Amended in Senate April 18, 2016

Senate BillNo. 885


Introduced by Senator Wolk

January 19, 2016


An act to amend Section 2782 of the Civil Code, relating to contracts.

LEGISLATIVE COUNSEL’S DIGEST

SB 885, as amended, Wolk. Construction contracts: indemnity.

Existing law makes specified provisions in construction contracts void and unenforceable, including provisions 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.

This bill would specify,begin insert with certain exceptions,end insert for construction contracts entered into on or after January 1, 2017, that a design professional, as defined, only has the duty to defendbegin insert himself or herself fromend insert claimsbegin insert or lawsuitsend insert that arise out of, or pertain or relate to, negligence, recklessness, or willful misconduct of the design professional. Under the bill, a design professional would not have a duty to defend claimsbegin insert or lawsuitsend insert against any other person or entity arising from a construction project, except thatbegin delete personend deletebegin insert person’send insert or entity’s reasonable defense costs arising out of the design professional’s degree of fault, as specified. The bill would prohibit waiver of these provisions and would provide that any clause in a contract that requires a design professional to defend claimsbegin insert or lawsuitsend insert against other persons or entities is void and unenforceable. The bill would providebegin delete Legislativeend deletebegin insert legislativeend insert findings and declarations in support of these provisions.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

The Legislature finds and declares all of the
2following:

3(a) Errors and omissions insurance for design professionals does
4not provide coverage for the defense of claims against other persons
5and other entities involved in construction projects.

6(b) Requiring design professionals to defend claims against
7other persons or other entities involved in construction projects
8when insurance coverage is not available is unfair and contrary to
9sound public policy.

10(c) It is sound public policy for all persons and entities in
11projects to defend themselves against claims of negligence or error.

12(d) It is the intent of the Legislature in enacting this act to
13prohibit indemnity agreements that require design professionals
14to defend claims made against other persons or other entities
15involved in construction projects.

16

SEC. 2.  

Section 2782 of the Civil Code is amended to read:

17

2782.  

(a) Except as provided in Sections 2782.1, 2782.2,
182782.5, and 2782.6, provisions, clauses, covenants, or agreements
19contained in, collateral to, or affecting any construction contract
20and that purport to indemnify the promisee against liability for
21damages for death or bodily injury to persons, injury to property,
22or any other loss, damage or expense arising from the sole
23negligence or willful misconduct of the promisee or the promisee’s
24agents, servants, or independent contractors who are directly
25responsible to the promisee, or for defects in design furnished by
26those persons, are against public policy and are void and
27unenforceable; provided, however, that this section shall not affect
28the validity of any insurance contract, workers’ compensation, or
29agreement issued by an admitted insurer as defined by the
30Insurance Code.

31(b) (1) Except as provided in Sections 2782.1, 2782.2, and
322782.5, provisions, clauses, covenants, or agreements contained
33in, collateral to, or affecting any construction contract with a public
34agency entered into before January 1, 2013, that purport to impose
35on the contractor, or relieve the public agency from, liability for
P3    1the active negligence of the public agency are void and
2unenforceable.

3(2) Except as provided in Sections 2782.1, 2782.2, and 2782.5,
4provisions, clauses, covenants, or agreements contained in,
5collateral to, or affecting any construction contract with a public
6agency entered into on or after January 1, 2013, that purport to
7impose on any contractor, subcontractor, or supplier of goods or
8services, or relieve the public agency from, liability for the active
9negligence of the public agency are void and unenforceable.

10(c) (1) Except as provided in subdivision (d) and Sections
112782.1, 2782.2, and 2782.5, provisions, clauses, covenants, or
12agreements contained in, collateral to, or affecting any construction
13contract entered into on or after January 1, 2013, with the owner
14of privately owned real property to be improved and as to which
15the owner is not acting as a contractor or supplier of materials or
16equipment to the work, that purport to impose on any contractor,
17subcontractor, or supplier of goods or services, or relieve the owner
18from, liability are unenforceable to the extent of the active
19negligence of the owner, including that of its employees.

20(2) For purposes of this subdivision, an owner of privately
21owned real property to be improved includes the owner of any
22interest therein, other than a mortgage or other interest that is held
23solely as security for performance of an obligation.

