Oregon Court of Appeals Limits Subcontractors’ Duty to Defend General Contractors to Claims Related to the Subcontractor’s Work
In Sunset Presbyterian Church v. Andersen Construction Co., 268 Or. App. 309 (2014), the Oregon Court of Appeals radically changed the scope and enforceability of defense and indemnity provisions in a construction contract.
Sunset Presbyterian Church sued its general contractor for alleged construction defects. The general contractor tendered defense of the claim to a subcontractor. The tender was denied. Subsequently, the general contractor assigned all of its contractual rights to the church. Pursuant to its assignment of the general contractor’s rights, the church sued the subcontractor alleging breach of the contractual obligation to defend the general contractor. The church sought to recover all defense costs incurred by general contractor defending against all claims.
Prior to Sunset, a contractual duty to defend in a construction contract generally required the indemnitor, typically a subcontractor, to defend an indemnitee, typically the general contractor, against all claims directed at the general contractor under the so-called “defend one, defend all” rule. In Sunset, the Court of Appeals found the “defend one, defend all” rule no longer valid or applicable in construction contracts.
The court began with an analysis of ORS 30.140, a statute that voids any provision in a construction agreement that requires a person to indemnify another for bodily injury or property damage caused in whole or in part by the negligence of the indemnitee. Relying on the “defend one, defend all” rule, the church sought to recover all defense costs incurred by the general contractor defending claims attributable to the subcontractor’s work without any allocation of defense costs incurred defending claims related to the general contractor’s own work.
Despite the fact that ORS 30.140 only expressly references “indemnity” and does not make mention of the duty to defend, the court held that “indemnify” has a broad meaning and overlaps with the duty to defend. In so doing, the court rejected the church’s argument that the legislature’s use of the word “indemnify” limits the subcontractor’s duty to pay damages without a corresponding duty to defend. Otherwise, the Court explained, exposure for the general contractor’s own negligence would shift to the subcontractor in contravention of the intent of ORS 30.140.
The import of the ruling is considerable. Now, if a general contractor seeks to recoup defense costs from an indemnitor/subcontractor under a contractual indemnity clause, the general contractor should only be awarded defense costs to the extent that the general contractor can prove that particular defense costs sought were incurred defending claims triggered by that particular indemnitor/subcontractor’s work.
The Sunset holding suggests that recovery of defense costs by a general contractor will turn on the general contractor’s ability to allocate and prove that each defense dollar sought to be recovered from a particular subcontractor was incurred defending against claims arising form that subcontractor’s work.