Indemnity Clauses That Conflict with Oregon Indemnity Statute Can Remain Partially Valid and Enforceable
- Posted by Masaki J. Yamada
- On November 30, 2016
When the indemnity provision of a contract conflicts with ORS 30.140, it is voided to the extent that it conflicts with the statute, but no more. Such provisions can remain partially valid and enforceable.[i] In Montara Owner Assn., the owner brought claims against the contractor for construction defects and damage relating to the construction of 35 townhouses. Contractor then brought third-party claims against more than 20 subcontractors for breach of contract and indemnity. Before trial, contractor settled with all but one subcontractor. The subcontract contained an indemnity provision requiring subcontractor to indemnify contractor for losses arising out of subcontractor’s work, including losses caused in part by contractor’s own negligence.
The trial court ruled that the entire indemnity clause was void under ORS 30.140(1). As a result, the general contractor had no recourse against the subcontractor for seeking indemnity.
The Court of Appeals overturned the trial court, finding that “[a]n indemnity clause that offends ORS 30.140(1) because it requires a subcontractor to indemnify a contractor for the contractor’s own negligence remains enforceable to the extent that it also requires the subcontractor to indemnify the contractor for the subcontractor’s negligence.” The subcontractor appealed the decision to the Oregon Supreme Court.
The Supreme Court affirmed the Court of Appeals decision. The Court noted that “the legislature appears to have been more concerned about the practical outcome of the contract provisions: essentially, that the “[sub]contractor [should] be responsible for the [sub]contractor’s actions, and the [general contractor should] be responsible for the [general contractor’s actions].” As a result, only the part of the indemnity provision that ran contrary to ORS 30.140(1) was void, while the remaining part of the indemnity provision of the subcontract was enforceable.
[i] Montara Owners Assn. v. La Noue Development, LLC, 357 Or. 333, 353 P.3d 563 (2015).