Jonathan Henderson

On October 25, 2017, the Court of Appeals released its decision in Am. Wholesale Prods. v. Allstate Ins. Co., 288 Or App 418 (2017).  The Court’s opinion opens the door for practitioners to bring liability waiver defenses in future commercial litigation, despite the Oregon Supreme Court’s hard line against such defenses being used in consumer contracts.

Am. Wholesale Pros. involved a lease agreement between two commercial parties.  Plaintiff leased warehouse space from Defendant.  When water intruded into the warehouse and damaged Plaintiff’s personal property, Plaintiff filed a lawsuit alleging that the water intrusion and subsequent property damage was caused by Defendant’s negligent failure to maintain the premises.  Defendant filed a motion for summary judgment based upon a provision in the lease agreement in which Plaintiff agreed to be responsible for insuring its personal property and the parties specifically agreed to waive any claims for any loss or damage caused by “water damage.”  The trial court granted Defendant’s motion and dismissed Plaintiff’s claim.  Plaintiff appealed.

On appeal, Plaintiff argued that the liability waiver provision did not clearly and unequivocally state that Plaintiff waived claims against Defendant based upon the Defendant’s own negligence.  Additionally, Plaintiff argued that the contractual liability waiver conflicted with other provisions in the contract.  Specifically, Plaintiff pointed to provisions requiring that Defendant repair and maintain the warehouse space, and allowing Plaintiff to make a claim against Defendant for damage caused by third parties if that damage resulted from Defendant’s negligence. The Court of Appeals disagreed with the Plaintiff and affirmed summary judgment.  First, the Court found that the liability waiver provision was sufficiently clear in its meaning, despite not including the word “negligence,” and that the requirement that Plaintiff insure its property served to avoid any potentially “harsh or inequitable result.”  Second, the Court found that the liability waiver did not contradict the other provisions cited by the Plaintiff.  Rather, the waiver created a separate set of rules specifically for damage from “water intrusion” and that such a specific provision’s intent predominated over the more general provisions cited by the Plaintiff.  Finally, the Court of Appeals found that the liability waiver was sufficiently conspicuous within the lease agreement.

What is notable about the Court of Appeals’s opinion in Am. Wholesale Pros. is not the conclusion, but that the Court, in its analysis, did not discuss or even cite the Oregon Supreme Court’s decision in Bagley v. Mt. Bachelor, Inc.[i]  In Bagley, the OSC invalidated a liability waiver provision on a ski lift ticket on the grounds of public policy. Bagley’s public policy holding served to change how courts analyze contractual liability waivers. Though it was still unclear whether the analysis in Bagley applied equally to liability waivers in commercial contracts.   But in Am. Wholesale Prods., the Court of Appeals relies exclusively on pre-Bagley cases in affirming the trial court’s grant of summary judgment.[ii]

While the Court does not explicitly state as much in the opinion, the Court’s reliance on pre-Bagley jurisprudence suggests that the Oregon appellate courts should regard waivers of liability in commercial contracts differently than they do in consumer contracts, and that a provision that might violate public policy in a consumer contract does not necessarily violate public policy in a commercial contract.  Further, the OSC did not affirmatively state in Bagley that waivers of liability should be analyzed identically in both contexts.  Therefore, while the Bagley decision may have initially made many practitioners hesitant to raise a liability waiver as a defense, even in the context of commercial contracts, defense counsel should not be hesitant to raise the defense when a commercial contract or transaction is involved.

[i] See 356 Or 543 (2014).

[ii]  See Estey v. MacKenzie Engineering Inc., 324 Or 372, 378-79 (1996) (when assessing whether a liability waiver is “clearly and unequivocally expressed” the court looks at both the “language of the contract” and “the possibility of a harsh or inequitable result that would fall on one party.”); Steele v. Mt. Hood Meadows Oregon, Ltd., 159 Or App 272, 278-80, rev den, 329 Or 10 (1999); and K-Lines v. Roberts Motor Co., 273 Or 242, 248 (1975) (a court’s treatment of liability waivers “depends on the subject and terms of the agreement and the relationship of the parties”).