California Senate Bill SB972 Amended / Bill

 BILL NUMBER: SB 972AMENDED BILL TEXT AMENDED IN ASSEMBLY JUNE 23, 2010 AMENDED IN SENATE MAY 12, 2010 AMENDED IN SENATE APRIL 5, 2010 INTRODUCED BY Senator Wolk FEBRUARY 8, 2010 An act to  add Section 2782.85 to   amend Sections 2778 and 2782.8 of  the Civil Code, relating to indemnity. LEGISLATIVE COUNSEL'S DIGEST SB 972, as amended, Wolk. Indemnity: design professionals. Existing law  contains specified rules that are to be applied in the interpretation of a contract for indemnity. Pursuant to these rules, the person that is required to provide indemnification is bound, upon the request of the person that is required to be indemnified, to defend actions or proceedings brought against the person that is required to be indemnified prior to a finding of liability. Existing   law   further  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. This bill would provide, for all contracts, and amendments to contracts, entered into on or after January 1, 2011, with a public agency, as defined, for design professional services, all provisions, clauses, covenants, and agreements contained in, collateral to, or affecting these contracts or amendments to contracts that purport to require an immediate defense under an indemnity agreement are unenforceable.  The bill would provide that a design professional is not required to defend or indemnify the indemnified party unless and until the indemnified party provides a written tender of the claim to the design professional, at which point the design professional may choose to either defend the claim with counsel of its choosing or pay a reasonable allocated share of the indemnified party's defense fees and costs. The bill would allow the indemnified party to recover damages from the design professional if it fails to timely and adequately perform these duties.   This bill would provide that the obligations of a design professional to indemnify a public agency for damages determined to be caused by negligence, recklessness, or willful misconduct to be proportionate to the actual liability of the design professional. This bill would provide that if a public agency includes indemnity language in a contract for the services of a design professional, those provisions shall only be enforceable if the language of the contract is in conformance with 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:  SECTION 1.   Section 2778 of the   Civil Code   is amended to read:  2778. In the interpretation of a contract of indemnity, the following rules are to be applied, unless a contrary intention appears:  1.  (a)    Upon  an   a finding of  indemnity against liability, expressly, or in other equivalent terms, the person  that is to be  indemnified is entitled to recover upon becoming liable  ;   .   2.   (b)    Upon  an   a finding of  indemnity against claims,  or  demands,  or  damages, or costs, expressly, or in other equivalent terms, the person  that   is to be  indemnified is not entitled to recover  ,  without payment  thereof;   of the underlying claims, demands, damages, or costs.   3.   (c)    An indemnity  action or proceeding  against claims,  or  demands, or liability, expressly, or in other equivalent terms, embraces the costs of defense against  such   the  claims, demands, or liability incurred in good faith, and in the exercise of a reasonable discretion  ;   .   4.   (d)    The person  that is responsible for  indemnifying is bound, on request of the person  that   is to be  indemnified, to defend actions or proceedings brought against the  latter   person that is to be indemnified  in respect to the matters embraced by the indemnity  contract  , but the person  that is to be  indemnified has the right to conduct  such   those  defenses, if he  or she  chooses to do so  ;   . This subdivision does not apply to contracts for design professional services, as defined in Section 2782.8   .   5.   (e)    If, after  a    request  for indemnification  , the person  responsible for  indemnifying neglects to defend the person  that is to be  indemnified, a recovery against the  latter   person that is to be indemnified   suffered by him in good faith  , is conclusive  in his favor  against the  former;  person that is responsible for indemnification.   6.   (f)    If the person  indemnifying   that is responsible for indemnification  , whether  he is  a principal or a surety in the agreement, has not  received   reasonable notice of the action or proceeding against the person  that is to be  indemnified, or is not allowed to control its defense, judgment against the  latter   person that is to be indemnified  is only presumptive evidence against the  former;   person that is responsible for indemnification.   7.   (g)    A stipulation that a judgment against the person indemnified shall be conclusive upon the person indemnifying, is inapplicable if he  or she  had a good defense upon the merits, which by want of ordinary care he  or she  failed to establish in the action.  SEC. 2.   Section 2782.8 of the   Civil Code   is amended to read:  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 cost  and duty  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   are caused by  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. (b) For purposes of this section, the following definitions apply: (1) "Public agency" includes any county, city, city and county, district, school district, public authority, municipal corporation, or other political subdivision, joint powers authority, or public corporation in the state. Public agency does not include the State of California. (2) "Design professional" includes all of the following: (A) An individual licensed as an architect pursuant to Chapter 3 (commencing with Section 5500) of Division 3 of the Business and Professions Code, and a business entity offering architectural services in accordance with that chapter. (B) An individual licensed as a landscape architect pursuant to Chapter 3.5 (commencing with Section 5615) of Division 3 of the Business and Professions Code, and a business entity offering landscape architectural services in accordance with that chapter. (C) An individual registered as a professional engineer pursuant to Chapter 7 (commencing with Section 6700) of Division 3 of the Business and Professions Code, and a business entity offering professional engineering services in accordance with that chapter. (D) An individual licensed as a professional land surveyor pursuant to Chapter 15 (commencing with Section 8700) of Division 3 of the Business and Professions Code, and a business entity offering professional land surveying services in accordance with that chapter.  (c) A design professional that enters into a contract, which is subject to this section, that contains an indemnity provision has no duty to provide a defense for a claim against a public agency for damages unless the damages are determined to be caused by the negligence, recklessness, or willful misconduct of the design professional.   (d) If there is an adjudication that the design professional engaged in negligent, reckless, or willful misconduct, the design professional's duty to indemnify the public agency for damages or liabilities, including the cost of providing a defense, caused by the negligence, recklessness, or willful misconduct of the design professional shall be proportionate to the actual liability of the design professional.   (e)     If a public agency elects to include an indemnity provision in a request for proposal, an invitation to bid, or other solicitation document as part of the procurement of the services of a design professional, the indemnity language of the contract shall only be enforceable if the language is in compliance with this section.   (c)   (f)   (1)   This section shall only apply to a professional service contract, or any amendment thereto, entered into on or after January 1, 2007.  (2) The amendments made to this section by the bill amending this subdivision shall only apply to a professional service contract, or any amendment thereto, entered into on or after January 1, 2011.   SECTION 1.   Section 2782.85 is added to the Civil Code, to read: 2782.85. (a) Notwithstanding subdivision (d) of Section 2778, for all contracts, and amendments to contracts, entered into on or after January 1, 2011, with a public agency for design professional services, all provisions, clauses, covenants, and agreements contained in, collateral to, or affecting these contracts or amendments to contracts that purport to require an immediate defense under an indemnity agreement are unenforceable, except as provided for in subdivisions (c), (d), and (e). 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 by this section are reserved to the agreement of the parties. (b) For purposes of this section, the following definitions apply: (1) "Design professional" includes all of the following: (A) An individual licensed as an architect pursuant to Chapter 3 (commencing with Section 5500) of Division 3 of the Business and Professions Code, and a business entity offering architectural services in accordance with that chapter. (B) An individual licensed as a landscape architect pursuant to Chapter 3.5 (commencing with Section 5615) of Division 3 of the Business and Professions Code, and a business entity offering landscape architectural services in accordance with that chapter. (C) An individual registered as a professional engineer pursuant to Chapter 7 (commencing with Section 6700) of Division 3 of the Business and Professions Code, and a business entity offering professional engineering services in accordance with that chapter. (D) An individual licensed as a professional land surveyor pursuant to Chapter 15 (commencing with Section 8700) of Division 3 of the Business and Professions Code, and a business entity offering professional land surveying services in accordance with that chapter. (2) "Design professional services" includes all contractual services offered or performed by a design professional. (3) "Public agency" includes any county, city, city and county, district, school district, public authority, municipal corporation, or other political subdivision, joint powers authority, or public corporation in the state. Public agency does not include the State of California. (c) A design professional shall owe no defense or indemnity obligation to the indemnified party for a claim of liability unless and until the indemnified party provides a written tender of the claim or a portion of the claim to the design professional. That written tender shall include all of the information provided to the indemnified party by a claimant or claimants relating to claims caused by the design professional's services, and shall have the same force and effect as a notice of commencement of a legal proceeding. If an indemnified party tenders a claim subject to this section to a design professional in the manner specified in this subdivision, the design professional shall elect to perform either of the following, the performance of which shall be deemed to satisfy the design professional's defense obligation to the indemnified party: (1) Defend the claim with counsel chosen by the design professional. If a design professional elects to defend the claim pursuant to this paragraph, the design professional shall maintain control of the defense for any claim or portion of the claim to which the defense obligation applies. The design professional shall provide written notice of its election to the indemnified party within 90 days after receipt of the written tender. The defense by the design professional shall be a complete defense of the indemnified party of all claims or portions of claims alleged to have been caused by the design professional. (2) Pay, within 30 days after receipt of an invoice from the indemnified party, no more than a reasonable allocated share of the indemnified party's defense fees and costs, on an ongoing basis during the pendency of the claim, subject to reallocation consistent with this section, and including any amounts reallocated upon final resolution of the claim, either by settlement or judgment. The indemnified party shall allocate a share to itself to the extent a claim or claims are alleged to be caused by its work, actions, or omissions, and a share to each design professional to the extent a claim or claims are alleged to have been caused by the design professional's work, actions, or omissions, and shall allocate a share to all other parties or entities, whether or not a contractual party, who the indemnified party believes are potentially liable for the claim or claims, regardless of whether the indemnified party tenders the claim to any particular design professional, and regardless of whether that professional is participating in the defense. Any amounts not collected from any particular design professional shall not be collected from any other design professional. (d) Notwithstanding any other law, if a design professional fails to timely and adequately perform its obligations under paragraph (1) or (2) of subdivision (c), the indemnified party shall have the right to pursue a claim against the design professional for any resulting damages, as well as for interest on defense and indemnity costs, from the date incurred, at the rate set forth in subdivision (g) of Section 3260, and for the indemnified party's reasonable attorney's fees incurred to recover these amounts. The indemnified party shall bear the burden of proof to establish both the design professional's failure to meet the requirements of paragraph (1) or (2) of subdivision (c) and any resulting damages. (e) A public agency, private entity, or design professional shall have the right to seek equitable indemnity for any claim governed by this section. (f) Nothing in this section shall prohibit the parties from mutually agreeing to reasonable contractual provisions for damages if any party fails to elect for or perform its obligations as stated in this section. (g) Nothing in this section limits, restricts, or prohibits the right of the indemnified party or the design professional to seek equitable indemnification against any entity other than the indemnified party or design professional. (h) This section shall not apply to claims that are the subject of subdivisions (c) to (h), inclusive, of Section 2782.