Important New Reporting Requirement for Some Construction Defect Settlements

In response to a tragic balcony collapse incident where the public later learned the contractor had paid millions to settlement defect cases in the preceding years, the California legislature passed, the state contractor’s license board is now implementing, a public disclosure requirement for certain construction defect claims. The disclosure requirement is triggered by a judgment (which is not a new requirement), an arbitration award, or a settlement of certain construction defect claims. These requirements are codified at California Business & Professions Code sections 7071.20-22.

What types of Projects: This requirement applies only if all of the following apply:

A) Residential
B) Multi-Family; and
C) Rental property

Limitations on Claims – The reporting requirement only applies if all of the following are true:

A) The claim is against a CSLB licensee (not a design professional) acting in the capacity of a contractor;
B) The claim is for a structural defect;
C) The total claim is valued at $1 million (not including investigation costs);
D) SB800 does not apply;
E) The action was filed after January 1, 2019; and
F) If a lawsuit, the case was designated complex by the courts (which may not apply if only contractor is sued).

Who has to report: Any licensee (general or sub-contractor) and any insurer for a licensee is required to report the settlement, in writing. If any particular licensee is found to owe $15,000 or less, they are not required to individually report.

When to report: Within 90 days of judgment or arbitration award or within 30 days of payment of a settlement.

Consequences of Reporting: The CSLB will automatically open an investigation into the licensee’s license utilizing their existing complaint process. The license board may take further action but it also has the option of determining that the civil case resolution was sufficient to protect the public and take no further action.

Consequences of Not Reporting: The licensee is in violation of their license requirements and is subject to licensure discipline.

Unanswered Questions:

If the gross settlement for a licensee exceeds $1 million but no individual insurer’s share exceeds $1 million, are the insurers still obligated to report? Section 7071.21 can be read to require that an insurer is obligated to report if they pay any portion of a reportable settlement. [Notably the licensee has to report the settlement either way.]

The CSLB is still developing its implementation protocols. Exactly how to report is not clear but at this time, it would appear that a minimum requirement would be written notice to the CSLB’s complaint intake processing office.