New Requirements For Reporting Civil Actions

In June 2015 a balcony of a Berkeley apartment building collapsed, killing 6 students and seriously injuring 7 others. The investigation into the tragedy revealed that a series of negligent actions by the general contractor (GC) during construction led to a dry rot outbreak in the balcony’s wooden joists. Over time, this condition weakened the joists and ultimately caused their failure.

Besides shedding light on the dangers of shoddy moisture proofing and the resulting rot, the Berkeley disaster exposed a string of prior civil actions against the GC. These totaled $26.5 million over the 3 years leading up to the balcony collapse and were not reported to the Contractors State License Board (CSLB).

The new legislation requires contractors and their insurers to disclose the results of civil actions to the CSLB.

The gap in reporting stemmed from the lack of appropriate law. At the time, contractors were bound to disclose relevant criminal convictions, but not civil actions against themselves. Although the CSLB dealt with complaints from homeowners related to single-family home construction, it struggled to oversee actions between major contractors and owners of large developments, as these were typically settled by the respective legal teams and went unreported.

Danger sign warning against non disclosure of civil actions by Contractors State License Board

CSLB’s inability to track civil actions kept it in the dark about contractors performing defective and dangerous work. In the Berkeley incident, the GC would have likely faced an inquiry into their construction standards and been disciplined had the board known about their prior settlements. It became obvious that to fulfill its mandate of protecting the public, the CSLB would need better tools to regulate contractors in the state.

Senate Bill 1465 (SB-1465) aims to do just that. The new legislation requires contractors and their insurers to disclose the results of civil actions to the CSLB.

Senate Bill 1465 (SB-1465)

Under the new bill, contractors must report all actions over $1,000,000 if they stem from the construction of multifamily residential buildings. The report must be made within 90 days of the settlement or court decision.

Reportable actions must:

● Arise from fraud, deceit, negligence, breach of contract or express or implied warranty, misrepresentation, incompetence, recklessness, wrongful death, or strict liability by the act or omission of a GC or their subcontractor

● Be caused by a claim for damages to property or person that allegedly led to a failure or condition that creates a substantial risk of a failure in the load-bearing portions of a multifamily rental residential structure

● Result from a claim for damages to property or person allegedly caused by the contractor’s activities involving any part of a multifamily rental residential structure, either personally or through others

● If litigated, be designated a complex case – “an action that requires exceptional judicial management to avoid placing unnecessary burdens on the court or the litigants and to expedite the case, keep costs reasonable, and promote effective decision making by the court, the parties, and counsel” (Cal. Rules of Court, Rule 3.400).

If the action involves more than one defendant, all contractors liable for over $15,000 under a court decision or agreement must report the action to CSLB.

As an additional tracking measure, the new bill requires insurers to submit their reports to the CSLB as well. The insurers must file their reports within 30 days of making a payment stemming from the action.

Once a report is submitted, the CSLB must determine whether to investigate the allegations against the contractor or not. An investigation may be warranted if the report points to a contractor’s neglect of accepted construction standards, a departure from a project’s plans or specifications, and poor workmanship, as defined by the BPC. A violation of other state laws may also call for an investigation.

On the other hand, if the report shows no evidence of BPC infractions, establishes that the present resolution of the action is sufficient to the public interest, or deems disciplinary action unnecessary, the CSLB must return the report to the contractor and take no further action. To protect the reputation of contractors, the report submission itself is not disclosed on the contractor’s record unless it confirms a violation of the BPC. Contractors who do not submit a report under the new bill may face disciplinary action from the CSLB.

What you can do to protect yourself

Thanks to the state’s efforts to enhance contractor oversight, the CSLB is now better equipped to regulate construction in the state. That said, there is no legal requirement to report actions resulting from single-family home construction. If you are building or remodeling a single-family home, the CSLB may not know of your contractor’s past actions. Regardless of the size or type of project, as a consumer, you have a responsibility to protect yourself from contractor negligence and poor workmanship.

First, hiring an unlicensed contractor limits the CSLB’s ability to help you if things go wrong. While the board may discipline a contractor for performing work unlicensed, they cannot force them to correct defects or reimburse you for them.

Second, hiring a contractor who does not have Workers’ Compensation Insurance can make you liable for any injuries that occur on the site. Be sure to ask potential contractors for proof of insurance to avoid astronomical medical expenses and lawsuits caused by workplace accidents.

Whether your project involves an apartment building or a simple kitchen remodel, make sure your contractor is properly licensed and insured. When looking for contractors, ask friends, family, and neighbors to recommend someone they’ve worked with. Look your candidates up on websites such as the Better Business Bureau, or Angie’s List. To ensure that your project is accurately priced, solicit at least three bids, and evaluate them line-by-line.

Finally, to avoid a his-word-versus-mine scenario, make a bullet-proof contract that includes all your requirements. Never sign a contract that’s blank or partially blank.

If you are planning a complex construction project, it may be worth it to hire an attorney to review its terms before you sign. And remember – if you change your mind, you may cancel the contract within 3 business days of signing.

How we can help

We’ve been around for over 14 years and have helped more than 4,000 clients here in California. Our time in the industry honed our expertise and helped us forge valuable relationships with other professionals. If you are planning a construction project, we can help you see it through from start to finish – from design to construction administration. When your project is ready, we can refer you to trusted contractors in your area. Call us at (877) 892-0292 to find out more.

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