California Legislature Modifies Indemnity Obligations for Design Professionals
The California Legislature recently passed Senate Bill 496 which significantly modifies California Civil Code section 2782.8 (“Code”). The Code, as modified January 1, 2011, provided that any design professionals entering into a public contract or contract amendment had a duty to defend a public agency under an indemnity agreement and pay the public agency’s costs of defense associated with the design professional’s negligence, recklessness or willful misconduct; there was no limitation on the payment of the costs of defense. The Code provided further that all contracts and all solicitation documents between a public agency and design professional were “deemed” to incorporate those indemnity and defense requirements by reference.
Senate Bill 496 that modifies the Code was passed on April 28, 2017 and takes effect for contracts entered or solicitations issued on or after January 1, 2018. The new iteration of the Code is not limited solely to public contracts and now provides that a design professional’s obligation to defend its indemnities is limited to the design professional’s proportionate percentage of fault. In essence, if a design professional were found 50% liable due to negligent performance, it would be liable for only 50% of the defense costs of its indemnitee. Similarly, if the design professional were found not liable, then it would not have to participate at all in the indemnitee’s defense costs.
Like the prior iteration of the Code, any contracts and all solicitation documents, including requests for proposal, invitations for bid, and other solicitation documents for design professional services are all deemed to incorporate by reference the modified statutory terms. Because it is deemed incorporated, parties to a contract cannot waive or modify this statutory requirement by contractual agreement, act or omission.
The caveat to the modified Code is that, in the event one of more defendants is unable to pay its share of defense costs due to bankruptcy or dissolution of the business, the design professional is required to meet and confer with the parties regarding unpaid defense costs. There are other exceptions to the applicability of the amendment including, but not limited to, written, design-build joint venture agreements. A design professional should consult an attorney before entering into a contract in California to determine whether the amended Code is applicable.