Wolk bill aims to fix construction defect law

Bill targets obstacle to construction of condominiums and other affordable housing

“I am authoring this legislation because of several situations in my district where the community tried to build low and moderate income condominiums but was unable to do so given that no builder could afford to purchase the necessary indemnity insurance,” said Wolk.

The problem is that in construction defect litigation it is very difficult and costly to determine who is actually at fault for the defect. Consequently, many cities have been requiring that contractors and subcontractors agree to broad ‘Type 1’ indemnity clauses in their contracts. These clauses require the subcontractors to assume a ‘deep pocket’ liability for the misconduct of others, far beyond what the subcontractor would be obligated to pay under tort law in the absence of the clause. As a result, the cost of this indemnity insurance is astronomical and often results in the project being financially impossible.

“These indemnity agreement requirements and other problems related to construction defect litigation have had a huge impact on the cost and availability of insurance for subcontractors which has resulted in a reduction, or in some cases, an elimination of the construction of certain types of housing such as condominiums,” said Wolk.

In its original form, AB 573 would have changed current indemnity insurance practice so that parties are responsible for their own negligent acts and omissions, but not for the negligent acts or omissions of other parties to the construction contract.

AB 573, sponsored by the Consulting Engineers Land Surveyors of California (CELSOC), now states the Legislature’s intent to enact legislation governing the use of indemnification and/or additional insured provisions in construction contracts with respect to construction defect disputes in order to expedite the fair and efficient resolution of these of these disputes and to address the availability and cost or liability insurance for builders, contractors, subcontractors, design professionals and others as well as the cost of housing. The bill is part of a package of bills on the construction defects now moving through the legislative process.

“I believe that legislation is urgently needed to correct the current problems with the existing construction defect law, especially as it relates to the design and construction of affordable ownership housing options such as condominiums,” concluded Wolk. “I look forward to working with all interested parties to come to a workable solution.”