An Overview of the Changing
Indemnity Laws and
Effective Use of Scaffold Use
Agreements to Protect Against Liability
P. Randolph Finch Jr.
Marks, Finch, Thornton & Baird, LLP
4747 Executive Drive, Suite 700
San Diego, California 92121
858-737-3100
www.mftb.com
October 12, 2012
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An obligation resting on one party (the
indemnitor) to make good a loss or damage
another party (the indemnitee) has incurred.
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Equity or “Equitable Indemnity”
 Apportionment of the loss among joint wrongdoers
according to degree of fault based on equitable
principles of comparative fault.
 California Civil Code section 1432
 Code of Civil Procedure section 875
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Contract or “Express Indemnity”
 Indemnity based on the express terms of a written
agreement.
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Express Indemnity Provisions Fall Into Three
Categories
◦ Type 1 Indemnity
◦ Type 2 Indemnity
◦ Type 3 Indemnity
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Strongest type of indemnity allowed by law.
Provides that the indemnitor is to indemnify the
indemnitee “for, among other things, the
negligence of the indemnitee.”
Only limitation is for liability arising out of “sole
negligence” or “willful misconduct” of the
indemnitee.
Legally enforceable in residential construction
subcontracts entered into before January 1,
2009.
Legally enforceable in all other construction
subcontracts entered into before January 1,
2013.
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Effective January 1, 2013, an upstream party
in a construction contract cannot require
indemnity (including defense) from a
downstream party for liability caused by the
upstream party’s active negligence. (Civil
Code sections 2782 and 2782.05.)
Expansion of January 1, 2009 anti-indemnity
laws for residential construction to all types
of construction projects.
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Under this type of indemnity agreement, the
party being indemnified can be indemnified
from its own acts of “passive negligence.”
However, the party being indemnified cannot
be indemnified for its own “active negligence
that solely or contributorily causes its
liability.”
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“Active” negligence requires some form of
affirmative act (i.e., the creation of a injury
causing condition).
“Passive” negligence means a failure to
perform a duty or affirmative act imposed by
law (i.e., the failure to discover or warn
against a dangerous condition).
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In cases involving pre January 1, 2013 projects,
this distinction was not a contested issue in most
cases as it was nearly impossible to prove a
general contractor was more than 99.9% at fault
for the loss.
However, in claims involving post January 1,
2013 construction contracts, this distinction will
be a hotly contested issue by subcontractors and
their insurance carriers as most bodily injury and
property damage claims and complaints allege
active negligence against both upstream and
downstream parties to a construction contract.
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There is no court interpretation of SB 474 and it is likely that
disputes on this distinction will be on the rise, increasing claim
costs for carriers for both upstream and downstream parties.
The increased litigation costs caused by these disputes may have
the unintended consequence of increasing insurance costs for
both downstream and upstream contractors in terms of higher
deductible/SIR payments and/or higher insurance premiums as a
result of added claim expenses incurred by collateral indemnity
disputes.
Without the leverage of a Crawford demand to force
subcontractor carriers to settle claims to curb exposure to
general contractor’s carrier for costs of defense, there is a built
in disincentive for subcontractor carriers to settle claims quickly.
This will increase conflicts between contracting parties with
ongoing business relationships.
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Under this type of provision, any negligence on
the part of the upstream party, either active or
passive, will bar indemnification against the
upstream party despite the fact that the
downstream party may have been a cause of the
upstream party’s liability.
To obtain indemnity, the upstream party will have
to show sole negligence of the downstream party
as the cause of the upstream party’s liability.
Example provision: Subcontractor agrees to be
responsible for liabilities caused by the
subcontractor, but does not agree to be
responsible for general contractor’s liabilities
caused by other than subcontractor.
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Does not apply to home improvement contracts with
homeowners.
Does not apply to wrap-up insurance policies or
programs.
Does not apply to bar claims for breach of contract or
warranty that exist independently of indemnity obligation.
Does not apply to indemnity provisions with
lenders/financiers/sureties.
Does not prohibit contractual requirements that a
downstream party insure itself.
