New California Law Makes Wrap-ups More Attractive

A recently passed law in California, SB 474, will cause a significant change in contracts between parties involved in commercial construction projects.  Currently, if the general contractor is not found 100% at fault for a claim, the subcontractor is required to cover all costs associated with the claim.  The new law shifts most of the risk from the subcontractors back to the general contractors.  Beginning in 2013, a subcontractor found at 5% fault for a claim would be responsible for paying 5% of the loss, as opposed to 100%.

The new law creates problems for those in the industry by slowing the claims process and increasing litigation since a percentage of fault must be assigned to each party involved.  Increases in the use of wrap-ups for projects in California have been predicted.  Utilizing wrap-ups would alleviate the issues that arise from SB 474 because all contractors are covered under the same policy by the same insurer.