Assembly Bill 758 is an act to amend Section 2782 of the Civil Code, relating to construction contracts and the use of Type I indemnification.  This bill prohibits “all contracts for residential construction entered into after January 1, 2006 which purport to indemnify or require a defense duty of the builder by a subcontractor against liability for claims of construction defects or other injury to property arising from the negligence of the builder or the builder’s agents, servants, or independent contractors who are directly responsible to the builder, or for defects in design furnished by those persons, are void and unenforceable.” On September 29, 2005, A.B. No. 758 was approved by the Governor and chaptered by the Secretary of State – Chapter 394, Statutes of 2005.

Type I indemnity agreements previously required subcontractors to indemnify losses for the negligence, except sole negligence and willful misconduct of the developer.  This means that if the “developer is 99% negligent and the subcontractor is 1% negligent, the subcontractor must indemnify the builder for the entire loss.”

Passage of AB 758 changed liability back to tort law of comparative fault where a subcontractor is only responsible for their own work.

This bill does not affect the obligations of insurance carriers through their additional insured endorsements.  Subcontractors name builders as an additional insured on their liability policy and the insurer is obligated to defend the builder from all “claims arising out of the subcontractor’s work, regardless of the subcontractor’s involvement or degree of fault.” Id.  The insurer must also provide the builder with a defense to all claims in a lawsuit, not just claims arising from the subcontractor’s work. Presley Homes, Inc. v. American States Insurance Co. (2001) 90 Cal.App.4th 571.  

The public policy reasons for enactment of this bill are to avoid: “higher bid price results, subcontractors [being] forced into lengthy and punishing lawsuits and huge legal fees; subcontractor insurers depart[ing] the industry; subs …becoming uninsurable; subs quit[ing] business or lay[ing] off employees; [hiring] less qualified parties…; [and] housing prices increase[ing]….” Assembly Committee on Judiciary hearing April 12, 2005. The Type I indemnity and additional insured endorsements are blamed for the shift of liability to the subcontractor which relieves the builders from the obligation to supervise the correct sequencing and prevention of defective conditions.  

AB 758 Language in Civil Code §2782

Sub-sections (a) and (b) of Civil Code §2782 remain the same.  A.B. 758 will add sub-sections (c) and (d).