Construction Contracts
Limits to the “Defend-One-Defend-All” Rule in Construction Contracts
Alston & Bird LLP
March 24, 2015
This case involves the interpretation of an Oregon statute regarding a subcontractor’s duty to defend a contractor against claims. Sunset Presbyterian Church hired Andersen Construction Company, a general contractor, to construct a church. Anderson subcontracted with multiple subcontractors, including B&B Tile and Masonry Corporation. Each subcontract contained a provision requiring subcontractors to indemnify Andersen against claims and damages. After the work was finished, Sunset sued Anderson and the subcontractors, alleging property damages resulting from water intrusion. Andersen tendered the defense of the action to B&B and the other subcontractors, but the subcontractors declined to defend Andersen. Andersen then filed third-party claims against the subcontractors for breaching their duties to defend Andersen. Eventually, Sunset and Andersen settled, and Andersen assigned its claims against the subcontractors to Sunset, which settled all claims except the breach of duty claim against B&B. While some of Sunset’s allegations implicated B&B’s negligence, many involved allegedly defective work that was outside the scope of B&B’s subcontract.
The trial court determined that B&B’s contract with Andersen required B&B to defend Andersen against Sunset’s allegations, but only against those that might involve B&B’s negligence. Sunset argued that the duty to defend encompasses all of the claims in a complaint, in accordance with the “defend-one-defend-all rule,” but the court disagreed. Looking to Oregon Revised Statutes Section 30.140, which voids provisions in construction agreements requiring indemnification for damage arising out of the indemnitee’s own negligence, the trial court held that this statute voided the subcontract between Andersen and B&B to the extent that it required B&B to defend Andersen against allegations of negligence by Anderson and the other subcontractors. In light of ORS 30.140, the subcontract could only require B&B to defend Andersen to the extent that Sunset’s allegations implicated B&B’s work and B&B’s possible negligence. The Oregon Court of Appeals agreed that ORS 30.140 limited a subcontractor’s duty to defend a general contractor. The court looked to legislative history and case law addressing legislative amendments, specifically sources that discussed related policy issues. The court noted that the policy behind the legislation was to prevent contractors and owners from shifting exposure for their own negligence to subcontractors. Thus, requiring B&B to defend Anderson for Anderson’s own negligence would be contrary to the policy behind the statute, and the subcontract could not require B&B to defend every claim against Andersen.
Similar to the C and H Electric matter, this case deals with the shifting of risk between parties and the case law and statutes that vary by jurisdiction. It is imperative that the parties understand that indemnification clauses will not always shield them from their own negligence because many states do not allow for indemnification of these claims. This case should ease the minds of subcontractors by clarifying that the price of working with contractors does not always include an obligation to defend a contractor for the contractor’s own negligence. Again, all parties should take the time to understand the rules in their jurisdiction so that they can agree to contract terms that they understand and that can benefit them if a situation similar to this arises.
Sunset Presbyterian Church v. Andersen Const. Co., 268 Or. App. 309 (2014)
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SOURCE: www.lexology.com