Construction Law Updates: New Indemnity Law Protects Subcontractors

Scroll to:

California Senate Bill 474 prohibits a contract provision requiring a subcontractor to indemnify a general contractor, construction manager, or another subcontractor for claims arising out of their “active negligence.” This bill, which becomes effective in January 2013, represents a major legislative victory for subcontractors and establishes other important protections for contractors.

New Law Precludes Indemnity or Cost of Defense for Active Negligence

Civil Code section 2782 presently prohibits contract clauses that promise to indemnify another from liability arising from their “sole negligence” or “willful misconduct” or for defects in design that they furnish, but does not prohibit indemnity for their “active negligence.” General contractors often include indemnity provisions in their subcontract documents that require subcontractors to defend and indemnify them from liability regardless of whether the general contractor is partially at fault –the typical “Type I” indemnity clause. In sponsoring this legislation, subcontractors complained that the present law allows a general contractor who is 99 percent at fault for an injury or damage to shift the entire risk to a subcontractor who is only one percent at fault or a subcontractor who is not at fault at all, but peripherally involved in the claim.

In response, SB 474 adds Civil Code section 2782.05 which, most significantly, precludes indemnity, where the party to be indemnified, is “actively negligent.” Section 2782.05(a) makes void and unenforceable any contract clause whereby a subcontractor “purports to insure or indemnify, including the cost to defend”

  • a general contractor, construction manager, or another subcontractor against liability to the extent the claims arise out of their “active negligence” or “willful misconduct” of that of their other agents, servants, or independent contractors; or
  • for defects in design furnished by them; or
  • to the extent, that the claims do not arise out of the scope of work of the subcontractor.

We want to hear from you!

Do other states have these “anti-indemnity in construction contracts”?

What impact will this have on “duty to defend” provisions in the Sub’s policy if it names the GC as an Additional Insured, which is still allowed?

What will the insurance market do in an attempt to limit their exposure under the Additional Insured Endorsement requirement to that outlined in the new statute?

Leave your questions and responses in the comment section!