The Letter of the Law: December 2011

IN THIS ISSUE:

FAMILY: California Child Support

COMMUNITY: Kring & Chung's Annual Thanksgiving Food Drive

FAMILY: Which Model is Best for Your Divorce?

BUSINESS: Additional Insurance Coverage

CONSTRUCTION: Prohibition Against Type I Indemnity Provisions Extended to Commercial Construction Agreements

EMPLOYMENT: Safe Holiday Party Tips

EMPLOYMENT: Sexual Harassment Training Deadlines

California Child Support

By:

Typical scene at a family law courthouse:

Court: Mr. X, you are hereby ordered to pay child support in the amount of $2,480 per month for Junior, commencing immediately and continuing until the child emancipates.

Mr. X: (Gasps audibly) But your honor, after taxes are deducted, I only bring home $4,025 per month. How am I supposed to pay my rent? How can I afford food?

Court: Not my problem, Mr. X. Your child support is the first check you write.

Attorneys see this scene played out routinely in family court. The amounts may change but the shocked, angry faces are all too similar and familiar.

Family Code section 4053 states that a parent's first and principal obligation is to support his or her minor children according to that parent's circumstances and station in life. That section also states that each parent is mutually responsible for the support of their children.

Another typical scene at a family law courthouse:

Court: Mr. Y, you are hereby ordered to pay child support in the amount of $6,400 per month for Junior and Jennifer, commencing immediately and continuing until each child emancipates.

Mr. Y: What!? Your Honor! It doesn't cost $6,400 a month to raise two children!! She's (pointing at baby-momma) just going to use the support for shopping and lip filler!

Court: Not my problem, Mr. Y. The children are entitled to share in the standard of living that you enjoy.

Mr. Y: I don't mind sharing with my kids, what I care about is her (again pointing at the other party) paying her personal trainer with my support money!

Federal law requires that states establish guidelines for child support in order for those states to receive federal funding for public assistance and enforcement programs. For this reason, the State of California has established severally court-approved software programs that calculate the appropriate, aka guideline, child support amounts after entering relevant financial and custody information for each parent.

In California, our most commonly subscribed support calculation software are Dissomaster, Xspouse and Supporttax. Chances are that any family law attorney you consult for your child support questions will utilize one or more of these calculators. The attorney will start by entering wage information for each party, the custody and visitation timeshare, and depending upon the sophistication of the issue involved, may enter additional information such as other taxable income, mortgage interest deductions, and so forth. There is an algebraic formula for child support that is set forth in Family Code section 4055(a) if you are a math nut. We prefer to use the software.

Child support is based upon each parent's annual gross income from all sources (yes "All"). This may include employer-paid expenses such as living expenses, car expenses and so forth.

Furthermore, in relation to the fact that each parent is responsible for supporting a child, the court has the power to impute earnings to a parent that is deemed to be under-employed, order them to seek work and provide proof, order them to participate in a vocational evaluation, and so forth.

As can be gleaned from the information above, the State of California places the interest and well-being of its children as its top priority. See Family Code section 4053(e).

If you have a need for child support, either an initial order or a modification of a previous order, or if you have an existing order that you believe to be too high or too low, please call the author and schedule a free 30 minute consultation.

Kring & Chung's Annual Thanksgiving Food Drive

Kring & Chung held its 3rd Annual Thanksgiving Food Drive on Saturday, November 19th. The Food Drive benefitted families of the South Orange County Family Resource Center and the Shalimar Learning and Teen Center in Costa Mesa.

The South Orange County Family Resource Center is comprised of four non-profit organizations committed to improving family and community life. The Shalimar Learning and Teen Center is part of THINK Together, a nonprofit organization, that is one of California's leading and largest providers of after-school programs serving 100,000 students throughout Los Angeles, Orange, Riverside, San Diego, San Bernardino and Sacramento counties. We feel honored to have helped the families of these deserving organizations this holiday season.

We want to thank everyone who participated in our food drive. A special thanks to our employees, clients, business neighbors, friends and family who contributed. We were able to provide 38 families with a complete Thanksgiving meal.