24(3) This subdivision shall not apply to a homeowner performing
25a home improvement project on his or her own single family
26dwelling.

27(d) For all construction contracts, and amendments thereto,
28entered into after January 1, 2009, for residential construction, as
29used in Title 7 (commencing with Section 895) of Part 2 of
30Division 2, all provisions, clauses, covenants, and agreements
31contained in, collateral to, or affecting any construction contract,
32and amendments thereto, that purport to insure or indemnify,
33including the cost to defend, the builder, as defined in Section 911,
34or the general contractor or contractor not affiliated with the
35builder, as described in subdivision (b) of Section 911, by a
36subcontractor against liability for claims of construction defects
37are unenforceable to the extent the claims arise out of, pertain to,
38or relate to the negligence of the builder or contractor or the
39builder’s or contractor’s other agents, other servants, or other
40independent contractors who are directly responsible to the builder,
P4    1or for defects in design furnished by those persons, or to the extent
2the claims do not arise out of, pertain to, or relate to the scope of
3work in the written agreement between the parties. This section
4shall not be waived or modified by contractual agreement, act, or
5omission of the parties. Contractual provisions, clauses, covenants,
6or agreements not expressly prohibited herein are reserved to the
7agreement of the parties. Nothing in this subdivision shall prevent
8any party from exercising its rights under subdivision (a) of Section
9910. This subdivision shall not affect the obligations of an
10insurance carrier under the holding of Presley Homes, Inc. v.
11American States Insurance Company (2001) 90 Cal.App.4th 571.
12Nor shall this subdivision affect the obligations of a builder or
13subcontractor pursuant to Title 7 (commencing with Section 895)
14 of Part 2 of Division 2.

15(e) Subdivision (d) does not prohibit a subcontractor and builder
16or general contractor from mutually agreeing to the timing or
17immediacy of the defense and provisions for reimbursement of
18defense fees and costs, so long as that agreement does not waive
19or modify the provisions of subdivision (d) subject, however, to
20paragraphs (1) and (2). A subcontractor shall owe no defense or
21indemnity obligation to a builder or general contractor for a
22construction defect claim unless and until the builder or general
23contractor provides a written tender of the claim, or portion thereof,
24to the subcontractor which includes all of the information provided
25to the builder or general contractor by the claimant or claimants,
26including, but not limited to, information provided pursuant to
27subdivision (a) of Section 910, relating to claims caused by that
28subcontractor’s scope of work. This written tender shall have the
29same force and effect as a notice of commencement of a legal
30proceeding. If a builder or general contractor tenders a claim for
31construction defects, or a portion thereof, to a subcontractor in the
32manner specified by this provision, the subcontractor shall elect
33to perform either of the following, the performance of which shall
34be deemed to satisfy the subcontractor’s defense obligation to the
35builder or general contractor:

36(1) Defend the claim with counsel of its choice, and the
37subcontractor shall maintain control of the defense for any claim
38or portion of claim to which the defense obligation applies. If a
39subcontractor elects to defend under this paragraph, the
40subcontractor shall provide written notice of the election to the
P5    1builder or general contractor within a reasonable time period
2following receipt of the written tender, and in no event later than
390 days following that receipt. Consistent with subdivision (d),
4the defense by the subcontractor shall be a complete defense of
5the builder or general contractor of all claims or portions thereof
6to the extent alleged to be caused by the subcontractor, including
7any vicarious liability claims against the builder or general
8contractor resulting from the subcontractor’s scope of work, but
9not including claims resulting from the scope of work, actions, or
10omissions of the builder, general contractor, or any other party.
11Any vicarious liability imposed upon a builder or general contractor
12for claims caused by the subcontractor electing to defend under
13this paragraph shall be directly enforceable against the
14subcontractor by the builder, general contractor, or claimant.

