Amended in Assembly June 16, 2016

Amended in Senate May 10, 2016

Amended in Senate April 18, 2016

Senate BillNo. 885


Introduced by Senator Wolk

January 19, 2016


An act to amendbegin delete Sectionend deletebegin insert Sectionsend insert 2782begin insert and 2782.8end insert of the Civil Code, relating to contracts.

LEGISLATIVE COUNSEL’S DIGEST

SB 885, as amended, Wolk. begin deleteConstruction contracts: end deletebegin insertContracts: design professionals:end insert 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, with certain exceptions, forbegin delete constructionend delete contractsbegin insert and amendments to themend insert entered into on or after January 1, 2017, that a design professional, as defined, only has the duty to defend himself or herself from claims or lawsuits that arise out of, or pertain or relate to, negligence, recklessness, or willful misconduct of the design professional. The bill would prohibit these provisions from being construed to affect any duty of a design professional tobegin delete pay a reasonable allocated share of defense fees and costs with respect to claims and lawsuits alleging negligence, recklessness, or willful misconduct of the design professional, as specified.end deletebegin insert defend any claims brought against him or her on an ongoing basis during their pendency or the design professional’s obligation to reimburse reasonable defense costs incurred by other persons or entities, limited to the design professional’s degree of fault, as determined by a court, arbitration, or negotiated settlement. The bill would provide that contracts and solicitation documents are deemed to incorporate its provisions by reference and would define claim to include a demand for money or services, lawsuit, or demand for arbitration.end insert The bill would prohibit waiver of these provisions and would provide that any clause, covenant, or agreement contained in, collateral to, or affecting a contract that requires a design professional to defend claims or lawsuits against other persons or entities is void and unenforceable. The bill would provide legislative 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,
P3    1or any other loss, damage or expense arising from the sole
2negligence or willful misconduct of the promisee or the promisee’s
3agents, servants, or independent contractors who are directly
4responsible to the promisee, or for defects in design furnished by
5those persons, are against public policy and are void and
6unenforceable; provided, however, that this section shall not affect
7the validity of any insurance contract, workers’ compensation, or
8agreement issued by an admitted insurer as defined by the
9Insurance Code.

10(b) (1) Except as provided in Sections 2782.1, 2782.2, and
112782.5, provisions, clauses, covenants, or agreements contained
12in, collateral to, or affecting any construction contract with a public
13agency entered into before January 1, 2013, that purport to impose
14on the contractor, or relieve the public agency from, liability for
15the active negligence of the public agency are void and
16unenforceable.

17(2) Except as provided in Sections 2782.1, 2782.2, and 2782.5,
18provisions, clauses, covenants, or agreements contained in,
19collateral to, or affecting any construction contract with a public
20agency entered into on or after January 1, 2013, that purport to
21impose on any contractor, subcontractor, or supplier of goods or
22services, or relieve the public agency from, liability for the active
23negligence of the public agency are void and unenforceable.

24(c) (1) Except as provided in subdivision (d) and Sections
252782.1, 2782.2, and 2782.5, provisions, clauses, covenants, or
26agreements contained in, collateral to, or affecting any construction
27contract entered into on or after January 1, 2013, with the owner
28of privately owned real property to be improved and as to which
29the owner is not acting as a contractor or supplier of materials or
30equipment to the work, that purport to impose on any contractor,
31subcontractor, or supplier of goods or services, or relieve the owner
32from, liability are unenforceable to the extent of the active
33negligence of the owner, including that of its employees.

34(2) For purposes of this subdivision, an owner of privately
35owned real property to be improved includes the owner of any
36interest therein, other than a mortgage or other interest that is held
37solely as security for performance of an obligation.

38(3) This subdivision shall not apply to a homeowner performing
39a home improvement project on his or her own single family
40dwelling.

