Construction Alert: Are Waivers of Liability and Consequential Damages Now Void in Oregon?

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Senate Bill 961 has been signed by the governor and is now law. The new law provides that:

any provision in a construction agreement is void to the extent that the provision requires a party or the party's surety or insurer to waive a right of subrogation, indemnity or contribution for amounts paid by reason of death, bodily injury or damage to property caused in whole or in part by the negligence of another person.

The new law is intended to clarify and supplement ORS 30.140 to the effect that each party to a construction agreement must bear responsibility for its own negligence. While this may have been the advertised intent, it is not the result of the new law. While a subcontractor may recover from everyone else on the job site for damages it pays under the workers' compensation system for injury to one of its employees, the right is not reciprocal. An injury to a subcontractor's employee can result in suit against owners and contractors for injury or death, but under Oregon's workers' compensation laws the subcontractor that is the direct employer of the injured worker is immune from a tort suit. The subcontractor has a statutory lien against any damages recovered as a result of its employee's tort claim to reimburse it or its insurer for the amount of the workers' compensation damages paid, but the subcontractor's own negligence in failing to properly train, equip, supervise and safeguard its employees cannot be considered by a trier of fact . ORS 31.600.

The language of Senate Bill 961 will generate significant litigation before the effects of the law become certain. Senate Bill 961 may be interpreted to void many types of contractual risk transfers for damages caused by reason of bodily injury or property damage, including (1) indemnities otherwise permissible under ORS 30.140 and (2) waivers or limitations of liability, including those for consequential damages.

While it is clear that the new law applies only to construction agreements, the term "construction agreement" is broadly defined in the statute and includes any written agreement for the

  • planning
  • design
  • construction
  • alteration
  • repair
  • improvement or
  • maintenance

of any building, highway, road excavation or other structure, project, development or improvement attached to real property including moving, demolition or tunneling in connection therewith. (Senate Bill 961 adopts this definition from ORS 30.140(6).)

The new law does exempt certain waivers of liability or subrogation for property damage covered by property insurance policies and for waivers in the context of insurance wrap-up programs issued pursuant to ORS 737.602.

The new law's effect on insurance policies and particularly on coverage for additional insureds is less than clear. Because the law applies only to construction agreements, an endorsement issued to an additional insured by an insurer would appear to be unaffected by this law. Blanket additional insured and subrogation endorsements that reference the existence of a written contract, however, may now be worthless.

If you have any questions about the issues raised in this alert, please contact a key contributor.

Key Contributors

Louis A. Ferreira
Eric A. Grasberger
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