Does not prohibit contractual requirements for the
purchase of specific insurance, including: protective
liability, builder’s risk, and “contractors all-risk” insurance.
Does not bar claims for Equitable Indemnity. Parties are
free to obtain a judicial determination of proportionate
share of liability according to degree of fault.
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SB 474 also prohibits agreements that purport to “insure” against
liabilities caused by the active negligence of another.
Significant reduction in the effectiveness of additional insured
endorsements.
Additional insured carriers will have a new basis to deny defense to
upstream parties. Incentivizes additional insured carriers to dispute its
defense obligations to upstream parties and likely will increase litigation
costs associated with coverage disputes.
Primary carriers for upstream parties will no longer be able to rely on
additional insured carriers to fund its share of the upstream party’s
defense.
Impact on insurance remains to be seen but expect any cost savings to
be offset by increased litigation costs as there is no court interpretation
of the effect of SB 474 on an additional insured carrier’s defense
obligation.
For large scale construction projects and residential developments,
expect increased owner/developer forced placement of wrap-up or OCIP
type insurance programs on projects to insure against bodily injury and
defect claims.
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Ensure the subcontract indemnity and insurance procurement
provisions comply with SB 474.
Reject provisions in subcontract agreements which require
broader indemnity and insurance than allowed by SB 474. No
type 1 indemnity provisions.
Participate in OCIP or WRAP programs. These types of programs
provide insurance for the entire project team and avoid the
added costs associated with indemnity and insurance coverage
disputes as all tiers are covered by the same policy. Have the
OCIP or WRAP program reviewed by your insurance broker or
attorney. No single program is the same and they will have
varying levels of SIR deductibles. Typical subcontracts require a
minimum SIR contribution equal to the subcontractor’s
deductible or a stated amount.
Because SB 474 benefits subcontractors and their carriers,
negotiate for lower insurance premiums which may translate into
reduced insurance costs and more competitive bids/pricing.
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Scaffolding and staging equipment is a major
safety concern on projects.
Heavily regulated by CAL OSHA.
The following slides are resources you should
be familiar with.
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This pocket guide
includes all CAL OSHA
regulations related to
scaffolding.
Full publication
available at
www.dir.ca.gov/dosh/
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If you furnish scaffolding for your project, CAL
OSHA will pursue you for fines even if an incident
occurs during third party use. CAL OSHA will
view you as responsible because of your
perceived ownership and control.
So, to the extent practicable, always monitor the
use of your scaffolding!
Your person in charge of the site should inspect
the scaffolding at the beginning and end of each
work day.
Any alterations on the scaffolding must be redtagged and all future use of the scaffolding must
be halted until the alterations are fixed.
But what do we do when other trades use our
scaffolding with or without our knowledge?
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If an employee of another trade contractor is
injured using your scaffolding, his only
remedy against his employer is worker’s
compensation, but he also has the ability to
pursue a direct claim against your company
for his injuries.
To avoid this potential liability, you must be
proactive prior to the injury.
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Labor Code section 3864 provides:
“If an action as provided in this chapter prosecuted by the
employee, the employer, or both jointly against the third
person results in judgment against such third person, or
settlement by such third person, the employer shall have no
liability to reimburse or hold such third person harmless on
such judgment or settlement in absence of a written
agreement so to do executed prior to the injury.”
Courts have ruled that this statute requires both the indemnitee
(you) and indemnitor (other contractor) to sign the written
indemnity agreement prior to the injury. If you only have the
other contractor sign, it will be ruled unenforceable!
(Hansen Mechanical, Inc. v. Superior Court (1995) 47
Cal.App.2d 47.)
So, to avoid liability to a third party’s employee due to their use
of your scaffolding, you must execute an indemnity agreement
with the third party prior to the injury.
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Present a separate Use of Equipment
Agreement to each trade on a project that
may use your scaffolding; or
Seek to shift the risk to general contractors
for use of your scaffolding by others within
their control, and then have the general
contractors shift the risk to the other trades
through their subcontracts in favor of both
the general contractors and you.
Example on following slides.