Oregon Anti-Indemnity Statute Voids Sub-sub’s Duty to Indemnify Sub for the Sub’s Own NegligenceThe Ninth Circuit Court of Appeals recently upheld the application of Oregon’s anti-indemnity statute to a contractual indemnity provision requiring a sub-subcontractor’s insurer to indemnify the subcontractor for the subcontractor’s own negligence. In First Mercury Insurance Company v. Westchester Surplus Lines Insurance Company, Multnomah County contracted with a general contractor for the renovation of a bridge. The general contractor hired a subcontractor to furnish materials including reinforced decking. The subcontractor, in turn, contracted with a sub-subcontractor to manufacture the decking material. The sub-subcontract required the sub-subcontractor to indemnify the subcontractor for the subcontractor’s own negligence in causing damage to a third party—in this instance, the County.

After the project was completed, several defects in the bridge were discovered, including cracks in the decking. When the County sued, the subcontractor was found to have been negligent and partially liable for the defects and resulting damage to the County. The subcontractor claimed indemnity from the sub-subcontractor per the terms of the sub-subcontract, but the trial court refused to enforce the indemnity provision because it was void under Or. Rev. Stat. § 30.140(1). The relevant portion of the statute provides that any provision in a construction agreement that requires a company or its insurer/surety to indemnify another against liability for damage to property caused in whole or in part by the negligence of the indemnitee is void. Citing the plain language of the statute, the Ninth Circuit affirmed the trial court’s judgment denying indemnity.

The Ninth Circuit opinion serves as an important reminder of the variety of anti-indemnity provisions across the nation. Many states take Oregon’s approach and restrict the scope of indemnity provisions to cover only the negligence of the indemnitor and not the negligence of the indemnitee. Other states have more lenient anti-indemnity statutes or no anti-indemnity provision at all. Still others take a harsher approach than Oregon and impose stricter limitations in their anti-indemnity laws and may even have different laws for different industries.

When negotiating agreements for work outside your company’s traditional footprint, consider whether the state where the project is located has an anti-indemnity statute and how it is applied. Indemnity provisions in construction contracts can be exceptionally consequential in terms of allocating risk between parties, so it is essential to understand how such provisions will be applied and enforced in any particular state before executing an agreement and moving forward with a project in that state.

If you have questions about anti-indemnity laws or negotiating indemnity provisions, please contact Aman Kahlon for more information.

No Rights to the AIA 2007 Documents after October 2018The American Institute of Architect’s release of its 2017 documents has been a hot topic within construction law circles over the past year. In total, AIA released 29 new forms and contracts in 2017, including the AIA A101, A102, A103, and A201. Bradley’s BuildSmart blog contains a few articles discussing some significant changes in those documents.

In accordance with AIA’s customary practice, the older version of the contract documents (e.g., the 2007 version) will expire within approximately 18 months after the release of the new version of the 2017 contract documents. Once an AIA document expires, the user will no longer have the ability to create a new document from the expired version, edit the expired version, or even finalize an expired version.

So, for example, the 2017 version of the AIA A101, A102, A103, A201, A401, and B101 contract documents were released in April 2017. The 2007 versions of these documents are set to expire on October 31, 2018. After October 31, 2018, a user will no longer be able to create a contract document from the 2007 version or edit a 2007 version. Further, if parties attempt to finalize an expired 2007 document after October 31, 2018, AIA will not allow the parties to finalize that document; instead, the parties will either have to use the 2017 version of those documents or find alternate means of finalizing their contract.

It is worth noting that AIA released some lesser used contracts and form documents in October 2017, including the AIA B201 (Design and Construction Contract Administration), B207 (Architect’s Services: On-Site Project Representation) and G704 (Certificate of Substantial Completion). These documents are not set to expire until May 31, 2019.

Regardless of whether the document is set to expire at the end of October 2018 or May 2019, parties are strongly encouraged to begin using the 2017 version of the AIA documents now or risk being precluded from finalizing their contract document. If you have any questions about the recent AIA revisions or drafting a contract for your particular project, please do not hesitate to contact us.

Declaration of Independence: Prior Material Breach Does Not Excuse North Carolina Solar Developer of Performance of Independent Promises under AgreementIn Recurrent Energy Development Holdings, LLC v. SunEnergy1, LLC, a North Carolina Superior Court addressed a dispute between two solar developers arising out of a letter of intent/exclusivity agreement. Under the agreement, Recurrent agreed to make cash payments in return for the exclusive rights to purchase certain projects being developed by SunEnergy1 and to negotiate in good faith regarding a tax equity investment in a separate project under development by SunEnergy1.

Upon SunEnergy1’s failure to meet certain target milestone dates on any project subject to an exclusivity payment, the agreement permitted Recurrent to demand the right to purchase a replacement project or, if none was available, seek a partial refund of the corresponding exclusivity payment. The parties’ relationship soured when unanticipated environmental issues arose on some of the projects and planned power sale agreements failed to materialize. When SunEnergy1 failed to meet the milestone dates on one project, Recurrent requested a replacement project and then, promptly, demanded a refund when no replacement was forthcoming. SunEnergy1 did not provide a refund.

However, prior to the partial refund dispute, the parties’ tax equity investment deal also fell apart. Both parties alleged breaches under the agreement relating to their respective obligations in the tax equity transaction. SunEnergy1, specifically, alleged that Recurrent did not comply with its express contractual obligation to negotiate in good faith, in part, because Recurrent’s pricing of the project for the transaction was well-below market value. SunEnergy1 also alleged that its obligation to issue a partial refund of the exclusivity payment was excused by Recurrent’s prior material breach of this duty of good faith (note: the doctrine of prior material breach provides that if either party to a contract commits a material breach of the contract, the other party may be relieved from the obligation to perform further). The North Carolina court addressed these and other arguments on cross-motions for summary judgment by both parties.

With respect to the partial refund, the court found that Recurrent’s alleged prior material breach did not circumscribe SunEnergy1’s obligation to refund a portion of the exclusivity payment. The court reasoned that a contract may have multiple covenants, some of which are dependent and some of which are independent of one another. In this case, the contract did not connect or link the refund of the exclusivity payment with any obligation of good faith associated with the tax equity investment, so the doctrine of prior material breach did not excuse SunEnergy1 from issuing the refund.

Solar development deals commonly involve the sale or construction of multiple projects at one time to take advantage of certain financing and tax considerations. Agreements memorializing these deals may be hashed out quickly or developed in phases as the relevant projects reach certain financial, permitting, design or other milestones. This North Carolina opinion highlights the need for careful drafting of development agreements to allocate parties’ respective rights and obligations clearly regardless of the complex, fluid, and fast-paced nature of these transactions.