Which Model is Best for Your Divorce?

By: Jill L. Barr

The end of a marriage is often equated with death. There are various stages of mourning one undergoes upon a "death" of a marriage. The dissolution of a marriage is also a termination of a partnership and thus, in many respects, a business transaction. It is often difficult to competently enter into a business transaction while undergoing the grieving process. Stresses in marriage do not always equate to dissolution of the marriage, but when it appears that dissolution is inevitable, there are various models one can utilize when going through the dissolution process.

These are the primary models which are available to those individuals who are finding themselves faced with the dissolution of his/her marriage. It is important to choose the model that best fits the parties involved. Consulting with an attorney to discuss the various models is an important first step to making a decision. The models are as follows:

Mediation. The parties can engage in confidential mediation with an attorney of their own choosing. Mediation is voluntary and both parties should be able to discuss and represent their interests adequately in a series of meetings between themselves and the chosen mediator. The mediator is a neutral and will attempt to obtain full agreement on all issues. The mediator does not represent either party and will draft all paperwork needed to obtain the dissolution. If the spouses/parties are not equally able to represent their interests in this process, if for example one party feels that the other party is a superior negotiator or feels intimidated/demeaned by the other party, this is probably not the right process for him or her. However, this process can be very successful for many, and although the process involves the two spouses sitting down together in meetings with a mediator, the spouses can also consult with an attorney of his/her choosing. This consultation can be invaluable in preparing for the mediation sessions.

Collaborative Law. Collaborative law is similar to mediation in that it is a voluntary process to which both parties must consent. The goal is to attain full agreement on all issues. This process involves a "team" approach, in that the parties will each have his/her own attorney. Depending on the specific needs of the particular situation at hand, there may be other professionals involved in this process as well. This process, like mediation, involves a series of meetings with the parties and the professionals involved in the case. The "team" may include a financial specialist or child specialist if the parties decide that the input from these professionals will assist them in reaching an agreement. This process is also not for everyone. It can be very beneficial for parties who do not want to engage in litigation, but feel that mediation is not appropriate for their situation. This process allows for parties to reach agreements which are best for them and are not limited by the limitations which can be imposed upon them via the litigation model.

Litigation. One or both parties may simply decide that neither of the two above models works for them, and they may decide to pursue litigation. Litigation does not necessarily mean that all the issues will ultimately be determined by a Judge. In this process there are opportunities to resolve the matter short of a trial, and most cases ultimately resolve without a full trial on all issues. But the parties will likely have needed a Judge to decide some interim issues along the way.

Additional Insurance Coverage

By: J. Christopher Bennington

In an effort to spread the cost of construction defect litigation, many carriers for general contractors and subcontractors have begun requiring their named insureds to obtain "additional insured" coverage from the named insureds' subcontractors. For example, the policy issued to a general contractor may demand that the general require his or her electrician, plumber and other subcontractors to have the general named as an additional insured on each of the policies issued to those subcontractors. In this way, there are likely to be several policies covering the general contractor against any given claim, which can dramatically reduce the exposure for the general contractor's own liability carrier.

The requirement to procure additional insured status under subcontractor policies is normally added by way of an endorsement to the main policy form. The provision may be included in what appears to be an innocuous form that covers a variety of topics, but it can have a devastating impact on the insured's coverage.

Such provisions normally require that the subcontractor's policy include limits of liability at least as large as the limits provided by the named insured's own policy. There may also be other specific requirements about the form and nature of the additional insured coverage required. For example, subcontractor carriers issuing additional insured endorsements often issue endorsements that provide only "ongoing operations" coverage, which ostensibly ends when the subcontractor has finished his or her work on the project. The named insured's carrier may actually require that the subcontractor carrier provide "completed operations" coverage which applies to losses developing after the subcontractor has finished work and left the site.

