Overbroad Indemnity Is Still Enforceable Within Statutory Limits
June 23rd, 2015
Oregon has a law, similar to many other states, prohibiting overbroad indemnities in construction contracts. The Oregon Supreme Court has ruled that the law allows an arguably overbroad indemnity to be enforced within the statutory constraints, rather than being entirely invalidated. The court concluded that two sections of the anti-indemnity law, read together, had the effect of “saving” an overbroad indemnity. The indemnity in question required the subcontractor to indemnify the prime contractor from claims “whether or not caused in part by [the prime].” The trial court held that this indemnity ran afoul of subsection (1) of the Oregon law, ORS § 30.140, which states that an overbroad indemnity “is void.” But subsection (2) reads, in part: “This section does not affect any provision in a construction agreement that requires a person … to indemnify another against liability … to the extent that the … injury … arises out of the fault of the indemnitor.” Also, subsection (1) includes the proviso “except to the extent provided under subsection (2).” Reading those two clauses together, the Oregon high court held that subsection (2) permits the subcontract indemnity to be enforced within the bounds of the sub’s causation of the underlying claim. The valid scope of the construction indemnity would not be affected by the invalid scope, and the prime contractor could enforce that indemnity to the extent of the sub’s causative actions. The case is Montara Owners Ass’n v. La Noue Development, LLC, 357 Ore. 333, 2015 Ore. LEXIS 419 (June 18, 2015). An anti-indemnity law that does not have the equivalent of subsection (2) of the Oregon law might compel a different result. One strategy to address an anti-indemnity law is to preface the indemnity with the phrase “to the fullest extent permitted by law,” or something similar. Courts in other states have taken such a phrase and construed or enforced the indemnity in question so as to be consistent with any statutory constraints.