15(2) Pay, within 30 days of receipt of an invoice from the builder
16or general contractor, no more than a reasonable allocated share
17of the builder’s or general contractor’s defense fees and costs, on
18an ongoing basis during the pendency of the claim, subject to
19reallocation consistent with subdivision (d), and including any
20amounts reallocated upon final resolution of the claim, either by
21settlement or judgment. The builder or general contractor shall
22allocate a share to itself to the extent a claim or claims are alleged
23to be caused by its work, actions, or omissions, and a share to each
24subcontractor to the extent a claim or claims are alleged to be
25caused by the subcontractor’s work, actions, or omissions,
26regardless of whether the builder or general contractor actually
27tenders the claim to any particular subcontractor, and regardless
28of whether that subcontractor is participating in the defense. Any
29amounts not collected from any particular subcontractor may not
30be collected from any other subcontractor.

31(f) Notwithstanding any other provision of law, if a
32subcontractor fails to timely and adequately perform its obligations
33under paragraph (1) of subdivision (e), the builder or general
34contractor shall have the right to pursue a claim against the
35subcontractor for any resulting compensatory damages,
36consequential damages, and reasonable attorney’s fees. If a
37subcontractor fails to timely perform its obligations under
38paragraph (2) of subdivision (e), the builder or general contractor
39shall have the right to pursue a claim against the subcontractor for
40any resulting compensatory and consequential damages, as well
P6    1as for interest on defense and indemnity costs, from the date
2incurred, at the rate set forth in subdivision (g) of Section 3260,
3and for the builder’s or general contractor’s reasonable attorney’s
4fees incurred to recover these amounts. The builder or general
5contractor shall bear the burden of proof to establish both the
6subcontractor’s failure to perform under either paragraph (1) or
7(2) of subdivision (e) and any resulting damages. If, upon request
8by a subcontractor, a builder or general contractor does not
9reallocate defense fees to subcontractors within 30 days following
10final resolution of the claim as described above, the subcontractor
11shall have the right to pursue a claim against the builder or general
12contractor for any resulting compensatory and consequential
13damages, as well as for interest on the fees, from the date of final
14resolution of the claim, at the rate set forth in subdivision (g) of
15Section 3260, and the subcontractor’s reasonable attorney’s fees
16incurred in connection therewith. The subcontractor shall bear the
17burden of proof to establish both the failure to reallocate the fees
18and any resulting damages. Nothing in this section shall prohibit
19the parties from mutually agreeing to reasonable contractual
20provisions for damages if any party fails to elect for or perform
21its obligations as stated in this section.

22(g) A builder, general contractor, or subcontractor shall have
23the right to seek equitable indemnity for any claim governed by
24this section.

25(h) Nothing in this section limits, restricts, or prohibits the right
26of a builder, general contractor, or subcontractor to seek equitable
27indemnity against any supplier, design professional, or product
28manufacturer.

29(i) As used in this section, “construction defect” means a
30violation of the standards set forth in Sections 896 and 897.

31(j) (1) Commencing with contracts entered into on or after
32January 1, 2017, a design professional, as defined in paragraph (2)
33of subdivision (c) of Section 2782.8, shall only have the duty to
34defendbegin insert himself or herself fromend insert claimsbegin insert and lawsuitsend insert that arise out
35of, pertain to, or relate to, the negligence, recklessness, or willful
36misconduct of the design professional. A design professional shall
37have no duty to defend claimsbegin insert and lawsuitsend insert against other persons
38or entities. A design professional shall be obligated to reimburse
39reasonable defense costs incurred by other persons or entities,
40limited to the design professional’s degree of fault, as determined
P7    1by abegin delete court or arbitration.end deletebegin insert court, arbitration, or negotiated
2settlement.end insert

begin insert

3
(2) The provisions of this subdivision shall not apply to either
4of the following:

end insert
begin insert

5
(A) A claim, lawsuit, or arbitration demand where a
6project-specific general liability policy insures all project
7participants for general liability exposures on a primary basis and
8also covers all design professionals for their legal liability arising
9out of their professional services on a primary basis.

end insert
begin insert

10
(B) A design professional who is a party to a written
11design-build joint venture agreement.

end insert
begin delete

39 12(2)

end delete

13begin insert(3)end insert The provisions of this subdivision shall not be waived or
14modified by contract. Contract provisions in violation of this
15subdivision are void and unenforceable. The duty of a design
16professional to defend is limited as provided in this subdivision.



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