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News: Legislative Updates

Duty-to-Defend reform rides in with transportation bills

Thursday, April 27, 2017  

By Don Schinske, SEAOC Executive Director

 Senator Anthony Cannella, P.E.
In a complex move that involves the new state gas tax, a rail extension in the San Joaquin Valley, freeway improvements in Riverside, and pay raises for state-employed podiatrists, it appears the Governor will soon be signing legislation that curtails unfair duty-to-defend requirements in design professional contracts.

The design professional bill, SB 496 (Cannella), advanced off the Assembly Floor Monday afternoon on a vote of 47-15, with 18 legislators absent or not voting.  The vote, along with an easier 34-2 vote in the Senate last week, represents a major win for a coalition of organizations that includes SEAOC, AIACC, ASLA, and CalGeo that rallied around ACEC's sponsorship of duty-to-defend reform bills in the past two years.

SB 496 should provide a measure of relief from pervasive contract requirements that design professonals cover the cost of defending other parties in project disputes - requirements that now apply even if the design professional is found to have no level of fault. Unlike the other parties in such suits, design professionals are unable to buy coverage for that risk, meaning that many design firms now risk bankruptcy when signing contracts.  That bankruptcy threat has grown as the those requirements have become almost universal.   

Specifically, SB 496:

Limits the design professional's duty-to-defend obligation to cases in which he/she is found to be negligent, recklessness, or engaged in willful misconduct.  The obligation is capped at the design professional's percentage of fault.  The limits apply to all private and public contracts except those with state agencies. 

If the share of defense costs jeopardizes the design professional's ability to operate, a "meet and confer" process must be initiated among the parties. 

The bill does not exempt design professionals from paying a share of "first dollar" defense costs, as the opponents have falsely claimed throughout. Rather, the intent is to rebalance the current defense dynamic, so that the exact extent of the design professional's obligation gets considered early on.   

Here's a link to the final version of SB 496.

Here's the final committee analysis.

As the legislative session evolved, SB 496 was made the linchpin in a trio of bills that contain concessions to a handful of lawmakers who sided with the Governor and Legislative leaders in passing a $5-billion infrastructure/gas tax proposal earlier in the month. Senator Anthony Cannella, a civil engineer, and a Republican who voted for the gas tax, crafted his duty-to-defend bill to ensure that other two deal bills would not take effect unless SB 496 was approved. The other two bills contained an extension of the San Jose-Stockton rail system down to Cannella's district around Merced, freeway improvements in Riverside-area swing districts, plus the raises for the state podiatrists.

Sen. Cannella (pictured above) had been carrying ACEC-sponsored legislation on duty-to-defend earlier in the session.  However, as local governments, contractors, and others dug in against the bill, the Senator singled out the proposal as a chit in his gas-tax bargain.  And a sufficient number of Democrats, who otherwise might not support a niche proposal so hotly opposed by local jurisdictions, recognized SB 496 as the only path forward for the larger deals.   

SEAOC's Legislative Committee appreciates the work of its members in contacting their legislators and/or testifying in the Capitol last year on this issue.  A tip of the hat also to our coalition partners, AIACC, ASLA (the landscape architects), and CalGeo (the geotechnical engineers). Special thanks to ACEC and Director of Goverment Affairs Kelly Garman for the time, resources, and leadership they have brought to bear throughout. 

The SEAOC Legislative Committee is engaged on other legislation this spring as well.  These include:

AB 199 (Chu) - This union-sponsored bill is attempt to update statute to require that prevailing wage requirements apply in government-supported/subsidized projects of the type formerly undertaken by local redevelopment agencies (which are now defunct).  The early language could have been construed to require that prevailing wage be required on all residential projects, something the sponsors say they did not. Subsequent versions of AB 199 included better language, and we are tracking it to ensure the bill does not invite unintended consequences. 

SB 721 (Hill), as recently amended, mandates the inspection of all balconies and other exterior elevated elements in multifamily dwellings of three or more units.  Multiple amendments to the legislation are under consideration and the bill is very much a work in progress.  SEAOC is communicating its concerns directly to the author's office, among them being the preference for defining an inspection program in regulation rather than in statute, and concerns about inspector qualifications.