BILL NUMBER: SB 474 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JULY 5, 2011
AMENDED IN ASSEMBLY JUNE 21, 2011
AMENDED IN SENATE MAY 24, 2011
AMENDED IN SENATE MAY 2, 2011
AMENDED IN SENATE MARCH 25, 2011
INTRODUCED BY Senator Evans
FEBRUARY 17, 2011
An act to amend Sections 2782 and 2783 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,
as defined, 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 provides that provisions in
construction contracts 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.
Existing law excepts from these provisions agreements to indemnify
with professional engineers, 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 and amendments
executed on and after January 1, 2013, that are not for residential
construction or a direct contract with a public agency
or the owner of private property , that purport to insure
or indemnify, including the cost to defend, a general contractor,
construction manager, or other subcontractor, by a subcontractor
against actual or claimed liability for claims of
death or bodily injury to persons, injury to property, or any
other loss, damage, or expense are unenforceable to the extent
the claims relate to the active negligence or willful
misconduct of that general contractor, construction manager,
or other subcontractor, or their other agents, as specified, or for
defects in design furnished by those persons, or to the extent the
claims do not arise out of the scope of work of the subcontractor in
the written agreement between the parties. 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 these
provisions, including an agreement between a subcontractor and
general contractor or construction manager as to the timing or
immediacy of the defense and provisions for reimbursement of defense
fees and costs, as specified. The bill would provide that waiver of
these provisions is contrary to public policy, void, and
unenforceable.
This bill would provide, for construction contracts entered into
on and after January 1, 2013, with a public agency, that purport to
impose on any contractor, subcontractor, or supplier of goods or
services, or relieve the public agency from, liability for the active
negligence of the public agency, including that of its
employees, agents, and other independent contractors, are
agency are void and unenforceable. The bill also would
provide, for construction contracts entered into on and after January
1, 2013, with the owner of privately held real property to be
improved and as to which the owner is not acting as a contractor,
construction manager, or supplier of materials or equipment to the
work, that purport to impose on any contractor, subcontractor, or
supplier of goods or services, or relieve the owner from, liability
for are unenforceable to the extent of
the active negligence of the owner, including that of its employees
, agents, and other independent contractors, are void and
unenforceable .
This bill would expand the definition of "construction contract"
for purposes of these provisions, to include agreements for
renovations but exclude agreements for surveying, design, and
specifications , and would include agreements respecting, among
other things, utility, water, sewer, oil, and gas lines.
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 It is the duty of a business
to be responsible for its own negligence should be
nondelegable, except through contracts for insurance.
negligence.
(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.
SEC. 2. 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) (1) 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 entered into before January 1, 2013, 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.
(2) 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 entered into on or after January 1, 2013, that purport to
impose on any contractor, subcontractor, or supplier of goods or
services, or relieve the public agency from, liability for the active
negligence of the public agency, including that of its
employees, agents, and other independent contractors, are void and
negligence of the public agency are void and
unenforceable.
(3) The following shall not constitute active negligence of the
public agency:
(A) Except as provided in Section 2782.8, accepting or utilizing
plans or designs provided by a licensed design professional.
(B) The hiring of a design professional, contractor,
subcontractor, or supplier of goods or services, or other independent
contractor.
(C) To the extent the public agency is not managing the public
works project, the failure to supervise the work of a design
professional, contractor, subcontractor, or other independent
contractor.
(c) Except as provided in subdivision (d) and Sections
2781.1 2782.1 , 2782.2, and 2782.5, provisions,
clauses, covenants, or agreements contained in, collateral to, or
affecting any construction contract entered into on or after January
1, 2013, with the owner of privately held real property to be
improved and as to which the owner is not acting as a contractor,
construction manager, or supplier of materials or equipment to the
work, that purport to impose on any contractor, subcontractor, or
supplier of goods or services, or relieve the owner from, liability
for are unenforceable to the extent of
the active negligence of the owner, including that of its
employees, agents, and other independent contractors, are void and
unenforceable. employees. For purposes of this
subdivision, the following shall not constitute active negligence of
the owner or developer:
(1) Accepting or utilizing plans or designs approved by a licensed
design professional.