The requirement for additional insured coverage can be enforced by the carrier in a number of ways. Some carriers provide that the insured's coverage remains in effect, but that the carrier has the right to audit and rerate the policy to charge extra premium after the fact if the insured does not obtain the required additional insured coverage on each project.

Other policies provide that the limits of insurance available to the insured are reduced if the additional insured coverage is not obtained. Kring & Chung recently handled a matter in which the carrier maintained that coverage was reduced from $1 million to $50,000 because the insured had allegedly failed to obtain additional insured coverage from all of its subcontractors.

It can be even worse. Some carriers have taken the position that obtaining additional insured coverage is a policy warranty, and that failure to obtain the additional insured coverage may void coverage altogether for a given claim, or even allow for rescission of the policy itself. Kring & Chung has also had to deal with at least one case where the carrier claimed the right to rescind its policies because the insured failed to obtain additional insured coverage from two subcontractors on one small project.

This has become a critical issue for our construction clients. It is essential that anyone engaged in construction be familiar with the terms of their liability policies and take steps to insure that they have satisfied any additional insured coverage requirements. This process should be taken as seriously as maintaining worker's compensation coverage or any other element of the client's insurance portfolio.

In order to protect against potential loss of coverage, we recommend that our clients do the following:

1. Discuss with your agent or broker during the application process if there is going to be any requirement that you obtain additional insured coverage from your subcontractors;

2. Obtain complete copies of all your policies, not just renewal notices or declaration pages, so that you know exactly how much coverage and what types of coverage are required;

3. Review your subcontracts to make sure that they require the subcontractor to provide the specific limits and types of coverage demanded by your own carrier; and

4. Obtain certificates of insurance and additional insured endorsements from each subcontractor working on each of your projects.

At Kring & Chung we can assist you with any necessary policy reviews to determine the additional insured coverages that you must obtain. We can also help you amend your subcontracts to require the necessary coverage from your subcontractors. We look forward to speaking with you about this or any other insurance or construction issues.

California Legislature Extends Prohibition Against Type I Indemnity Provisions to Commercial Construction

By: Christopher J. Stipes

In 2008, the California Legislature enacted AB 2738, prohibiting "Type I" indemnity agreements in residential construction agreements. A Type I indemnity agreement requires the subcontractor to pay one-hundred percent of a claim for which the subcontractor and general contractor are jointly responsible, regardless of the respective degree of fault. Thus, if a jury finds a homeowner has suffered $1,000,000 in damages, for which the general contractor is ninety percent responsible and the subcontractor is ten percent responsible, the subcontractor must pay the entire $1,000,000 verdict if it has signed a Type I indemnity agreement. Due to AB 2738, this result is no longer permitted for work performed under residential construction subcontracts entered into after January 1, 2009. Under AB 2738, the general contractor would be forced to pay its $900,000 share of the $1,000,000 verdict, without recourse against the subcontractor.

The California Legislature has now extended the protection against Type I indemnity agreements to subcontractors in commercial construction. On October 10, 2011, Governor Brown signed SB 474 into law. SB 474 prohibits Type I indemnity provisions in subcontracts for commercial construction entered into after January 1, 2013.

However, there is a slight difference between the residential and commercial statutes. SB 474, prohibiting Type I indemnity in commercial construction contracts, only prohibits indemnity for the general contractor's "active" negligence. It still allows the general contractor to pass liability for its own "passive" negligence, such as failure to supervise, on to the subcontractor. AB 2738, prohibiting Type I indemnity in residential agreements, applies to both active and passive negligence by the general contractor. This important distinction is best illustrated by the following two examples.

Example 1 - Passive Negligence: A jury finds $1,000,000 of damages at a structure. They find the grading subcontractor ninety percent at fault, and the general contractor ten percent at fault. Assume in this instance the general contractor is at fault because it failed to detect and correct the improper work of the grading subcontractor. In this situation, the general contractor's negligence is "passive," i.e., an omission rather than a commission. If the structure is a residence, the grading subcontractor can only be forced to pay $900,000, its ninety percent share of the joint liability. The general contractor must pay the other $100,000, its ten percent share, even though its negligence was passive. However, if the structure is commercial, the grading subcontractor will be forced to pay the entire $1,000,000 verdict, even though ten percent of the fault was assessed against the general contractor. The result is different in the commercial context because SB 474 still allows the general contractor to force the subcontractor to pay claims which are based in part on the general contractor's own passive negligence.

