CSLB Begins Processing Applications for New B-2 License

Garret Murai | California Construction Law Blog

As we wrote about in our 2021 Construction Law Update, one of the new laws to take effect on January 1, 2021 was the enactment of SB 1189 which created a new B-2 Residential Remodeling Contractor’s license. The new license is available to contractors working on existing homes with residential wood frame structures requiring at least three (3) unrelated trades or crafts under a single contract.

Beginning June 1, 2021, the Contractors State License Board began accepting applications for the B-2 Residential Remodeling Contractor’s license. According to a press release from the CSLB:

The B-2 classification provides a pathway to licensure for many unlicensed people who are currently working on remodeling and small home improvement projects that don’t qualify for a B-General Building License because the contracted work does not include framing or rough carpentry. Consumers employing a licensed contractor have reduced liability and greater consumer protection. Licensees benefit from licensure as they have opportunities to lawfully advertise, and compete on a level playing field for jobs.

In order to qualify for a B-2 Residential Remodeling Contractor’s license, applicants must have at least four (4) years of experience working in three (3) or more trades or crafts for residential remodeling projects. Applicants can satisfy up to three (3) years of the experience requirement with qualifying education.

The Residential Remodeling Contractor’s license does come with a few restrictions, however. Residential Remodeling Contactors are:

  • Limited to working on existing (not new) residential wood frame structures;
  • Cannot make structural alterations to load-bearing partitions and walls;
  • Cannot install or extend electrical or plumbing systems but may make modifications to existing systems (e.g., install recessed lighting or alter plumbing for two shower heads); and
  • Cannot install or replace HVAC systems.

Applicants interested in obtaining a Residential Remodeling Contractor’s license will need to complete a CSLB Application for Original Contractor License, take and pass the B-2 Residential Remodeling Contractor’s examination, furnish a contractor’s license bond, and, if employing employees, obtain and maintain worker’s compensation insurance.

Statutory Offer to Compromise – A Potential Pitfall for CA Contractors, With a Way Out

Ian Williamson | Gordon Rees Scully Mansukhani

A statutory offer to compromise a case is a common tool in litigation in California. Under CCP section 998, a party can make an offer to the opposing party. If that offer is not accepted, the case goes to trial, and the recipient does not do better at trial than the offer, the code imposes penalties. Conversely, if you get a better outcome, the code provides benefits in the form of enhanced costs (notably including the costs of experts). It is a useful tool. However, on its face, the code contemplates that a judgment be entered against the party making payment.

For many entities, this is a non-issue. However, for contractors and professional license holders in California, that judgment can have potentially severe unintended consequences that go far beyond the litigation. Judgments arising from your work can (and in some cases must) be reported to licensing agency. Discipline can result. In addition, bonding companies look negatively at the judgments. Additionally, many bidding packages require the bidder to disclose any job-related judgments. In sum, a contractor whose attorney utilizes a 998 offer can end up with a long-lingering smear on their license and professional reputation.

For years, savvy lawyers have worked around this outcome with terms in the 998 offer that offered a settlement agreement instead of a judgment. This was an accepted practice for years, and then some appellate decisions called it into question. Good news for our licensed clients came from the Third District Court of Appeals in late May. In the case of Arriagarazo v BMW of North America, LLC (to be published, formal citation not yet available), the court specifically and unequivocally approved the offer of a settlement agreement rather than a judgment in an effective 998 offer of compromise.

The parties in the Arriagarazo case still did not get it quite right, but the court gave us a clear road map of what will be acceptable. Any doubt about the effectiveness of a 998 offer that suggests a settlement agreement instead of a judgment should be resolved. Whether other conditions can be imposed is still questionable – but this question is resolved.

1st District Joins 2nd District Court of Appeals and Holds that One-Year SOL Applies to Disgorgement Claims

Garret Murai | California Construction Law Blog

We’re beginning to see a trend.

