Aon Takes Lead with California Contractor Program

Aon Corp. announced its involvement in the development and passing of AB 2738, a law that will reportedly dramatically affect wrap-up construction programs in California.

"In its initial form, AB 2738 promised to harshly affect wrap-ups and contractual indemnity clauses," said George Dale, executive vice president, Aon Residential. "As the only broker at the negotiating table, Aon worked alongside lawmakers and the California Building Industry Association to protect and advance the position of our clients by ensuring the final legislation reflected a more balanced view."

While the new legislation goes into effect Jan. 1, 2009, any new construction projects contracted ahead of time are required to meet the contractual disclosures and defense duty provisions required by AB 2738.

The law significantly alters the defense duty paradigm for construction defect claims and ensures that builder-controlled insurance policies are fair, equitable and include adequate limits to protect trade contractors and consumers in construction defect situations. AB 2738 is primarily focused on residential projects, although the legislation also includes requirements for non-residential projects and contractors.

"This bill gives builders the opportunity to revisit and redraft agreements they have in place with trade contractors, in light of the current economic environment," Dale added. "The crucial first step is a thorough review of the entire risk transfer structure between the homebuilder and the trade contractor, followed by an evaluation of claims experience and assessment of how the wrap-up programs were structured."