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SB-1077 Construction contracts: wrap-up insurance and indemnification. (2017-2018)

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Date Published: 08/25/2018 04:00 AM
SB1077:v94#DOCUMENT

Amended  IN  Assembly  August 24, 2018
Amended  IN  Assembly  August 20, 2018
Amended  IN  Assembly  June 13, 2018
Amended  IN  Senate  May 07, 2018
Amended  IN  Senate  April 16, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill No. 1077


Introduced by Senator Wilk

February 12, 2018


An act to amend Sections 2782.95 and 2782.96 of, and to add Section 2782.97 to, the Civil Code, relating to construction contracts.


LEGISLATIVE COUNSEL'S DIGEST


SB 1077, as amended, Wilk. Construction contracts: wrap-up insurance and indemnification.
Existing law regulates the use of wrap-up insurance or other consolidated insurance programs in connection with specified construction projects. Existing law distinguishes, in this regard, between residential construction projects, private residential works of improvement, as specified, and public works and other projects that are not residential, as specified. In this regard, among other things, for residential construction to which wrap-up insurance or another consolidated insurance program is applicable, existing law declares unenforceable a provision requiring a subcontractor who is enrolled and participating in the insurance to indemnify, hold harmless, or defend another for a claim or action covered by the insurance program. Existing law makes any waiver of these provisions void. Existing law permits a party to pursue an equitable indemnity claim in this context, subject to certain conditions, if these indemnification provisions have been deemed unenforceable. Existing law, with regard to a private residential work of improvement and public works, as specified, requires an owner, builder, or general contractor who obtains wrap-up insurance or other insurance to make specified disclosures regarding calculations of its cost and the premiums to be required from a subcontractor or other participant and, in the case of private residential works of improvement, that specified estimates are presumptively in good faith. Existing law requires a copy of the insurance policy to be provided to a subcontractor or other participant under certain circumstances. Existing law, with respect to construction contracts entered into on and after January 1, 2013, voids certain insurance and indemnity provisions, subject to a variety of exceptions that are reserved to the agreement of the parties.
This bill would recast the wrap-up insurance or other consolidated insurance program requirements for public and other works of improvement that are not residential construction, entered into or amended on and after January 1, 2019, to track generally the requirements that apply to residential projects. The bill would require the owner, builder, or general contractor obtaining the wrap-up insurance policy, or other consolidated insurance program, to demonstrate that the policy limits are sufficient, on a replacement cost basis, to cover exposure associated with the total value of the replacement cost of the project based on the initial contract sum and ongoing and completed operations coverage. The bill would provide that, notwithstanding any other law, any waiver of these provisions is contrary to public policy and void.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 2782.95 of the Civil Code is amended to read:

2782.95.
 For any wrap-up insurance policy or other consolidated insurance program that insures a private residential (as that term is used in Title 7 (commencing with Section 895) of Part 2 of Division 2) work of improvement that first commences construction after January 1, 2009, the following shall apply:
(a) The owner, builder, or general contractor obtaining the wrap-up insurance policy or other consolidated insurance program shall disclose the total amount or method of calculation of any credit or compensation for premium required from a subcontractor or other participant for that wrap-up insurance policy in the contract documents.
(b) The contract documents shall disclose, if and to the extent known:
(1) The policy limits.
(2) The scope of policy coverage, including, but not limited to, self-insured retention or deductible, inclusions, exclusions, and exceptions to exclusions.
(3) The policy term.
(4) The basis upon which the deductible or occurrence is triggered by the insurance carrier.
(5) If the policy covers more than one work of improvement, the number of units, if any, indicated on the application for the insurance policy.
(6) A good faith estimate of the amount of available limits remaining under the policy as of a date indicated in the disclosure obtained from the insurer.
(7) Disclosures made pursuant to paragraphs (5) and (6) are recognized to be based upon information at a given moment in time and may not accurately reflect the actual number of units covered by the policy or the amount of insurance available, if any, when a later claim is made. These disclosures are presumptively made in good faith if the disclosure pursuant to paragraph (5) is the same as that contained in the application to the wrap-up insurer and the disclosure pursuant to paragraph (6) was obtained from the wrap-up insurer or broker. The presumptions stated above shall be overcome only by a showing that the insurer, broker, builder, or general contractor intentionally misrepresented the facts identified in paragraphs (5) or (6).
(c) Upon the written request of any participant, a copy of the insurance policy shall be provided, if available, that shows the coverage terms and items in paragraphs (1) to (4), inclusive, of subdivision (b) above. If the policy is not available at the time of the request, a copy of the insurance binder or declaration of coverage may be provided in lieu of the actual policy. Paragraphs (1) to (4), inclusive, of subdivision (b) may be satisfied by providing the participant with a copy of the binder or declaration. Any party receiving a copy of the policy, binder, or declaration shall not disclose it to third parties other than the participant’s insurance broker or attorney unless required to do so by law. The participant’s insurance broker or attorney may not disclose the policy, binder, or declaration to any third party unless required to do so by law.
(d) If the owner, builder, or general contractor obtaining the wrap-up insurance policy or other consolidated insurance program does not disclose the total amount or method of calculation of the premium credit or compensation to be charged to the participant prior to the time the participant submits its bid, the participant shall not be legally bound by the bid unless that participant has the right to increase the bid up to the amount equal to the difference between the amount the participant included, if any, for insurance in the original bid and the amount of the actual bid credit required by the owner, builder, or general contractor obtaining the wrap-up insurance policy or other consolidated insurance program. This subdivision shall not apply if the owner, builder, or general contractor obtaining the wrap-up insurance policy or other consolidated insurance program did not require the subcontractor to offset the original bid amount with a deduction for the wrap-up insurance policy or program.