This past year, the 2nd District Court of Appeals, in Eisenberg Village of the Los Angeles Jewish Home for the Aging v. Suffolk Construction Company, 53 Cal.App.5th 1201 (2020), held for the first time that a one (1) year statute of limitations period beginning upon substantial completion of a project applies to disgorgement claims under Business and Professions Code section 7031. In San Francisco CDC LLC v. Webcor Construction L.P., the 1st District Court of Appeals became the second Court of Appeals in the state to hold that a one (1) year statute of limitations beginning upon completion or cessation of work on a project applies to disgorgement claims under Business and Professions Code section 7031.

The San Francisco CDC LLC Case

The Defect Action

In September 2005, San Francisco CDC LLC entered into a $144 million construction contract with Webcor Construction, Inc. doing business as Webcor Builders to build the InterContinental Hotel in San Francisco, California.

In July 2007, Webcor Construction, Inc. merged into Webcor Construction, L.P. The new entity, Webcor Construction, L.P., obtained a contractor’s license before the merger on June 26, 2007. Later that year, Webcor Construction, L.P. was acquired by Obayashi Corporation.

In October 2013, SF CDC tendered a warranty claim alleging defects with the windows of the hotel. The parties entered into a tolling agreement tolling SF CDC’s claim from the date of discovery of defects on October 4, 2013.

In June 2015, SF CDC filed a lawsuit against “Webcor Builders, Inc.” and others alleging claims with the windows. After it was discovered that Webcor Builders, Inc. was a separate entity unrelated to Webcor Construction, L.P., the parties agreed to substitute Webcor Construction, L.P. for Webcor Builders, Inc.

Suspecting that Webcor Construction, L.P. might not have been properly licensed as a contractor during construction of the hotel, SF CDC tried to allege that the licensure issue during trial, however, the trial court refused to hear the claim. The parties later settled and the defect action was dismissed. Presumably, the parties’ settlement reserved claims with respect to disgorgement as the next series of events suggest.

The Disgorgement Action

In June 2017, SF CDC filed a second lawsuit, alleging that Webcor Builders, L.P. (Note: It’s a little confusing here. I think the Court meant to say Webcor Construction, L.P.), Webcor Construction, Inc., and Obayashi Corporation were not properly licensed and subject to disgorgement under Business and Professions Code section 7031. Specifically, SF CDC alleged that Webcor Construction, Inc.’s contractor’s license expired in December 2007 and was never transferred.

In response, the defendants filed a demurrer and requested judicial notice of records of the Contractors State License Board showing that Webcor Construction, L.P. obtained its own contractor’s license in June 2007, prior to the merger, and thus did not need Webcor Construction, Inc. to transfer its license. Rather than respond to the demurrer, SF CDC filed a first amended complaint.

In its first amended complaint, SF CDC continued to allege a claim of disgorgement under Business and Professions Code section 7031 but also added a claim for conversion and fraudulent concealment. According to the first amended complaint, defendants were not properly licensed during construction of the hotel and “executed a series of mergers to conceal their licensing violations.” The defendants filed a second demurrer.

In January 2018, the trial court sustained the demurrer with leave to amend. In sustaining the demurrer, the trial court found that all three claims related to disgorgement and that a one (1) year statute of limitations period applied under Code of Civil Procedure section 340(a) which applies to actions based “upon a statute for a penalty or forfeiture.”

In May 2018, SF CDC filed a second amended complaint. In its second amended complaint, SF CDC continued to allege the same three causes of action, but also alleged that Webcor Construction, L.P.’s contractor’s license automatically terminated during construction when its general partner disassociated from the partnership, and that work continued to be performed after June 23, 2016 and through the beginning of 2017, within one (1) year of when SF CDC filed its disgorgement action. The defendants filed a third demurrer.

The trial court sustained the demurrer with leave to amend. In sustaining the demurrer, the trial court found that SF CDC had not identified the contractor who allegedly performed work after June 23, 2016 and through the beginning of 2017, did not adequately allege any misrepresentation or concealment concerning the licensing violations that could not have been identified through public records, and rejected SF CDC’s contention that Webcor Construction, L.P.’s contractor’s license had been “automatically terminated” through the disassociation of its general partner.

