I finally got this working the way I wanted it. I ended up using error_page instead per Maxim's suggestion:

upstream varnishservers
{
server 10.1.1.1:8080; #CACHE1
}


upstream originservers
{
server 10.2.2.2:80; #WEB1
server 10.3.3.3:80; #WEB2
}

server
{
listen 8080;
server_name _;
server_name_in_redirect off;

location /
{
access_log off;
error_page 502 503 504 = @origin;
proxy_pass http://varnishservers;
proxy_set_header Host $host;
proxy_connect_timeout 1;
proxy_next_upstream error timeout http_500 http_502 http_503 http_504 http_404;
proxy_intercept_errors on;
break;
}


location @origin
{
access_log off;
proxy_pass http://originservers;
proxy_set_header Host $host;
proxy_connect_timeout 4;
proxy_next_upstream error timeout http_500 http_502 http_503 http_504 http_404;
proxy_intercept_errors on;
break;
}

}