Tuesday, August 14, 2012

California Enacts Bill to Protect Subcontractors: Restricts Indemnity Clauses with General Contractors

The California has introduced a bill that would protect subcontractors from overly broad indemnification provisions. The bill, which has been passed by both houses and signed into law by the Governor, will become effective on January 2013.

California Senate Bill 474 would prohibit a contract clause that would require a subcontractor to indemnify a general contractor, construction manager, or other subcontractor for claims arsing out of those parties' active negligence.

This bill is intended to curb the frequent practice of general contractors in including indemnity provisions in their subcontract documents that require subcontractors to defend and indemnify them from liability regardless of whether the general contractor is partially at fault. While this was technically enforceable in California, it appeared to be against public policy.  In essence, such an indemnification provision would place fault at the feet of the subcontractor even if he was only 1% liable for the claim.  States like New York have made such indemnification provisions void as against public policy.

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