In October 2018, SF CDC filed a third amended complaint. In its third amended complaint, SF CDC alleged that on several occasions, “Webcor Builders, Inc.” had been identified as the hotel’s general contractor in change orders, permits prepared by subcontractors, and other documents. SF CDC also alleged that between October 2016 and January 2017, defendants had prepared “scopes, schedules and sequences of work and obtain[ed] and present[ed] proposals and bids . . . to perform the original contract scope of work with trade contractors who would repair and improve the windows and curtain wall components. The defendants demurred a fourth time.

In their demurrer, defendants argued that SF CDC’s belief that “Webcor Builders, Inc.” had built the hotel, was undermined by the publicly recorded notice of completion which identified “Webcor Construction L.P., dba Webcor Builders” as the original contractor, and that obtaining and presenting proposals and bids, did not require a contractor’s license and would not be actionable under Business and Professions Code section 7031.

The trial court sustained the demurrer without leave to amend, finding that SF CDC was unable to allege a claim that was not time-barred, that documents prepared by third-party subcontractors identifying the general contractor as “Webcor Builders, Inc.” could not provide a basis for equitable estoppel because the statements were not made by defendants, that the notice of completion undermined SF CDC’s claim that it did not become aware of the identity of the general contractor until 2017, and that the preparation of bids and proposals did not require a contractor’s license.

Judgment was later entered against SF CDC. SF CDC appealed.

The Court of Appeals Decision

Providing an overview of Business and Professions Code section 7031, the Court of Appeal noted that the purpose of Section 7031 is “to discourage persons who have failed to comply with the licensing law from offering or providing their unlicensed services for pay,” that “[d]isgorgement is permitted even when the project owner knows that that the contractor is unlicensed,” that disgorgement applies even if “the contractor is only unlicensed for part of the time it performed work requiring a license” and even “when the work performed by the unlicensed contractor is free of defects.” Section 7031, explained the Court, is “‘truly a strict liability statute’” and ‘”represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties.”

With respect to the statute of limitations, the Court of Appeal held that the one-year statute of Code of Civil Procedure section 340 “governs actions brought under section 7031(b) because disgorgement is a statutory penalty for work performed by an unlicensed contractor” and noted that this is consistent with the Eisenberg decision. 

Although not directly addressing whether the statute of limitations could be equitably tolled, the Court of Appeal held that equitable estoppel or delayed discovery did not apply, because SF CDC knew or should have known that Webcor Construction L.P. built the hotel when the notice of completion was recorded in February 2009, which was more than eight (8) years before SF CDC filed its disgorgement action in 2017.

As to SF CDC’s allegation that preparing bids requires a contractor’s license, the Court of Appeal held that such argument ran counter to MS Erectors Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 38 Cal.4th 412, in which the California Supreme Court held that the preparation of bids and proposals is a pre-contractual activity for which a contractor’s license is not needed.

Conclusion 

So there you have it. We now have a trend with the 1st District and 2nd District Court of Appeals both holding that a one-year statute of limitations beginning upon completion or cessation of work on a project applies to disgorgement claims under Business and Professions Code section 7031.

Avoid Creating Coverage By Estoppel, Waiver & Forfeiture: California

Alicia Gurries | Cozen O’Connor

Waiver, estoppel and forfeiture are doctrines on which insureds often rely to try to create coverage outside the terms of the insurance policy. Insureds will often assert that they are entitled to such extra-contractual coverage based entirely on how the insurer handled the claim.  But under California law, these doctrines often do not apply, and an insurer can avoid a potential waiver, estoppel or forfeiture by communicating with the insured.

Although the terms are often used interchangeably, the doctrines are different. Estoppel refers to conduct by the insurer that reasonably causes an insured to rely to his detriment. Waiver is an express or implicit intentional relinquishment of a known right demonstrated. And forfeiture is the assessment of a penalty against the insurer for either misconduct or failure to perform an obligation under the contract.”[1]

The general rule under California law is that estoppel and waiver cannot be used to create coverage under an insurance policy where such coverage did not originally exist.[2] In other words, these doctrines cannot be used to create coverage for risks that are outside the scope of the insuring agreement or that fall within a policy exclusion.[3] 

A common assertion by insureds to expand coverage is that an insurer that failed to raise a coverage defense in a coverage position letter has either waived or is estopped from asserting that defense. But several reasons may explain why the insurer initially did not raise the coverage defense. For example, it could be that facts supporting a defense were not disclosed to the claims professional until after the claims professional sent the initial coverage position letter.

