With the enactment of AB 573 (Wolk), many California public agencies face new restrictions on the indemnity protections they can require when engaging design professionals.

The new law applies to contracts (or amendments to existing contracts) entered into after January 1, 2007 with (1) licensed architects; (2) licensed landscape architects; (3) registered professional engineers; and (4) licensed professional land surveyors.

The new law, which adds Section 2782.8 to the California Civil Code, provides that agreements between most public agencies and the listed types of design professionals may only require the design professionals to indemnify and defend the public agency for liability arising out of the negligence, recklessness, or willful misconduct of the design professional. A broader indemnity provision is unenforceable, and the parties may not, by contract, waive this statutory limitation. Interestingly, the new law does not apply to the State of California, but does include cities, counties, special districts and joint powers authorities.

What indemnity language is now acceptable?

An example of an indemnity provision that complies with AB 573 would be the following:

" … Design Professional shall indemnify, keep and save harmless the Public Agency… against any and all suits, claims, actions, damages, liabilities, costs and expenses [etc.] … that arise out of, pertain to, or relate to the negligence, recklessness, or willful misconduct of the Design Professional, its employees, subcontractors, or agents in the performance (or non-performance) of services under this Agreement."

A provision that would not comply:

"… Design Professional shall indemnify, keep and save harmless the Public Agency… against any and all suits, claims, actions, damages, liabilities, costs and expenses [etc.] … that arise out of, pertain to, or relate to the services of the Design Professional, its employees, subcontractors, or agents in the performance (or non-performance) of services under this Agreement."

The key issue is that the indemnity must relate to the negligence, recklessness or intentional misconduct of the professional. It cannot cover causes that are not related to the fault of the design professional.

How else can an agency manage its risk?

Indemnity provisions are methods by which agencies attempt to limit their exposure to risks that can occur during projects. Other methods of protection include insurance coverage, although insurance coverage for professional liability normally is similarly limited to damages arising due to the negligence or misconduct of the covered professional. AB 573, like a provision in Civil Code 2872(b) giving contractors similar protections, narrows the number of parties that may bear responsibility when something goes wrong with a public project that is either no one’s fault or the fault of someone not subject to a contractual indemnity by excluding certain design professionals.

The lawyers in Hanson Bridgett’s Public Agency section are well versed in legal issues related to AB 573 and contracting with design professionals in general. If you have any questions regarding compliance with AB 573 or other contracting issues, please contact Michael Conneran or Patrick Miyaki.