Oregon Appellate Case Limits Duty to Defend in Construction Contracts

In Sunset Presbyterian Church v. Anderson Constr. Co., 268 Or. App. 309 (Dec. 31, 2014), the Oregon Court of Appeals curtailed the damages available from a breach of a duty to defend obligation in an Oregon construction contract. The court affirmed a trial court’s denial of all defense costs sought because there was no attempt to distinguish between costs covered by the duty and those not covered. Prior to the decision, Oregon law appeared to require a party to defend against all claims (both covered and uncovered), similar to an insurance agreement.

Oregon’s Anti-Indemnity Statute for construction contracts (ORS 30.140) voids “any provision in a construction agreement that requires a person … to indemnify another against liability for … damage to property caused in whole or in part by the negligence of the indemnitee.” In other words, a general contractor cannot force a subcontractor to indemnify the general for the general’s own negligence (or vice versa).

The court rejected the argument that the limitation on “indemnity” obligation in construction agreements does not apply, on its face, to “defense” obligations, holding that ORS 30.140 limits defense obligations in the same manner as indemnity obligations. The court also ruled that a duty to defend does not follow the standard “defend-one-defend-all rule,” whereby a duty to defend against any claim in a complaint requires defense of all claims in the complaint. This rule, developed in insurance law, had previously been applied to duties to defend among non-insurance parties (including parties to construction agreements). However, the court held that the rule was inappropriate in construction agreements with a duty to defend. Rather, a duty to defend in a construction agreement cannot require a party to pay for defending against claims caused by the other’s own negligence.

In the end, the petition for defense costs was rejected in its entirety because the petitioner did not distinguish between the costs of defending claims caused by the indemnitor’s own negligence and other claims.

Insurer Has No Duty to Defend Subcontractor That Installed Defective Tie Hooks

Gordon & Rees partner Arthur Schwartz and associate Steven R. Inouye recently wrote an Insurance Law Update that analyzes a California Court of Appeal decision that should be of interest to various construction-related entities, including owners, contractors and subcontractors.

In Regional Steel Corp. v. Liberty Surplus Ins. Corp., the court held that the insurer did not have a duty to defend a steel subcontractor because its installation of defective tie hooks did not constitute “property damage” under a commercial general liability (CGL) policy, even though the surrounding concrete needed to be demolished when the tie hooks were removed.

To read the article – “Building Code Violations Requiring Removal of Nonhazardous Materials Do Not Constitute ‘Property Damage’ Under CGL Policy” – click here.