Waiver in California is not automatic. It rests on the insurer’s intent: “Case law is clear that ‘waiver’ is the intentional relinquishment of a known right after knowledge of the facts.”[4] A waiver may be either express, based on the insurer’s words, or implied, based on insurer’s conduct indicating an intent to relinquish the right.[5] Although waiver generally is a question of fact,[6] proving a waiver is extremely difficult. Where an insurer did not initially include a coverage defense in its reservation, it should do so as soon as it determines the defense may apply, no matter how much time has passed since it issued its initial reservation. Several decisions have ruled that such later-made reservations are effective.[7] One situation where a waiver may apply is when an insurer elects to forgo a coverage defense when so doing could give the insured a right to independent counsel.[8]

Estoppel differs from waiver in that the focus is on the insured’s detrimental reliance. The elements to establish estoppel are that (1) the insurer must be aware of the facts, (2) the insured could reasonably believe that the insurer intended that the insured rely on the insurer’s conduct, (3) the insured must be ignorant of the true facts, and (4) the insured must rely upon the insurer’s conduct to the insured’s detriment.[9] An insurer may be estopped from asserting a policy right or defense even though it did not intend to mislead, as long as the insured reasonably relied to its detriment upon the insurer’s action. [10] Generally, the doctrine of estoppel cannot bring within coverage risks that the policy does not cover or that the policy excludes.[11] But in limited situations, e.g., when a liability insurer, with knowledge of a potential coverage defense, agrees to defend its insured without reservation of rights, the insurer may be estopped from relying on its coverage defenses (assuming the elements of estoppel are all met).[12] 

Where an insurer declines coverage based on one coverage defense, but does not deny on another applicable coverage defense, the insurer should not be estopped from subsequently asserting the second coverage defense, even if the first ground is unsupportable. Because the insurer denied coverage, the insured cannot establish that it relied to its detriment to believe that it would have such coverage.[13]

Forfeiture is a penalty against the insurer for misconduct or the nonperformance of some obligation or condition.[14]  To establish a forfeiture, the insured must establish by clear and convincing evidence conduct designed to mislead them; the courts will not impose forfeiture if the insurer did not engage in behavior designed to mislead the insured. Forfeiture does not require that the insured is, in fact, misled.  [15]

The claims professional should be aware that under California law, the doctrines of waiver, estoppel, and forfeiture do not apply automatically. The claims professional should understand the rules regarding the application of these doctrines and be able to apply them to the claims he or she is handling. In this way, the claims professional may most effectively be able to determine how best to address any assertions that the insurer has waived, is estopped from relying upon, or has forfeited any coverage defense, especially because those defenses may remain available to the insurer.


[1] Chase v. Blue Cross of Calif. (1996) 42 Cal.App.4th 1142, 1151 (Chase).

[2] Aetna Cas. & Sur. Co. v. Richmond (1977) 76 Cal.App.3d 645, 652-653.

[3] Advanced Network v. Peerless Ins. Co. (2010) 190 Cal.App.4th 1054.

[4] Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 32-33. 

[5] Id. at 32. 

[6] Aetna Cas. & Sur. Co. v. Richmond (1977) 76 Cal.App.3d 645, 653. 

[7] Ringler Associates Inc. v. Maryland Casualty Co. (2000) 80 Cal.App.4th 1165; American Motorists Ins. Co. v. Allied-Sysco Food Services, Inc. (1993) 19 Cal.App.4th 1342, 1350; National Union Fire Ins. Co. v. Siliconix, Inc. (N.D.Cal.1989) 726 F.Supp. 264, 270; Stonewall Ins. Co. v. City of Palos Verdes Estates (1996) 46 Cal.App.4th 1810, 1839.

