Update on Construction Defect Law in Oregon

By Claude Bosworth, Allen Eraut and Kevin Clonts

In Sunset Presbyterian Church v. GC Construction Co., the Oregon Court of Appeals ruled that a subcontractor’s contractual duty to defend a general contractor is limited to the extent of the subcontractor’s actual fault. This decision affirms the approach taken in most Oregon trial courts that a subcontractor’s contractual defense duty results in a present duty to defend, but any determination of the extent of that defense obligation is deferred until the fact finder makes an allocation of fault. Arguably, this same logic should apply to a tender under a blanket additional insured endorsement. The argument would be that the insurer only provides AI if required by contract, and the insurer therefore does not know how much it has to contribute to the defense until the extent of the named insured’s fault is known. Please note, however, that Sunset Presbyterian Church only dealt with the subcontractor’s duty to defend, not the defense duty of an AI insurer, and no reported case has applied this rationale to an AI tender.

 

In Sunset, plaintiff Sunset Presbyterian Church (Plaintiff) hired Andersen Construction Company (GC) as the general contractor to build a church. GC subcontracted some of the work to B&B Tile and Masonry (B&B). The contract between GC and B&B required B&B to hold GC harmless for all claims and damages. Plaintiff  brought a construction defect action against GC, and GC filed third-party claims against various subcontractors, including B&B. Plaintiff and GC ultimately settled. As part of the settlement, GC assigned its claims against B&B to Plaintiff. Plaintiff proceeded against B&B, alleging that it had breached its duty to defend GC as required by contract. The trial court determined that B&B had a contractual duty to defend GC. However, the court found that under ORS 30.140, a subcontractor is only required to defend a general contractor to the extent that the plaintiff’s allegations implicate the subcontractor’s work. Because Plaintiff had failed to prove what portion of GC’s litigation costs were incurred in defending claims relating to B&B’s negligence, the trial court awarded Plaintiff no damages. 

 

On appeal from the trial court, Plaintiff argued that once a duty to defend arises, the subcontractor, like an insurer, must provide a complete defense against all claims. The Court of Appeals agreed that B&B owed a defense to GC, but did not agree that B&B had to defend GC against all claims raised in the case. Instead, the Court of Appeals held that, because ORS 30.0140 limits indemnity in a construction context to the extent of the indemnitor’s negligence, the statute limited the duty to defend only to those claims that potentially involved B&B’s negligence.

 

The contract between GC and B&B also provided that the prevailing party would pay attorney fees. The trial court ruled that Plaintiff was the prevailing party in the action for purposes of allocating attorney fees, based on the court’s ruling that B&B had a duty to defend GC. However, the trial court did not award Plaintiff any damages, because Plaintiff failed to establish which of GC’s litigation costs were related to B&B, as opposed to other parties. B&B appealed the trial court’s ruling that Plaintiff was the prevailing party. The Court of Appeals reversed the trial court and ruled that B&B was the prevailing party because it had received the favorable judgment of zero damages, and as the prevailing party, B&B was entitled to recover its fees.

 

You can find the full decision here: http://www.publications.ojd.state.or.us/docs/A153158.pdf



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