
negligence should be nondelegable, except through contracts for
insurance.
(c) Developers and construction businesses in recent years have
begun to use contract provisions to shift the financial
responsibility for their negligence to others, thereby circumventing
one of the fundamental foundations of tort law.
(d) If all businesses, large and small, are responsible for their
own actions, then construction companies will be able to obtain
adequate insurance, the quality of construction will be improved, and
workplace safety will be enhanced.
(e) Construction businesses must be able to obtain liability
insurance in order to meet their responsibilities.
(f) The provisions of this act will promote competition and safety
in the construction industry, thereby benefiting California
consumers.
(g) The intent of this act is to create an economic climate that
will promote safety in construction and ensure fairness among
businesses.
SECTION 1. SEC. 2. Section 2782 of
the Civil Code is amended to read:
2782. (a) (1) 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.
(2) This subdivision shall apply only to contracts executed before
January 1, 2012. On and after January 1, 2012, Section 2782.05 shall
apply to all construction contracts executed on and after January 1,
2012, that are not for residential construction or otherwise
excepted by the provisions of that section.
(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.
SEC. 3. Section 2782.05 is added to the
Civil Code , to read:
2782.05. (a) Provisions, clauses, covenants, or agreements
contained in, collateral to, or affecting a contract or agreement,
except as provided in subdivision (c), whether executed in this state
or without, for the design, construction, alteration, renovation,
repair, or maintenance of a building, structure, highway, road,
bridge, water line, sewer line, oil line, gas line, appurtenance, or
other improvement to public or private real property located in the
state, including any erection, moving, lifting, demolition, or
excavation that requires a promisor to indemnify, release, hold
harmless, insure, or defend another person against actual or claimed
liability, damage, or expense arising, in whole or in part, from the
negligence, willful misconduct, defective design, violation of law,
or other fault of that person or that person's agents, employees,
independent contractors, subcontractors, or representatives are
against public policy and are void and unenforceable.
(b) A provision in a contract described in subdivision (a) that
requires the purchase of additional insured coverage, or any coverage
endorsement or provision within an insurance policy providing
additional insured coverage, primary or noncontributing coverage or
waivers, is void and unenforceable to the extent that it requires or
provides coverage the scope of which is prohibited under this section
for an agreement to indemnify, hold harmless, or defend.
(c) This section does not apply to:
(1) Contracts for residential construction, as used in Title 7
(commencing with Section 895) of Part 2 of Division 2.
(2) Any wrap-up insurance policy or program, except as provided by
this section.
(3) A cause of action for breach of contract or warranty that
exists independently of an indemnity obligation.
(4) A provision in a construction contract that requires the
promisor to purchase or maintain insurance covering the acts or
omissions of the promisor.
(5) Indemnity provisions contained in loan and financing
documents, other than construction contracts to which the contractor
and a contracting project owner's lender are parties.
(6) General agreements of indemnity required by sureties as a
condition of execution of bonds for construction contracts.
(7) The benefits and protections provided by the workers'
compensation laws.
(8) The benefits or protections provided by the governmental
immunity laws.
(d) This section does not apply to a construction contract
provision that requires a promisor to purchase:
(1) Owners and contractors protective liability insurance.
(2) Railroad protective liability insurance.
(3) Contractors all-risk insurance.
(4) Builders all-risk or named perils property insurance.
(e) This section applies only to liability under a construction
contract entered into on or after January 1, 2012.
(f) Notwithstanding any choice-of-law rules that would apply the
laws of another jurisdiction, the law of California shall apply to
every contract to which this section applies.
(g) Any waiver of the provisions of this section is contrary to
public policy and is void and unenforceable.