By Bill Davis, Editor

Contractors engaged in any aspect of new residential construction won a victory over unfair contracts, when 
Governor Arnold Schwarzenegger signed Assembly Bill 758 (Calderon), September 29, 2005.

The bill signing capped a five-year effort on the part of the Southern California Contractors Association to 
relieve its members of the burden of defending developers in construction defect cases for problems that were not 
caused by their work.

The measure says, effective January 1, 2006, new construction contracts that contain a Type I indemnity clause
will not be enforceable,.

So what exactly does the change in the law do? Quite simply, it makes subcontractors legally responsible for only their work in new residential construction projects.

Most importantly, what does the enactment of this bill mean for subcontractors working on these jobs?  It means a savings of tens of millions of dollars in defense and insurance costs.

The law is not retroactive and does not affect contracts signed before January 1, 2006.  Contractors should be careful about what they sign between now and then. Experts warn that developers may be pushing for agreements that include Type I coverage before the effective date.

Crisis in 2003

The need for a solution became apparent when insurance companies, realizing that there was no way to assess risk on projects where every subcontractor was held liable for the project simply quit writing Type I coverage for residential work, according to Lyle Sandlin, president of Hallmark Insurance Associates and a member of the SCCA Legislative Committee.

“Type I indemnity required the sub to participate in the defense of the developer in construction defect cases if one percent or more of his work was, in anyway, involved in the project,” Sandlin said. “The guy putting up the crown molding in the living room was dragged into the case because he was the only sub left with any insurance coverage.”

SCCA on the case

The Leg Committee went to work, according to co-chair Ed Kalish, directing Legislative Advocate Todd Bloomstine to get on the problem.

The problem was simple: the laws were not treating subcontractors fairly because their insurance policies were being forced to insure work they didn’t perform. The solution was complex and time-consuming.

In early 2003, SCCA sponsored AB 752 (Plescia) to address the indemnity issue. This led to negotiations by the Assembly Judiciary Committee Chairman.  The negotiations stalled.

In 2004, SCCA sponsored AB 2804 (Calderon). This also led to negotiations by the Senate Judiciary Committee Chairman. The negotiations again failed.

A change in strategy was needed. Bloomstine held several meetings of associations, insurers and labor unions.

Out of the larger group of participants, the California Concrete Contractors Association, California Chapters of the National Electrical Contractors Association, the Pacific Rim Drywall Association and SCCA asked Assemblyman Ron Calderon (D-Montebello) to introduce AB 758.

After several roundtable discussions with other interested parties, the now unified sponsors of AB 758 refused to fall into the trap of the previous two years and demanded that the legislature hear the bill and not agree to negotiations.

In the spring of 2005, the legislature convened a joint Assembly and Senate Judiciary Committee hearing to exclusively review the problems subcontractors were experiencing with their insurance and construction defect lawsuits. During the hearing, every member of the joint committee acknowledged the problem and committed to doing their best to solve it.

SCCA contractors attended and testified at meetings and hearings. Others worked with the developer community, making sure that they understood the serious nature of the problem and the need to work toward some solution that would let everybody stay in business.  The developers, after some heavy discussions, agreed to either support the SCCA proposal or, at the least, stay out of the fight.

Keys to success

With a few minor amendments, the bill passed unanimously in the Assembly and with only one dissenting vote in the Senate. It was sent on to the Governor’s office and after a SCCA meeting with governor’s deputies; Governor Schwarzenegger signed it into law.

Many people worked on the bill from SCCA. Assemblyman Calderon will be honored with our first Legislator of the Year Award in November.

Another key to SCCA’s success in Sacramento was the testimony and behind the scenes work of past president Mike Crawford and his Sukut Construction team as well as expert testimony from one of our Leg Committee members, John Blakely, of Kring and Chung.

Our Leg Committee, co-chaired by Jim Gasparo and Ed Kalish, stood firm through the years of frustration and effort.

Our legislative advocate, Todd Bloomstine, worked not only the halls and offices of the Capitol Building but many, many, many meetings with friend and foe alike to bring the measure to the statute books.

The SCCA PAC Auction provided funding for our political action committee and our members supported both.

The word team is so over-used, but in this case it is the only one that fits.-30-