BILL ANALYSIS
SB 972
Page 1
Date of Hearing: June 29, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 972 (Wolk) - As Amended: June 23, 2010
As Proposed to be Amended
SENATE VOTE : 30-3
SUBJECT : INDEMNITY: DESIGN PROFESSIONALS
KEY ISSUE : SHOULD THIS "PLACEHOLDER" BILL BE ADVANCED WHILE THE
AUTHOR CONTINUES HER WORTHY EFFORTS TO ADDRESS CONCERNS THAT
EXISTING PUBLIC WORKS INDEMNITY OBLIGATIONS ARE IMPOSSIBLE OR
COSTLY FOR DESIGN PROFESSIONALS TO INSURE?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill is sponsored by the American Council of Engineering,
growing out of strong concerns that existing contractual
indemnity obligations routinely included in public works
contracts are impossible or costly to insure because of the
nature of the commercial insurance products available to them.
Previous versions of the bill have generated wide opposition
throughout the construction industry in light of the difficulty
of legislating in this complicated area where a change in the
rules for one group may cause cascading pressures and concerns
among other participants. As proposed to be amended, the author
has greatly reduced if not completely alleviated the basis for
the opposition. Although there may not be consensus among all
observers, it is believed that the proposed amendments
paraphrase rather than substantively change existing law. As
the bill moves forward, it will be incumbent on the parties to
continue their discussions in an effort to reach an agreement.
If the bill is subsequently amended, the author has pledged to
return to Committee to present that proposal.
SUMMARY : Revises the design professional indemnity statute.
Specifically, this bill makes a technical change to refer to the
duty to defend as an element of contractual indemnity.
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EXISTING LAW :
1)Provides, for all contracts, and amendments to contracts,
entered into on or after January 1, 2007, with a public agency
for design professional services, all provisions, clauses,
covenants, and agreements contained in, collateral to, or
affecting these contracts, that purport to indemnify,
including the cost to defend, the public agency by a design
professional against liability for claims against the public
agency, are unenforceable, except for claims that arise out
of, pertain to, or relate to the negligence, recklessness, or
willful misconduct of the design professional. (Civ. Code
Sec. 2782.8.)
2)Provides that specified rules are to be applied in the
interpretation of a contract of indemnity, unless a contrary
intention appears. Pursuant to these rules, the person
indemnifying is bound, on request of the person indemnified,
to defend actions or proceedings brought against the latter in
respect to the matters embraced by the indemnity. However,
the person indemnified has the right to conduct those
defenses, if he or she chooses to do so. (Civ. Code Sec.
2778.)
3)Interprets, under existing case law, the above-described
provisions to provide that, unless otherwise provided, a duty
to defend arises out of an indemnity obligation as soon as the
litigation commences, and regardless of whether the indemnitor
(the person indemnifying) is ultimately found negligent.
(Crawford v. Weather Shield (2008) 44 Cal.4th 541; see also
UDC-Universal Development, L.P. v. CH2M Hill (2010) 181
Cal.App.4th 10.)
COMMENTS : Supporters of this bill contend that it is necessary
to change the law regarding the contractual indemnification
obligations of design professionals because they are unable to
obtain commercial insurance to cover the duty to defend that
attends that obligation, both for public entities as well as
residential or commercial construction. Solving that problem by
changing the duty to defend, however, rather than the
availability of insurance, leaves other contracting parties
involved in a construction dispute to bear the increased risks
and costs.
As proposed to be amended, the bill would simply reference the
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duty to defend, along with the cost to defend, as emblems of the
existing obligation arising out of contractual indemnity for
design professionals. Existing law notes that the duty to
indemnify includes the cost to defend. This bill adds a
reference to the duty to defend - an obligation that is
logically predicate to any cost to defend in that there would be
no costs of defense if there were no duty to defend. This
revision is intended to be non-substantive, allowing the bill to
meet legislative deadlines while the parties continue
discussions in an effort to reach consensus.
This amendment greatly reduces, if not completely alleviates,
the basis for the opposition. If the bill is subsequently
amended, the author has pledged to return to Committee to review
that proposal.
Author's Proposed Amendment. As the basis for moving the bill
forward while negotiations continue, the author appropriately
proposes to substitute the following amendment for the current
contents of the bill.
2782.8. (a) For all contracts, and amendments thereto, entered
into on or after January 1, 2007, with a public agency for
design professional services, all provisions, clauses,
covenants, and
agreements contained in, collateral to, or affecting any such
contract, and amendments thereto, that purport to indemnify,
including the duty and cost to defend, the public agency by a
design
professional against liability for claims against the public
agency, are unenforceable, except for claims that arise out of,
pertain to, or relate to the negligence, recklessness, or
willful misconduct of the design professional. 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.
REGISTERED SUPPORT / OPPOSITION :
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Support (as proposed to be amended)
None on file
Opposition (as proposed to be amended)
None on file
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334