P4    1(d) For all construction contracts, and amendments thereto,
2entered into after January 1, 2009, for residential construction, as
3used in Title 7 (commencing with Section 895) of Part 2 of
4Division 2, all provisions, clauses, covenants, and agreements
5contained in, collateral to, or affecting any construction contract,
6and amendments thereto, that purport to insure or indemnify,
7including the cost to defend, the builder, as defined in Section 911,
8or the general contractor or contractor not affiliated with the
9builder, as described in subdivision (b) of Section 911, by a
10subcontractor against liability for claims of construction defects
11are unenforceable to the extent the claims arise out of, pertain to,
12or relate to the negligence of the builder or contractor or the
13builder’s or contractor’s other agents, other servants, or other
14independent contractors who are directly responsible to the builder,
15or for defects in design furnished by those persons, or to the extent
16the claims do not arise out of, pertain to, or relate to the scope of
17work in the written agreement between the parties. This section
18shall not be waived or modified by contractual agreement, act, or
19omission of the parties. Contractual provisions, clauses, covenants,
20or agreements not expressly prohibited herein are reserved to the
21agreement of the parties. Nothing in this subdivision shall prevent
22any party from exercising its rights under subdivision (a) of Section
23910. This subdivision shall not affect the obligations of an
24insurance carrier under the holding of Presley Homes, Inc. v.
25American States Insurance Company (2001) 90 Cal.App.4th 571.
26Nor shall this subdivision affect the obligations of a builder or
27subcontractor pursuant to Title 7 (commencing with Section 895)
28 of Part 2 of Division 2.

29(e) Subdivision (d) does not prohibit a subcontractor and builder
30or general contractor from mutually agreeing to the timing or
31immediacy of the defense and provisions for reimbursement of
32defense fees and costs, so long as that agreement does not waive
33or modify the provisions of subdivision (d) subject, however, to
34paragraphs (1) and (2). A subcontractor shall owe no defense or
35indemnity obligation to a builder or general contractor for a
36construction defect claim unless and until the builder or general
37contractor provides a written tender of the claim, or portion thereof,
38to the subcontractor which includes all of the information provided
39to the builder or general contractor by the claimant or claimants,
40including, but not limited to, information provided pursuant to
P5    1subdivision (a) of Section 910, relating to claims caused by that
2subcontractor’s scope of work. This written tender shall have the
3same force and effect as a notice of commencement of a legal
4proceeding. If a builder or general contractor tenders a claim for
5construction defects, or a portion thereof, to a subcontractor in the
6manner specified by this provision, the subcontractor shall elect
7to perform either of the following, the performance of which shall
8be deemed to satisfy the subcontractor’s defense obligation to the
9builder or general contractor:

10(1) Defend the claim with counsel of its choice, and the
11subcontractor shall maintain control of the defense for any claim
12or portion of claim to which the defense obligation applies. If a
13subcontractor elects to defend under this paragraph, the
14subcontractor shall provide written notice of the election to the
15builder or general contractor within a reasonable time period
16following receipt of the written tender, and in no event later than
1790 days following that receipt. Consistent with subdivision (d),
18the defense by the subcontractor shall be a complete defense of
19the builder or general contractor of all claims or portions thereof
20to the extent alleged to be caused by the subcontractor, including
21any vicarious liability claims against the builder or general
22contractor resulting from the subcontractor’s scope of work, but
23not including claims resulting from the scope of work, actions, or
24omissions of the builder, general contractor, or any other party.
25Any vicarious liability imposed upon a builder or general contractor
26for claims caused by the subcontractor electing to defend under
27this paragraph shall be directly enforceable against the
28subcontractor by the builder, general contractor, or claimant.

29(2) Pay, within 30 days of receipt of an invoice from the builder
30or general contractor, no more than a reasonable allocated share
31of the builder’s or general contractor’s defense fees and costs, on
32an ongoing basis during the pendency of the claim, subject to
33reallocation consistent with subdivision (d), and including any
34amounts reallocated upon final resolution of the claim, either by
35settlement or judgment. The builder or general contractor shall
36allocate a share to itself to the extent a claim or claims are alleged
37to be caused by its work, actions, or omissions, and a share to each
38subcontractor to the extent a claim or claims are alleged to be
39caused by the subcontractor’s work, actions, or omissions,
40regardless of whether the builder or general contractor actually
P6    1tenders the claim to any particular subcontractor, and regardless
2of whether that subcontractor is participating in the defense. Any
3amounts not collected from any particular subcontractor may not
4be collected from any other subcontractor.