Example 2 - Active Negligence: A jury finds $1,000,000 of damages at a structure. It finds the grading subcontractor ninety percent at fault because poor compaction led to excessive soil movement causing damage to the structure. The jury finds the general contractor ten percent at fault because it acted as its own framer and incorrectly nailed shear panels, which contributed to the damage caused by the soil movement. In this case, the general contractor's negligence is active, not passive. Accordingly, whether the structure is residential or commercial, the general contractor must pay its $100,000 share of the verdict, as it may not be indemnified against its own active negligence under either AB 2738 or SB 474.

AB 2738 and SB 474 do not apply to policies of insurance issued to subcontractors by general liability insurance carriers. In particular, neither bill applies to additional insured endorsements. However, the subcontractor itself may no longer be forced to pay for more than its fair share of damages, whether the setting is residential or commercial.

Safe Holiday Party Tips

By: Kyle D. Kring

Believe it or not, it is that time of year again. Holiday parties are a great time to celebrate all the accomplishments your business has achieved throughout the past year. Often it is the only time all the employees get together in a relaxed social setting. Unfortunately, this increased social interaction and alcohol consumption can result in potential liability for your business. This potential liability can arise from alcohol related auto accidents, sexual harassment complaints, and religious discrimination complaints, to name a few.

Accordingly, the following are a few things to consider for your upcoming holiday party.

- Consider a luncheon rather than an evening party. It is both cheaper and safer.

- Communicate, via email or memo, a reminder to your employees to use good judgment and be safe (do not drink and drive) at the upcoming event.

- Do not let minors drink.

- Limit the amount of alcohol provided, such as by providing a limited number of drink tickets (2) or limiting firm sponsored drinks to a limited amount of beer and wine. Do not let employees pour their own drinks.

- Provide non-alcoholic alternatives for those who don't drink.

- Do not push drinks!

- Plan activities, drawings, etc. These make for less active consumption of alcohol.

- Designate someone to monitor all employees' alcohol consumption. This person needs to be someone who will take the initiative to tell anyone that is intoxicated that he/she cannot drive themselves home.

- Arrange alternative transportation for anyone who might need it. Have the names and phone numbers of taxi companies ahead of time.

- Stop serving alcohol an hour before the party officially ends.

- Do not rely on coffee to sober up your guests. Only time can make someone sober.

Have a wonderful and safe holiday season!

Sexual Harassment Training Deadlines

Is the clock ticking for your company's workplace sexual harassment training deadline? With only four weeks left, now is the ideal time to get started - with Kring & Chung's Sexual Harassment & Harassment Seminar.

Our training delivers a high-quality learning experience at an affordable price. In addition to complying with California state law, our training also helps minimize legal exposure as we discuss best practices for avoiding litigation exposure for harassment related claims. Here is why so many turn to Kring & Chung for compliance training:

- Engaging live format, as compared to a computer program;

- Inclusion of related issues like race, disability, age, sexual orientation;

- Course customization with inclusion of your company's specific harassment policy; and

- Versions for both employees and managers.

Contact us today if you would like to schedule your company's harassment training.

Attorneys in the Spotlight

On behalf of Starbucks Coffee Company, Sacramento Kring & Chung Partner Shane Singh prepared and prevailed on a motion for summary judgment in a case related to claims of disability access discrimination. The U.S. District Court for the Central District of California sustained Singh's objection to plaintiff's expert report and conclusions, finding that these were insufficiently authenticated. The Court adopted the findings of the expert retained by Kring & Chung on behalf of Starbucks, and granted Starbucks' Motion for Summary Judgment.

Attorney Advertising. This client newsletter is a periodical publication of Kring & Chung, LLP and should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

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