(2) The hiring of a design professional, contractor, construction
manager, or supplier of materials or equipment.
(3) The failure to supervise the work of a contractor or
subcontractor.
(d) 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, 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.
(e) Subdivision (d) 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 (d) 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 (d), 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 (d), 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.
(f) Notwithstanding any other provision of law, if a subcontractor
fails to timely and adequately perform its obligations under
paragraph (1) of subdivision (e), 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 (e), 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 (e) 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.
(g) A builder, general contractor, or subcontractor shall have the
right to seek equitable indemnity for any claim governed by this
section.
(h) 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.
(i) As used in this section, "construction defect" means a
violation of the standards set forth in Sections 896 and 897.
SEC. 3. Section 2782.05 is added to the Civil Code, to read:
2782.05. (a) Except as provided in subdivision (b), provisions,
clauses, covenants, and agreements contained in, collateral to, or
affecting any construction contract and amendments thereto entered
into on or after January 1, 2013, that purport to insure or
indemnify, including the cost to defend, a general contractor,
construction manager, or other subcontractor, by a subcontractor
against actual or claimed liability for claims of
death or bodily injury to persons, injury to property, or any
other loss, damage, or expense are unenforceable to the extent
the claims arise out of, pertain to, or relate to the active
negligence or willful misconduct of that general
contractor, construction manager, or other subcontractor, or their
other agents, other servants, or other independent contractors who
are responsible to the general contractor, construction manager, or
other subcontractor, or for defects in design furnished by those
persons, or to the extent the claims do not arise out of the scope of
work of the subcontractor 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. 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 the rights of an insurance carrier under the
holding of Buss v. Superior Court (1997) 16 Cal.4th 35.
(b) This section does not apply to:
(1) Contracts for residential construction , as used in
that are subject to any part of Title 7
(commencing with Section 895) of Part 2 of Division 2.
(2) Contracts Direct contracts with
a public agency and that are governed
by subdivision (b) of Section 2782.
(3) Contracts Direct contracts with
the owner of private property and that
are governed by subdivision (c) of Section 2782.
(4) Any wrap-up insurance policy or program , except as
provided by this section. .
(5) A cause of action for breach of contract or warranty that
exists independently of an indemnity obligation.
(6) A provision in a construction contract that requires the
promisor to purchase or maintain insurance covering the acts
or omissions of the promisor. .
(7) 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.
(8) General agreements of indemnity required by sureties as a
condition of execution of bonds for construction contracts.
(9) The benefits and protections provided by the workers'
compensation laws.
(10) The benefits or protections provided by the governmental
immunity laws.
(11) Provisions that require the purchase of any of the following:
(A) Owners and contractors protective liability insurance.
(B) Railroad protective liability insurance.
(C) Contractors all-risk insurance.
(D) Builders all-risk or named perils property insurance.
(12) Contracts with design professionals.
(c) 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.
(d) Any waiver of the provisions of this section is contrary to
public policy and is void and unenforceable.
(e) Subdivision (a) does not prohibit a subcontractor and a
general contractor or construction manager 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 (a) subject,
however, to paragraphs (1) and (2). A subcontractor shall owe no
defense or indemnity obligation to a general contractor or
construction manager for a claim unless and until the general
contractor or construction manager provides a written tender of the
claim, or portion thereof, to the subcontractor that includes
all of the information provided by the claimant or
claimants relating to claims caused by that subcontractor's scope of
work. In addition, the general contractor or construction
manager shall provide a written statement regarding how the
reasonable allocated share of fees and costs was determined. The
written tender shall have the same force and effect as a
notice of commencement of a legal proceeding. If a general
contractor or construction manager tenders a claim, or portion
thereof, to a subcontractor in the manner specified by this
subdivision, 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 general contractor or
construction manager:
(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
general contractor or construction manager within a reasonable time
period following receipt of the written tender, and in no event later
than 30 days following that receipt. Consistent with subdivision
(a), the defense by the subcontractor shall be a complete defense of
the general contractor or construction manager of all claims or
portions thereof to the extent alleged to be caused by the
subcontractor, including any vicarious liability claims against the
general contractor or construction manager resulting from the
subcontractor's scope of work, but not including claims resulting
from the scope of work, actions, or omissions of the general
contractor or construction manager, or any other party. Any vicarious
liability imposed upon a general contractor or construction manager
for claims caused by the subcontractor electing to defend under this
paragraph shall be directly enforceable against the subcontractor by
the owner, general contractor, construction manager, or claimant.