5(f) Notwithstanding any other provision of law, if a
6subcontractor fails to timely and adequately perform its obligations
7under paragraph (1) of subdivision (e), the builder or general
8contractor shall have the right to pursue a claim against the
9subcontractor for any resulting compensatory damages,
10consequential damages, and reasonable attorney’s fees. If a
11subcontractor fails to timely perform its obligations under
12paragraph (2) of subdivision (e), the builder or general contractor
13shall have the right to pursue a claim against the subcontractor for
14any resulting compensatory and consequential damages, as well
15as for interest on defense and indemnity costs, from the date
16incurred, at the rate set forth in subdivision (g) of Section 3260,
17and for the builder’s or general contractor’s reasonable attorney’s
18fees incurred to recover these amounts. The builder or general
19contractor shall bear the burden of proof to establish both the
20subcontractor’s failure to perform under either paragraph (1) or
21(2) of subdivision (e) and any resulting damages. If, upon request
22by a subcontractor, a builder or general contractor does not
23reallocate defense fees to subcontractors within 30 days following
24final resolution of the claim as described above, the subcontractor
25shall have the right to pursue a claim against the builder or general
26contractor for any resulting compensatory and consequential
27damages, as well as for interest on the fees, from the date of final
28resolution of the claim, at the rate set forth in subdivision (g) of
29Section 3260, and the subcontractor’s reasonable attorney’s fees
30incurred in connection therewith. The subcontractor shall bear the
31burden of proof to establish both the failure to reallocate the fees
32and any resulting damages. Nothing in this section shall prohibit
33the parties from mutually agreeing to reasonable contractual
34provisions for damages if any party fails to elect for or perform
35its obligations as stated in this section.

36(g) A builder, general contractor, or subcontractor shall have
37the right to seek equitable indemnity for any claim governed by
38this section.

39(h) Nothing in this section limits, restricts, or prohibits the right
40of a builder, general contractor, or subcontractor to seek equitable
P7    1indemnity against any supplier, design professional, or product
2manufacturer.

3(i) As used in this section, “construction defect” means a
4violation of the standards set forth in Sections 896 and 897.

5(j) (1) Commencing withbegin delete contractsend deletebegin insert all contracts, and
6amendments thereto,end insert
entered into on or after January 1, 2017, a
7design professional, as defined in paragraph (2) of subdivision (c)
8of Section 2782.8, shall only have the duty to defend himself or
9herself from claims that arise out of, pertain to, or relate to the
10negligence, recklessness, or willful misconduct of the design
11professional. All provisions, clauses, covenants, and agreements
12contained in, collateral to, or affecting any such contract that
13purport to require a design professional to defend claims against
14another party shall be unenforceable.

15(2) Paragraph (1) does not prohibit a design professional from
16mutually agreeing with another party to the timing or immediacy
17of a defense and provisions for reimbursement of defense fees and
18costs,begin delete ifend deletebegin insert so long asend insert thatbegin insert subsequentend insert agreementbegin insert after a claim is madeend insert
19 does not waive or modify the provisions of paragraph (1).

20(3) Paragraph (1) shall not be construed tobegin delete affect anyend deletebegin insert affect:end insert

21begin insert(A)end insertbegin insertend insertbegin insertAnyend insert duty of a design professional tobegin delete pay a reasonable
22allocated share of the defense fees and costs with respect to claims
23and lawsuits alleging negligence, recklessness, or willful
24misconduct of the design professionalend delete
begin insert defend any claims brought
25against him or herend insert
on an ongoing basis during theirbegin delete pendency,
26including any amounts reallocated upon final resolution of a claim
27or lawsuit, either by settlement or judgment.end delete
begin insert pendency.end insert

begin insert

28
(B) The design professional’s obligation to reimburse
29reasonable defense costs incurred by other persons or entities,
30limited to the design professional’s degree of fault, as determined
31by a court, arbitration, or negotiated settlement.

