New Bill by Senator Hill Would Require Contractors to Report Settlements of $1M or More in Construction Defect Cases Involving Multifamily Rental Properties

April 17, 2018

For Immediate Release – Office of State Senator Jerry Hill – April 17, 2018

New Bill by Senator Jerry Hill Would Require Contractors to Report Settlements of $1 Million or More in Construction Defect Cases Involving Multifamily Rental Properties

Contractors State License Board Helped Craft Senate Bill 1465 in Response to the Berkeley Balcony Tragedy

SACRAMENTO – State Senator Jerry Hill introduced Senate Bill 1465 today to require contractors to report settlements of $1 million or more in construction defect cases involving multifamily rental residential structures to the Contractors State License Board. The new measure is the latest development in efforts to increase oversight of the industry in response to the Berkeley balcony tragedy.

“SB 1465 enables us to take even stronger steps to protect the public by ensuring that critically important settlement data is accessible to the Contractors State License Board,” said Senator Hill, D-San Mateo and Santa Clara Counties.

The settlement information that SB 1465 requires will “bolster our box of consumer protection tools even more,” said board member Agustin Beltran, who chairs the CSLB’s Legislative Committee.

Construction contractors and their regulation became the focus of sharp scrutiny in California and abroad after a fifth-story balcony at a Berkeley apartment complex collapsed on June 16, 2015, killing six people and seriously injuring seven of their friends. All were students of Irish descent and all but one were visiting the U.S. for the summer.

Investigative news reports soon revealed that the company that constructed the apartment complex, Segue Construction, had paid $26.5 million in construction defect lawsuit settlements in the three years before the Berkeley balcony gave way. But the state board that licenses contractors did not know about the cases because the law does not require contractors to report such settlements. At the time, the CSLB’s enforcement chief David Fogt, now the CSLB Registrar, said that had the board known, “we would have absolutely taken action.” Such knowledge, he emphasized at a later hearing in the Capitol, would have triggered an investigation.

Under SB 1465, contractors must report to the CSLB any settlement of $1 million or more that is finalized on or after January 1, 2019, in cases involving multifamily rental residential structures and that stemmed from:

  • Allegations of fraud, deceit, negligence, breach of contract, express or implied warranty, misrepresentation, incompetence, recklessness, wrongful death or strict liability by the act or omission of a licensee.
  • A claim for damages to a property or a person that allegedly resulted in a failure, or a condition that would pose a substantial risk of a failure, in load-bearing portions of a multifamily rental residential structure.
  • A claim for damages to a property or a person that was allegedly caused by a licensee’s construction, repair, alteration to, subtraction from, improvement of, moving, wrecking, or demolishing of, any part of a multifamily rental residential structure.

 

Contractors would be required to report the settlements within 90 days of being notified of the final judgment in the cases. Insurers would be required to submit a similar report to the CSLB within 30 days of making some or all of the payout in such cases.

SB 1465 grew out of efforts by Senators Hill and Loni Hancock, who represented Berkeley, to close the regulatory gaps revealed by the balcony catastrophe. Governor Brown signed their 2016 bill, SB 465, directing the CSLB to study the settlement reporting issue. The board’s study, submitted to the Legislature in December 2017, found that almost 54 percent of contractors surveyed, nearly 96 percent of consumers surveyed and about 63 percent of insurers surveyed said such regulations would help the board protect consumers.

During the board’s discussion of the report last year, the CSLB’s legal counsel and legislative chief emphasized that settlement information reported to the board would be treated with the same discretion afforded to complaints made to the board about a licensee. [A complaint does not become public unless it results in a citation or an accusation filed against the licensee, or it results in a referral for further investigation after enforcement staff determines that probable violation occurred, that the alleged violation, if proven, poses a risk of harm to the public, and that the alleged violation, if proven, would be appropriate for license suspension or revocation.]

With the introduction of SB 1465, Senator Hill thanked Jackie Donohoe of Rohnert Park, whose 22-year-old daughter, Ashley, and 21-year-old niece, Olivia Burke of Ireland, died in the balcony collapse, for her tireless advocacy for increased oversight of contractors. “We could not have come this far without Jackie Donohoe’s strength in the face of tragedy and her commitment to preventing other families from suffering the devastating loss of loved ones in preventable accidents resulting from construction defects,” said Senator Hill.

Echoing her comments to the CSLB in December, Mrs. Donohoe urged lawmakers to pass SB 1465. “Make this happen and do the right thing so no family has to go through the hell that we’ve been through in the last 2½ years,” she said.

Writing in support of SB 1465, the Consul General of Ireland also praised Mrs. Donohoe for leading advocacy efforts on behalf of families in the U.S. and in Ireland. “The tragedy shocked the Irish nation and the Irish community across the United States,” wrote Consul General of Ireland Robert O’Driscoll. “(T)he Irish Government, through the Consulate of Ireland in San Francisco, has strongly supported the endeavours, led by Jackie Donohoe, to strengthen improvements in California legislation and regulation to ensure that such a tragedy will never occur again.”

 

In its letter of support for the bill, the California News Publishers Association noted that Segue’s multimillion-dollar settlement record in construction defect lawsuits came to light because of work by news reporters. The requirements of SB 1465 would improve regulators’ oversight of contractors, help identify structures that may be unsafe and help “root out” contractors with history of settlements in defect cases, the CNPA’s letter said.

Noting that architects, engineers and land surveyors must make similar reports to the regulators that license them, the Center for Public Interest Law said, “If a pattern of settling cases for significant sums just might shed a poor light on a contractor’s competence, then CSLB should know about the settlements, with licensees knowing that CSLB will, like its sister boards, review such information proportionately and appropriately.”

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Resources:

SB 1465 Fact Sheet
http://sd13.senate.ca.gov/sites/sd13.senate.ca.gov/files/sb1465_factsheet_cslb_settlementreporting.pdf

Letter in Support from the Consul General of Ireland
http://sd13.senate.ca.gov/sites/sd13.senate.ca.gov/files/sb_1465_irishconsulgenrl_ltr.pdf

 

Letter in Support from the California News Publishers Association
http://sd13.senate.ca.gov/sites/sd13.senate.ca.gov/files/sb1465_cnpa_ltr.pdf

Letter in Support from the Center for Public Interest Law
http://sd13.senate.ca.gov/sites/sd13.senate.ca.gov/files/sb1465_cpil_ltr.pdf

The text for SB 1465 will be available within 24 hours at http://leginfo.legislature.ca.gov/
Until today, SB 1465 was an unrelated bill that was rewritten to accommodate the legislation to require contractor settlement reporting.

Contractors State License Board Report to the Legislature re SB 465 :
http://www.cslb.ca.gov/Resources/Reports/SB_465_Report.pdf

Media Contact: Leslie Guevarra, 415-298-3404 cell