The simple definition of indemnity is when a person agrees to reimburse another person for any loss from a claim(s) brought by a third party. An example would be as follows: Tom is the owner, Dick is the general contractor and Harry is the third party. Harry slips on tile flooring laid by Dick and sustains injuries. Harry sues owner Tom claiming the title flooring was not installed properly and not up to building code standards. Tom looks to Dick for reimbursement of any monies Tom paid Harry because there was an indemnity provision in Tom and Dick’s construction contract.
California Senate Bill 474 (“SB 474”) was signed by Governor Brown, introduced into law and provides that in all construction contracts for private commercial projects entered into on or after January 1, 2013, indemnity obligations are unenforceable that arise out of the active negligence or willful misconduct of the indemnified party. SB 474 amended Civil Code Section 2782. Basically, a public entity cannot enforce a clause in a contract that would require a direct contractor, subcontractor, or material supplier to indemnify the public entity from its own active negligence. An owner of a privately owned construction project is also prohibited
from enforcing a clause which would require a contractor to indemnify an owner for its own negligence, including that of its employees.
Some important aspects of SB 474 include the following:
- Design professionals do not apply to this bill.
- This bill has no effect on additional insured obligations, i.e., contractual provisions requiring a party to obtain additional insured endorsements covering the party’s acts or omissions during ongoing and/or completed operations.
- The definition of “construction contract” now includes agreements for renovations and utility, gas, water, oil and sewer lines.
- Prior California law prohibited indemnity provisions requiring a “contractor” to indemnify a public agency for its own active negligence. SB 474 amends this law to shed light on the term “contractor” to include “contractor, subcontractor, or supplier of goods and services”.
- Civil Code Section 2782(c) provides that there can be no indemnity provision relieving the owner from his active negligence in construction contracts with owners of privately owned real property to be improved, in which the owner is not also acting as a contractor or supplier. This does not apply to a homeowner performing an improvement on a single family dwelling.
A complete legislative digest of Senate Bill 474 introduced by Senator Evans can be found here.