SB 496, approved by Governor Jerry Brown on April 28, 2017, amends California Civil Code Section 2782.8 to apply to all design service contracts entered into by design professionals on or after January 1, 2018. The amendment takes effect in 2018 and limits indemnification obligations, including the duty and cost to defend, that may be imposed on design professionals with respect to all service contracts. SB 496 extends favorable limits on indemnification that, under existing law, apply only to design service contracts with public agencies.
Existing law currently provides that for all design professional contracts (including solicitation documents) entered into with a public agency on or after January 1, 2007, provisions that purport to indemnify (including the duty and cost to defend) the public agency are unenforceable, with the exception of claims that arise out of, pertain to, or relate to the negligence, recklessness, or willful misconduct of the design professional.
Under existing law, these limits on indemnification are deemed incorporated by reference into all contracts between public agencies and design professionals (including all licensed architects, licensed landscape architects, registered professional engineers, and licensed professional land surveyors). Section 2782.8 states that these limits on indemnification shall not be waived or modified by contractual agreement, act, or omission of the parties. Notwithstanding, parties are free to agree to contractual provisions not expressly prohibited by Section 2782.8.
SB 496 removes the public agency limitation from Section 2782.8 and makes these provisions applicable to all contracts for design professional services entered into on or after January 1, 2018. The amendment to Section 2782.8 also provides that in “no event shall the cost to defend charged to the design professional exceed the design professional’s proportionate percentage of fault.” However, in the event one or more defendants is unable to pay its share of defense costs due to bankruptcy or dissolution, the amendment to Section 2782.8 requires the design professional to meet and confer with other parties regarding unpaid defense costs. As such, in certain situations, design professionals may end up paying costs to defend that exceed their percentage of fault.
The amendment to Section 2782.8 would also provide for two exemptions to these new provisions. Specifically, the provisions pertaining to the duty and cost to defend will not apply to (1) any contract for design professional services where a project-specific general liability policy insures all project participants for general liability exposures on a primary basis and also covers all design professionals for their legal liability arising out of their professional services on a primary basis; or (2) a design professional who is a party to a written design-built joint venture agreement.
Overall, the amendment to Section 2782.8 is a very favorable development for design professionals. Through SB 496, the benefits of limits on indemnification previously afforded to design professionals only in contracts with public agencies are now available in almost all design service contracts. Additionally, Section 2782.8 will retain the prohibition on waiver or modification by contractual agreement, act, or omission of the parties.
