New Law Limits A Design Professional’s “Duty to Defend”

Architects, engineers and other construction design professionals in California are less likely to be liable for their clients’ attorneys’ fees and litigation costs, thanks to a new law that came into effect in January of this year. Project owners who are sued by third parties often try to recoup such litigation “defense costs” from design professions based upon a “duty to defend” clause in their agreements with design professionals. The new law, referred to as Senate Bill 496 and enacted as a revised California Civil Code section 2782.8, limits the duty of these professionals to pay “defense costs” to the extent of the professional’s “proportionate percentage of fault.” This limitation applies regardless of contract language to the contrary.

Prior to this new law, design professionals could be held contractually responsible for paying the attorneys’ fees and other defense costs for their clients even where a judge or jury found the professional was not negligent. In one reported decision, an engineer, CH2M Hill, was found to be liable to reimburse several hundred thousand dollars in defense costs paid by its developer client, even though a jury found CH2M Hill, essentially, had done nothing wrong. Such liability arises out of contractual “duty to defend” clauses in construction contracts that make parties responsible to pay a client’s attorneys’ fees and costs regardless of the ultimate finding upon liability.

Under the new law, a construction professional (architects, engineers, land surveyors and others) can only be held liable up to their percentage of fault, and contractual clauses that say otherwise are unenforceable. The law provides certain exceptions, including situations where the professional is a party to a design build agreement or there is wrap up insurance program covering both general liability and professional liability for the project.

The new law limiting liability for engineers was opposed by contractors’ organizations, as contractors do not benefit from the new law, and, therefore, still face the possibility of paying defense costs, even though found to be not at fault. Professionals successfully argued to California legislators that design professionals deserve a special exemption from such lability, because the errors and omissions policies covering design professionals does not cover such contractual liability for defense costs in the same way that general liability policies cover such liability for contractors.

The Contractors, developers, and sureties in California should take note of the amendment to Section 2782.8 as soon as possible. If you have questions on how this new law will affect you, please contact Joseph C. McGowan, Jr. at jmcgowan@rjo.com or any member of our Construction Law Practice Group.

The content of this article is intended to provide a general guide to the subject matter and is not a substitute for legal advice.