The 2024 Oregon Legislative Assembly enacted SB 1575 (Or Laws 2024, ch 112) amending ORS 30.140 to limit public bodies from imposing certain indemnity obligations on construction professionals. The change applies to public construction contracts for architectural, engineering, photogrammetric mapping, transportation planning, or land surveying or other related services, as those services are defined in ORS 279C.100. The new limitation goes into effect for contracts entered into or renewed after January 1, 2025, and sunsets on January 1, 2035.
Key Provisions of SB 1575
SB 1575 was intended to preclude a public body from requiring construction consultants to defend the public body from professional liability claims, despite being clumsily worded. New ORS 30.140(4) provides:
“A public body as defined in ORS 174.109, including a public body acting as part of an intergovernmental entity formed with another state or with a political subdivision of another state, may not require in a contract with a person or entity providing architectural, engineering, photogrammetric mapping, transportation planning or land surveying services or related services a duty to defend the public body or intergovernmental entity against a claim for professional negligence and relating to the professional services provided by the person or entity providing architectural, engineering, photogrammetric mapping, transportation planning or land surveying services or related services, except to the extent that the person’s or entity’s liability or fault is determined by adjudication or alternative dispute resolution or otherwise resolved by settlement agreement, and not to exceed the proportionate fault of the person or entity. A contractual provision that violates this subsection is unenforceable.” (Emphasis added.)
Rationale Behind SB 1575
According to testimony from the bill’s proponents, this change was proposed because some public bodies include contractual indemnity provisions requiring professional consultants to “defend” the public body against professional liability claims. Because professional liability insurance policies typically won’t pay for defense of the public body, that cost must come out of the consultant’s operating budget. Proponents argued that this was a particular hardship for smaller consultants that may not be able to walk away from such contracts.
Options for Public Bodies to Comply with SB 1575
Public bodies have two ways to address the new statute:
- A public body can bifurcate its indemnity obligation to continue to require defense on general liability claims (which is covered under the typical commercial general liability policy) but eliminate the defense requirement from the professional liability indemnity clause. (A public body can continue to require construction professionals to indemnify the public body for professional liability).
- A public body can require defense, but subject to the statutory limitation underscored above. However, this will mean that the public body will have to cover its defense costs and then seek to recover those defense costs at settlement or the conclusion of arbitration or litigation per SB 1575.
There are pros and cons to both approaches, so public bodies should discuss the best approach with their legal counsel.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