(2) Pay, within 30 days of receipt of an invoice from the general
contractor or construction manager, no more than a reasonable
allocated share of the general contractor's or construction manager's
defense fees and costs, on an ongoing basis during the pendency of
the claim, subject to reallocation consistent with subdivision (a),
and including any amounts reallocated upon final resolution of the
claim, either by settlement or judgment. The general contractor or
construction manager 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 general contractor
or construction manager 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.
(f) Notwithstanding any other provision of law, if a subcontractor
fails to timely and adequately perform its obligations under
paragraph (1) of subdivision (e), the general contractor or
construction manager 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 (e), the general contractor or construction
manager shall have the right to pursue a claim against the
subcontractor for any resulting compensatory damages and for
, interest on defense and indemnity costs, from
the date incurred, at the rate set forth in subdivision (g) of
Section 3260 , consequential damages, and reasonable attorney's
fees incurred to recover these amounts . The general contractor
or construction manager shall bear the burden of proof to establish
both the subcontractor's failure to perform under either paragraph
(1) or (2) of subdivision (e) and any resulting damages. If, upon
request by a subcontractor, a general contractor or construction
manager does not reallocate defense fees to subcontractors within 30
days following final resolution of the claim, the subcontractor shall
have the right to pursue a claim against the general contractor or
construction manager for any resulting compensatory damages with
interest, from the date of final resolution of the claim, at the rate
set forth in subdivision (g) of Section 3260. 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. In any action under this subdivision, the court shall award
reasonable attorney's fees and costs to the prevailing party, if any.
as stated in this section.
(g) For purposes of this section, "construction manager" means a
person , other than a public agency or owner, who directs,
schedules, or coordinates the work of contractors for a work of
improvement, but does not itself perform the work.
(h) For purposes of this section, "general contractor," in
relation to a given subcontractor, means a person who has entered
into a construction contract and who has entered into a subcontract
with that subcontractor under which the subcontractor agrees to
perform a portion of that scope of work. Where a subcontractor has
itself subcontracted a portion of its work, that subcontractor, along
with its general contractor, shall be considered a general
contractor as to its subcontractors.
(i) For purposes of this section, "subcontractor" means a person
who has entered into a construction contract either with a contractor
to perform a portion of that contractor's work under a construction
contract or with any person to perform a construction contract
subject to the direction or control of a general contractor or
construction manager.
(j) A general contractor, construction manager, or subcontractor
shall have the right to seek equitable indemnity for any claim
governed by this section.
(k) Nothing in this section limits, restricts, or prohibits the
right of a general contractor, construction manager, or subcontractor
to seek equitable indemnity against any supplier, design
professional, or product manufacturer.
(l) This section shall not affect the validity of any existing
insurance contract, workers' compensation, or agreement issued on or
before January 1, 2012, by an admitted insurer, as defined in the
Insurance Code.
SEC. 4. Section 2783 of the Civil Code is amended to read:
2783. As used in Sections 2782 and 2782.5, "construction contract"
is defined as any agreement or understanding, written or oral,
respecting the construction, surveying, design,
specifications, alteration, repair, improvement,
renovation, maintenance, removal of or demolition of any building,
highway, road, parking facility, bridge, water line, sewer line, oil
line, gas line, electric utility transmission or distribution
line, railroad, airport, pier or dock, excavation or other
structure, appurtenance, development or other improvement to real or
personal property, or an agreement to perform any portion thereof or
any act collateral thereto, or to perform any service reasonably
related thereto, including, but not limited to, the erection of all
structures or performance of work in connection therewith, the rental
of all equipment, all incidental transportation, moving, lifting,
crane and rigging service and other goods and services furnished in
connection therewith.