Lachenmeier, Enloe & Rall - February, 2004 Publication

Construction Law
Additional Insured Endorsements in Construction
Contracts Held Void
April 2005

In Walsh Construction Co. v. Mutual of Enumclaw, 338 Or. 1 (2005), decided January 27, 2005, the Oregon Supreme Court upheld the Court of Appeals’ decision that a provision in a construction subcontract requiring the subcontractor to name the general contractor as an additional insured on its insurance policy was void pursuant to ORS 30.140(1). ORS 30.140(1) provides that terms in construction contracts requiring one person to indemnify or insure another for damages caused by the negligence of the indemnitee is void.

Plaintiff Walsh was a general contractor who entered into a subcontract with a drywall installer on a project. The subcontract required the subcontractor to procure an insurance policy naming Walsh as an additional insured. The subcontractor purchased the required additional insured endorsement naming Walsh on the policy. During construction, one of the subcontractor’s employees was injured. The employee made a claim against Walsh and Walsh tendered the defense of the claim to the subcontractor’s insurer, Mutual of Enumclaw (“MOE”), as an additional insured under the policy. MOE denied the tender. Walsh settled with the subcontractor’s employee and sued MOE for breach of its duty to defend and indemnify under the additional insured endorsement. Walsh, 338 Or. at 4.

MOE argued that the additional insured endorsement, in effect, required the subcontractor, through its insurer, to indemnify Walsh for Walsh’s own negligence, making the agreement void under ORS 30.140. Id. The Court of Appeals agreed. After engaging in a PGE analysis of ORS 30.140 that included an analysis of the legislative history of the statute, the Court of Appeals held that the statute not only prohibits indemnity agreements between general contractors and its subcontractors for the general’s own negligence, but it also prohibits additional insurance arrangements where the subcontractor is required to purchase insurance for losses arising out of the general’s own fault. Id. at 4 – 6. The Supreme Court adopted the Court of Appeals’ opinion, but indicated that the language of the statute was clear, not requiring an analysis of the legislative history: i.e., additional insured endorsements that indemnify a general contractor for the general’s own negligence is unenforceable under the statute.

Much ado has been made over the ramifications of this case. However, these concerns are really about form over substance. Whether a general contractor may obtain additional insured endorsements under a subcontractor’s policy will not affect whether a general contractor can be sued pursuant to its own contractual and legal responsibilities, or whether a general contractor can sue others, including subcontractors, pursuant to their subcontracts and legal responsibilities. This is because the statute does not limit indemnity that arises out of the operation of law or the contract itself. The law simply holds people responsible for their own mistakes.

This article was authored by Julie E. Dutton. If you have any questions, please feel free to contact any of the attorneys at Lachenmeier, Enloe, Rall & Heinson by phone at (503) 768-9600.