By Claude Bosworth, Allen Eraut, and Shaun Morgan
In a recent construction defect suit, the Oregon Supreme Court ruled that a defendant is not entitled to common law indemnity from co-defendants in cases where the jury allocates fault. Common law indemnity is a judicially crafted remedy that allows a party to recover money from another party, where the party has discharged a legal obligation owed by the other party to a third party, such as a plaintiff in a lawsuit.
In Electric Investment, LLC v. Patterson, 357 Or 25 (2015), the plaintiff, a property owner, contracted with Greater Cascade Construction (“the contractor”) to enlarge plaintiff’s parking lot. The contractor did not initially obtain an excavation permit from Jackson County (“the county”). The contractor later applied for a permit and the county issued a preliminary permit and conducted an inspection. In its inspection, the county noted erosion problems with the slope of the parking lot and questioned the adequacy of a retaining wall. The county eventually granted final approval, but did not require the contractor to change the slope of the parking lot. A year later, a rainstorm caused topsoil to wash off the slope onto to the parking lot and a building, causing damage to the property.
The plaintiff brought suit claiming that the contractor had been negligent in excavating the slope and that the county had been negligent in approving the excavation. The county filed a third party claim against the contractor for common law indemnity. The case proceeded to jury trial. The jury determined that the plaintiff was more than fifty percent at fault, therefore, under ORS 31.600, neither the contractor or the county was liable to the plaintiff. Under ORS 31.605, the jury determined that the county was 7% at fault and the contractor was 4% at fault.
The county pursued its cross-claim against the contractor for its defense costs, even though it was not obligated to pay plaintiff any money in judgment. The parties agreed to arbitrate the cross-claim. The arbitrator found against the county, and the county appealed to the trial court. The trial court denied the county’s indemnity claim against the contractor. The contractor appealed and the Oregon Court of Appeals affirmed the trial court. The Supreme Court affirmed the Court of Appeals, but on different grounds.
On appeal, the county argued that it was entitled to indemnification for its defense costs, because the contractor was the primary and active tortfeasor. The contractor, in turn, argued that indemnification was not equitable, because both parties were found to have been independently negligent. The Supreme Court found that these equitable arguments were no longer relevant in light of Oregon’s statutory fault allocation scheme. Prior to the adoption of the current statutory scheme, a joint tortfeasor was liable for the total amount of the damages, regardless of his share of the fault. As the Supreme Court explained, courts developed common law indemnity as an equitable way to redistribute fault, so that the more active or primary tortfeasor would pay for its appropriate share of the damages.
The Oregon legislature abolished joint and several liability when it passed ORS 31.610(1). Additionally, ORS 31.600(2) requires that the trier of fact “compare the fault of the claimant with the fault of any party against whom recovery is sought, the fault of third party defendants who are liable in tort to the claimant, and the fault of any party with which the plaintiff has settled.” ORS 31.610, et al. set out a comprehensive system for allocating fault between the parties and distributing liability for damages severally. Given this current comparative fault scheme, it is no longer necessary to apply the concepts of common law indemnity to address the inequities presented by joint and several liability.
This case could have a significant impact on Oregon cases involving multiple tortfeasors, such as construction defect cases where third-party claims are prevalent. In the absence of contractual indemnity, parties will no longer be able to seek indemnification in cases where the jury will be asked to allocate fault. This will likely benefit subcontractors as general contractors will not be able to pursue indemnification claims absent a written contract.