Senate Bill 474 Changes the Rules for Indemnity Between a General and a Subcontractor

by Jason LaPorte

The California Legislature and Governor Brown recently approved California Senate Bill 474, which general provides that in all construction contacts for private commercial project entered on or after January 1, 2013 any indemnity obligations (including cost to defend) arising out of the active negligence or willful misconduct of the indemnified party are void and unenforceable.

The new law affects risk allocations in construction projects and may lead to insurance related litigation. California developers and general contractors typically use what is referred to as a “Type 1” indemnity proviso in construction contracts. “Type 1” indemnity allows one party (usually owners, developers, and general contractors) to require the other party (typically subcontractors) to indemnify them for their own active negligence or fault.

Senate Bill 474:

  • Does not apply to design professionals.
  • Includes contracts for renovations and utility, water, sewer, oil and gas lines under construction contracts.
  • Cannot be avoided by the inclusion of other state choice of law provisions in the contract.

Before California law prohibited indemnity provisions requiring “a contractor” to indemnify a public agency for its active negligence. SB 474 amends this law to clarify “contractor” to include “contractor, subcontractor, or supplier of goods and services.”

A new section © is added to Civil Code Section 2782 providing that in construcn contracts wit of privately owned real property to be improved , in which the owner is not also acting as a contractor or supplier, there can be no indemnity provision relieving the owner from his active negligence. However this does not apply to a homeowner performing an improvement on a single family dwelling.

“Type II” indemnity agreements, which allow a party to be indemnified for another party’s passive, as opposed to active, negligence are still legal and enforceable. Passive negligence can include a failure to discover a dangerous condition or a failure by a general contractor to identify a subcontractor’s defective work, among other things.