[8] See Cal. Ins. Code § 2860.

[9] Colony Ins. Co. v. Crusader Ins. Co. (2010) 188 Cal.App.4th 743, 751.

[10] Chasesupra, 42 Cal.App.4th at 1157 (The court stated that “an insurer is estopped from asserting a right, even though it did not intend to mislead, as long as the insured reasonably relied to its detriment upon the insurer’s action.”); Waller, supra, 11 Cal.4th at 34. 

[11] Advanced Network, Inc. v. Peerles Ins. Co. (2010) 109 Cal.App.4th 1054, 1066.

[12] Miller v. Elite Ins. Co. (1980) 100 Cal. App. 3d 739, 754-56;

[13] Wallersupra, 11 Cal.4th at 35; see also Stonewall Ins. Co. v. City of Palos Verdes Estates (1996) 46 Cal.App.4th 1810, 1839 (The court found that the insurer was estopped from denying  coverage after a delay of 2 1/2 years, which was only three weeks before the trial. The court identified detriment to the policyholder because it had a right to independent counsel, who had no time to prepare for trial.); Granco Steel, Inc. v. Workmen’s Compensation Appeals Board (1968) 68 Cal.2d 191, 200 (The insurer was estopped from denying coverage based on its agent’s representation that coverage would be provided upon insured’s request (which was done).);Fanucci v. Allstate Ins. Co. (ND CA 2009) 638 F.Supp.2d 1125, 1144 (applying Calif. law) (Coverage by estoppel may exist when the insurer makes incorrect representations about the type of coverage that will be provided by a policy.)

[14] Chase, supra, 42 Cal.App.4th at 1149.  

[15] Id. at 1157 (Citations, ellipses and quotation marks omitted.);  Wallersupra, 11 Cal4th at 31

Court of Appeal Holds Only “Named Insureds” May Sue for Bad Faith Under California FAIR Plan Policy

Valerie A. Moore and Kathleen E.M. Moriarty | Haight Brown & Bonesteel

In Wexler v. California Fair Plan Association (No. 303100, filed 4/14/21), Brooke Wexler’s parents insured their residence, which was located in a mountainous high-fire risk area, with a California FAIR Plan Association owner-occupied dwelling policy. The policy only listed Wexler’s parents and did not name Wexler, their adult child, under the policy’s “Insured Name” section. The FAIR Plan expressly disclaimed coverage for “unnamed people,” referred to by the court as the “no-coverage-for-unnamed-persons clause.”

FAIR Plan was created by the Legislature in 1968 and is a joint reinsurance association created to give homeowners in high risk areas access to basic property insurance and is a self-described “insurer of last resort.”

Wexler’s parents alleged smoke and soot from the Woolsey wildfire damaged their home and its contents in 2018 and made a claim under their insurance policy with FAIR Plan. After FAIR Plan denied their claim, Wexler and her parents sued for bad faith. Attached to their complaint were FAIR Plan documents which they contended comprised the policy. The documents emphasized the limitations of the FAIR Plan, including no coverage for liability, medical payments to others and damage to property of others. The documents stated the FAIR Plan insured the dwelling and its contents only against damage from fire, lightning, and internal explosion, with “limited’ coverage for smoke damage, but also that FAIR Plan offered numerous other forms of broadened and increased insurance for additional premium.

One of FAIR Plan’s documents entitled “Dwelling Property Policy” stated “We cover personal property usual to the occupancy as a dwelling and owned or used by you or members of your family residing with you while it is on the Described Location.”

The trial court sustained FAIR Plan’s demurrer to Wexler’s claim on the grounds she lacked standing to sue the insurer for bad faith. Wexler’s parents dismissed their claims against FAIR Plan after the ruling on the demurrer was issued and Wexler appealed. The court of appeal affirmed, holding that Wexler lacked standing to sue for bad faith because she had no contractual relationship with FAIR Plan based on its finding that she was not a signatory to the policy, was not an additional insured and was not a third party beneficiary.

