Amendments to Civil Code Section 2782 - Indemnity - Construction Contracts

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Existing law allows indemnity agreements in construction contracts so long as indemnity is not provided for the sole negligence or willful misconduct of a promisee. There has been a proliferation of indemnity agreements in construction contracts. Owners and general contractors have insisted on Type I indemnification agreements. A Type I indemnity agreement is defined as "one which requires the promisor to assume liability for the promisee's negligence." Developers and general contractors required subcontractors to assume liability for the developers and general contractor's negligence and to be liable for all expenses they incur in the defense of such actions, including attorneys fees. Because subcontractors perceived this requirement to obtain the contract to be unfair, and because they believed it was unnecessarily driving up their costs, a lobbying effort began in the Legislature to outlaw Type I indemnity agreements. Only one bill made it out of the Legislature to the Governor's desk. That was AB 758 authored by Assembly Member Ronald Calderon. It was signed by Governor Schwarzenegger on September 29, 2005 This bill provides the following features:

1. It applies to residential construction contracts entered into after January 1, 2006.

2. It prohibits Type I indemnity agreements, which are defined as "indemnity agreements by a subcontractor to indemnify a builder against liability for claims that arise out of, pertain to, or relate to the negligence of the builder or the builder's other agents, other servants, or other independent contractors who were directly responsible to the builder." It further outlaws such agreements related to defects in design furnished by those persons, and claims that do not arise out of, pertain to, or relate to the scope of work in the written agreement between the parties.

3. It provides that this prohibition cannot be waived by the parties.

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Published In: General Business Updates, Construction Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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