end insert
begin insert

32
(4) All contracts and all solicitation documents, including
33requests for proposal, invitations for bid, and other solicitation
34documents, are deemed to incorporate by reference the provisions
35of this subdivision.

end insert
begin insert

36
(5) For purposes of this subdivision, “claim” means a claim,
37demand for money or services, lawsuit, or demand for arbitration.

end insert
begin delete

38(4)

end delete

39begin insert(6)end insert The provisions of this subdivision shall not apply to either
40of the following:

P8    1(A) A claim, lawsuit, or arbitration demand where a
2project-specific general liability policy insures all project
3participants for general liability exposures on a primary basis and
4also covers all design professionals for their legal liability arising
5out of their professional services on a primary basis.

6(B) A design professional who is a party to a written
7design-build joint venture agreement.

begin delete

8(5)

end delete

9begin insert(7)end insert The provisions of this subdivision shall not be waived or
10modified by contract. Contract provisions in violation of this
11subdivision are void and unenforceable. The duty of a design
12professional to defend is limited as provided in this subdivision.

13begin insert

begin insertSEC. 3.end insert  

end insert

begin insertSection 2782.8 of the end insertbegin insertCivil Codeend insertbegin insert is amended to read:end insert

14

2782.8.  

(a) For all contracts, and amendments thereto, entered
15into on or after January 1, 2007, with a public agency for design
16professional services, all provisions, clauses, covenants, and
17agreements contained in, collateral to, or affecting any such
18contract, and amendments thereto, that purport tobegin delete indemnify,
19including the duty and the cost to defend,end delete
begin insert indemnifyend insert the public
20agency by a design professional against liability for claims against
21the public agency, are unenforceable, except for claims that arise
22out of, pertain to, or relate to the negligence, recklessness, or willful
23misconduct of the design professional. The duty tobegin delete indemnify,
24including the duty and the cost to defend,end delete
begin insert indemnifyend insert is limited as
25provided in this section. This section shall not be waived or
26modified by contractual agreement, act, or omission of the parties.
27Contractual provisions, clauses, covenants, or agreements not
28expressly prohibited herein are reserved to the agreement of the
29parties.

30(b) All contracts and all solicitation documents, including
31requests for proposal, invitations for bid, and other solicitation
32documents, between a public agency and a design professional,
33are deemed to incorporate by reference the provisions of this
34section.

35(c) For purposes of this section, the following definitions apply:

36(1) “Public agency” includes any county, city, city and county,
37district, school district, public authority, municipal corporation,
38or other political subdivision, joint powers authority, or public
39corporation in the state. Public agency does not include the State
40of California.

P9    1(2) “Design professional” includes all of the following:

2(A) An individual licensed as an architect pursuant to Chapter
33 (commencing with Section 5500) of Division 3 of the Business
4and Professions Code, and a business entity offering architectural
5services in accordance with that chapter.

6(B) An individual licensed as a landscape architect pursuant to
7Chapter 3.5 (commencing with Section 5615) of Division 3 of the
8Business and Professions Code, and a business entity offering
9landscape architectural services in accordance with that chapter.

10(C) An individual registered as a professional engineer pursuant
11to Chapter 7 (commencing with Section 6700) of Division 3 of
12the Business and Professions Code, and a business entity offering
13professional engineering services in accordance with that chapter.

14(D) An individual licensed as a professional land surveyor
15pursuant to Chapter 15 (commencing with Section 8700) of
16Division 3 of the Business and Professions Code, and a business
17entity offering professional land surveying services in accordance
18with that chapter.

19(d) This section shall only apply to a professional service
20contract, or any amendment thereto, entered into on or after January
211, 2007.

22(e) The amendments made to this section by the act adding this
23subdivision shall apply to services offered pursuant to a design
24professional contract, or any amendment thereto, entered into on
25or after January 1, 2011.

26(f) Nothing in this section shall abrogate the provisions of
27Section 1104 of the Public Contract Code.



O

    96