SEC. 2.

 Section 2782.96 of the Civil Code is amended to read:

2782.96.
 (a) If an owner, builder, or general contractor obtains a wrap-up insurance policy or other consolidated insurance program for a public work as defined in Section 1720 of the Labor Code or any other project other than residential construction, as that term is used in Title 7 (commencing with Section 895) of Part 2 of Division 2, that is put out for bid after January 1, 2009, the following shall apply:
(1) The total amount or method of calculation of any credit or compensation for premium required from a subcontractor or other participant for that policy shall be clearly delineated in the bid documents.
(2) The named insured, to the extent known, shall disclose to the subcontractor or other participant in the contract documents the policy limits, known exclusions, and the length of time the policy is intended to remain in effect. In addition, upon written request, once available, the named insured shall provide copies of insurance policies to all those who are covered by the policy. Until such time as the policies are available, the named insured may also satisfy the disclosure requirements of this subdivision by providing the subcontractor or other participant with a copy of the insurance binder or declaration of coverage. Any party receiving a copy of the policy, binder, or declaration shall not disclose it to third parties other than the participant’s insurance broker or attorney unless required to do so by law. The participant’s insurance broker or attorney may not disclose the policy, binder, or declaration to any third party unless required to do so by law.
(3) The disclosure requirements in paragraphs (1) and (2) do not apply to an insurance policy purchased by an owner, builder, or general contractor that provides additional coverage beyond what was contained in the original wrap-up insurance policy or other consolidated insurance program if no credit or compensation for premium is required of the subcontractor for the additional insurance policy.
(b) This section shall apply only to a contract or subcontract, entered into before January 1, 2019, to which a wrap-up insurance policy or other consolidated insurance program is applicable.

SEC. 3.

 Section 2782.97 is added to the Civil Code, to read:

2782.97.
 This section shall apply to a contract or subcontract for a public work, as defined in Section 1720 of the Labor Code, or any other project other than residential construction, entered into or amended on and after January 1, 2019, to which a wrap-up insurance policy, as defined in subdivision (b) of Section 11751.82 of the Insurance Code, or other consolidated insurance program, is applicable.
(a) The owner, builder, or general contractor obtaining the wrap-up insurance policy or other consolidated insurance program shall disclose the total amount or method of calculation of any credit or compensation for the premium required from a subcontractor or other participant for that wrap-up insurance policy in the bid documents.
(b) (1) The named insured shall disclose to the subcontractor or other participant, in the bid documents, to the extent known:
(A) The policy limits.
(B) The scope of policy coverage, including, but not limited to, self-insured retention or deductible, inclusions, exclusions, and exceptions to exclusions.
(C) The policy term.
(D) The basis upon which the deductible or occurrence is triggered by the insurance carrier.
(E) If the policy covers more than one work of improvement, the number of units, if any, indicated on the application for the insurance policy.
(F) A good faith estimate of the amount of available limits remaining under the policy as of a date indicated in the disclosure obtained from the insurer.
(2) Disclosures made pursuant to subparagraphs (E) and (F) are recognized to be based upon information at a given moment in time and may not accurately reflect the actual number of units covered by the policy or the amount of insurance available, if any, when a later claim is made. These disclosures are presumptively made in good faith if the disclosure pursuant to subparagraph (E) is the same as that contained in the application to the wrap-up insurer and the disclosure pursuant to subparagraph (F) was obtained from the wrap-up insurer or broker. The presumptions stated above shall be overcome only by a showing that the insurer, broker, builder, or general contractor intentionally misrepresented the facts identified in subparagraph (E) or (F).
(3) The owner, builder, or general contractor obtaining the wrap-up insurance policy, or other consolidated insurance program, shall demonstrate that the policy limits are sufficient, on a replacement cost basis, to cover the exposures associated with the total value of the replacement cost of the project based on the initial contract sum, as well as ongoing and completed operations coverage. This shall include demonstrating that the policy deductible or self-insured retention does not impede covering all contemplated exposures.
(c) Upon the written request of any participant, the named insured shall provide a copy of the insurance policy, if available, that shows the coverage terms and items in subparagraphs (A) to (D), inclusive, of paragraph (1) of subdivision (b). If the policy is not available at the time of the request, a copy of the insurance binder or declaration of coverage may be provided in lieu of the actual policy. Subparagraphs (A) to (D), inclusive, of paragraph (1) of subdivision (b) may be satisfied by providing the participant with a copy of the binder or declaration. Any party receiving a copy of the policy, binder, or declaration shall not disclose it to third parties other than the participant’s insurance broker or attorney unless required to do so by law. The participant’s insurance broker or attorney may not disclose the policy, binder, or declaration to any third party unless required to do so by law.
(d) If the owner, builder, or general contractor obtaining the wrap-up insurance policy or other consolidated insurance program does not disclose the total amount or method of calculation of the premium credit or compensation to be charged to the participant prior to the time the participant submits its bid, the participant shall not be legally bound by the bid unless that participant has the right to increase the bid up to the amount equal to the difference between the amount the participant included, if any, for insurance in the original bid and the amount of the actual bid credit required by the owner, builder, or general contractor obtaining the wrap-up insurance policy or other consolidated insurance program. This subdivision shall not apply if the owner, builder, or general contractor obtaining the wrap-up insurance policy or other consolidated insurance program did not require the subcontractor to offset the original bid amount with a deduction for the wrap-up insurance policy or program.
(e) Any waiver of the provisions of this section is contrary to public policy and void.