Oregon Supreme Court weighs in on Oregon’s anti-indemnity statute, economic waste, and the proper procedure for attorney fee r

By Claude Bosworth, Allen Eraut and Kevin Clonts

A recent decision by the Oregon Supreme confirms that Oregon’s anti-indemnity statute, ORS 30.140, does not completely void a contractual indemnity provision if only a portion of that provision violates the statute.  Only the offending portion is voidable.  Also of note is the court’s holding that a general contractor which incurs attorney fees in defending a homeowner’s claim can attempt to recover those fees in the same action against third-parties that the general contractor believes were at fault for the defects alleged. 

In Montara Owners Ass’n v. La Noue Development, LLC (http://www.publications.ojd.state.or.us/docs/S062120.pdf), the Oregon Supreme Court addressed three issues arising from the trial of a construction defect case.  The court first considered the proper application of ORS 30.140, which voids overbroad indemnity provisions in construction contracts. The Court of  Appeals held that the trial court had erred by invalidating an indemnity provision in its entirety when the provision was only partially void under ORS 30.140. The Supreme Court affirmed the Court of Appeals, a decision consistent with how local trial courts have been interpreting the statute.   

The court then considered whether it was error for the trial court to give an instruction on the economic waste doctrine.  That doctrine allows the jury to consider diminution of value as an alternative measure of damages when the cost of repair exceeds the property value.  The issue in Montara was that neither party presented evidence about diminution in value. The Court of Appeals found that it was error to give the instruction and reversed the trial court.  The Oregon Supreme Court reversed the Court of Appeals, concluding that the instructional error was harmless.

The court last discussed whether a third-party plaintiff can recover attorney fees as consequential damages from a third-party defendant’s breach of contract when the attorney fees were incurred in the first-party litigation in the same action. The Court of Appeals affirmed the trial court’s ruling that pleading attorney fees consequential damages was not the appropriate procedure to recover those fees.  Instead, the general contractor should have been allowed to make a request for attorney fees under ORCP 68.  Because the trial court did not allow the general contractor an opportunity to seek recovery of attorney fees under ORCP 68, the Oregon Supreme Court remanded to consider that issue.

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