The Wexler court briefly summarized the general law of insurance bad faith, discussing the landmark decision in Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683 in which the California Supreme Court held that tort remedies were available for breach of the implied covenant of good faith where a “special relationship” existed, such as that between an insurer and an insured. But the appellate court pointedly noted that the “rubric of special relationships” was widely criticized, resulting in its disappearance from court opinions and that “[w]e thus speak no further of special relationships.”

The Wexler court flatly held Wexler was not a signatory to the policy or a named insured and as such, was not a party to the contract. While stating that the policy provided insurance for Wexler’s possessions at her parent’s home, the court found the coverage was for her parents’ benefit and thus did not transform Wexler into a party to the contract.

As to Wexler’s argument that she was an additional insured, the Wexler court reiterated that FAIR Plan expressly disclaimed coverage for unnamed persons. Based on this express disclaimer, the court distinguished the FAIR Plan from policies which explicitly name classes of people as additional insureds, such as auto policies which provide coverage for “permissive users” or “any other person while occupying an insured motor vehicle.”

As to whether Wexler was a third party beneficiary under the FAIR Plan, the court cited Civil Code Section 1559 which provides “A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.” The court referenced the Supreme Court’s holding in Lucas v. Hamm (1961) 56 Cal.2d 583, 590 which held that Civil Code Section 1559 excludes enforcement of a contract by a person who benefits from the agreement in only an incidental or remote way.

The Wexler court further cited to the California Supreme Court’s decision in Goodenwardene v. ADP, LLC (2019) 6 Cal.5th 817, 826-832, which adopted a three-part test, all elements of which must be satisfied to permit a third party beneficiary action to proceed based on an evaluation of the express contract provisions and the relevant circumstances of contract formation to determine (1) whether the third party would benefit from the contract; (2) whether a motivating purpose of the contracting parties was to provide a benefit to the third party; and (3) whether permitting a third party to bring its own breach of contract action against a contracting party would be consistent with the objectives of the contract and the reasonable expectations of the contracting party.

Using the three-prong test set forth in Goodenwardene, the Wexler court first determined that Wexler was not a third party beneficiary because she could not show that a motivating purpose of the contracting parties was to benefit her. The court held it was not enough that the contracting parties knew a benefit might flow to Wexler and reasoned that if a motivating purpose behind the formation of the agreement was to benefit Wexler, the policy would have either named Wexler or would not have included the no-coverage-for-unnamed-persons clause.

The appellate court also determined that permitting a bad faith action by Wexler was unnecessary to effectuate the insurance contract’s objectives, since Wexler’s parents, the named insureds, can and did sue for bad faith regarding FAIR Plan’s handling of their claim – a claim which Wexler alleged and FAIR Plan acknowledged covered Wexler’s personal property.

Wexler further contended the policy was ambiguous because it extends coverage to her personal property in her parent’s home but also contains a no-coverage-for-unnamed-persons clause and asserted the ambiguity must be construed against the insurer. The Wexler court rejected the argument, finding the provisions unambiguously afforded coverage to Wexler’s parents for contents in their home, including contents used or owned by family members residing in the home.

The Wexler court distinguished the five cases Wexler cited in support of her ambiguity claims, all of which involved policies of insurance with broader and more varied coverage than FAIR Plan and/or additional insured endorsements.

Wexler also argued her parents had no insurable interest in the property she had in their house. The Wexler court rejected this argument, noting first that the insurable interest doctrine is a “tool insurance companies use to invalidate policies and avoid paying claims” and that an expansion of the doctrine would hurt claimants like Wexler to the advantage of insurance companies. The court noted the statutory purpose of the insurable interest doctrine “to suppress gambling and to curb moral hazard by refusing to endorse insurance policies contrary to public policy” and engaged in an amusing, albeit lengthy, discussion of the origins of the doctrine. But in conclusion, the court determined the insurable interest doctrine was inapplicable where, in its view, nothing suggested Wexler’s parents were “gambling” in purchasing the FAIR Plan – a “social bad” – and instead sought to reduce personal risk – a “social good.”

This document is intended to provide you with information about insurance law related developments. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact the authors. This communication may be considered advertising in some jurisdictions.