As most California subcontractors know, the indemnity clause is generally presented by general contractors as a “take it or leave it” provision. Either take it and get the work or leave it and they will find someone else to do the job.

To try and build in some equity for subcontractors, the legislature passed SB 474 which resulted in California Civil Code section 2782.05. The goal was to eliminate “Type I” indemnities and clean up the contracting process by stating that the provisions of the law cannot be “waived or modified by contractual agreement, act, or omission of the parties.”

Civil Code section 2782.05 specifically states that clauses which:

“purport to insure or indemnify, including the cost to defend, a general contractor, construction manager, or other subcontractor, by a subcontractor against liability for claims of death or bodily injury to persons, injury to property, or any other loss, damage, or expense are void and unenforceable to the extent the claims arise out of, pertain to, or relate to the active negligence or willful misconduct of that general contractor, construction manager, or other subcontractor, or their other agents, other servants, or other independent contractors who are responsible to the general contractor, construction manager, or other subcontractor, or for defects in design furnished by those persons, or to the extent the claims do not arise out of the scope of work of the subcontractor pursuant to the construction contract. (emphasis added)

The question is whether a general contractor who is actively negligent can still seek indemnity from a subcontractor. A recent court decision found, based on comparative negligence principals, that it could.

In the case of Oltmans Construction Company v. Bayside Interiors, Inc. (March 30, 2017), Case No. A147313, the California Court of Appeals for the First District examined a contractual provision which mirrored Civil Code section 2782.05 and found the “to the extent” portion of the clause was intended to override the “arising out of” portion based on the intent of the contract and the legislative history of Civil Code section 2782.05.

Oltmans was a general contractor that had negligently left an unsecured skylight opening in the roof of a building under construction and a subcontractor employee fell through the opening an injured himself. The underlying trial court had found that active negligence by Oltmans precluded any contractual indemnity against the subcontractor and granted summary judgment accordingly.

The appellate court overruled the summary judgment and cited to the legislative history of Civil Code section 2782.05which suggested that the intent was to create a “fair and equitable distribution of liability” and utilize “a proportionate, or comparative, liability standard which would hold each party responsible for the damage he/she caused.”

The court found Oltmans could be entitled to indemnity to the extent that it had any liability which was attributable to the fault of the subcontractor. It also found the subcontractor could be liable for not carrying the correct insurance.

What this all means to a subcontractor is that there is no boon to be found in Civil Code section 2782.05, even if the general contractor actively causes the injuries involved. The best a subcontractor can hope for is to get to a comparative negligence analysis and hope it comes out ahead. In practical terms this may mean paying for a defense obligation even when the facts don’t seem to support it (unless you modify the underlying contract language ahead of time).

As a former construction company general counsel, I always recommend that contracts be modified by subcontractors prior to execution to include a comparative analysis both on liability and defense obligations. Frankly I think it’s the best that can be expected, and really does seem fair to all the parties. Let me know if you need help drafting and negotiating those provisions.

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