McCabe v. Gelfand, 26 N.Y.2d 53 (1970)
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An indemnitee can implead a third-party defendant based on an indemnification agreement to obtain a conditional judgment fixing potential liability, even before sustaining an actual loss, but the third-party judgment is not enforceable until the main judgment is satisfied.
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Summary
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McCabe sued Gelfand for injuries sustained at a construction site. Gelfand, the roofing contractor, impleaded Banner Roofing Company, alleging a joint venture agreement to share losses. After McCabe won against Gelfand, Banner moved to dismiss Gelfand’s third-party complaint, arguing Gelfand hadn’t personally paid the judgment since his insurer covered part of it. The court held that Gelfand could obtain a conditional judgment against Banner despite not yet sustaining an actual loss, as the agreement entitled him to indemnification. Payment by Gelfand’s insurer doesn’t diminish Banner’s obligation under the joint venture agreement.
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Facts
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Bernard McCabe was injured at a construction site and sued Sam Gelfand, the roofing contractor.r
Gelfand impleaded Banner Roofing Company, claiming they were joint venturers and agreed to share losses.r
The main action was severed, and McCabe obtained a judgment against Gelfand for over $176,000.r
Gelfand amended the third-party complaint to reflect the judgment and sought $88,433 from Banner (half the judgment amount).r
Gelfand’s insurance company paid $55,000 towards McCabe’s judgment.r
Banner moved to dismiss the third-party complaint, arguing that Gelfand hadn’t personally paid any part of the judgment. r
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Procedural History
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The Supreme Court initially denied Banner’s motion to dismiss the third-party complaint.r
The Appellate Division reversed, dismissing the third-party complaint.r
Gelfand appealed to the New York Court of Appeals.r
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Issue(s)
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Whether Gelfand can obtain a conditional judgment against Banner in a third-party action based on an indemnification agreement before showing an actual loss (i.e., before personally paying the underlying judgment).r
Whether payment by Gelfand’s insurance company towards the judgment diminishes Banner’s obligation under the joint venture agreement.r
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Holding
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Yes, because an indemnitee can obtain a conditional judgment fixing potential liability without needing to prove payment of the main judgment until execution of the third-party judgment.r
No, because Gelfand’s insurance coverage is independent of Banner’s obligations under the joint venture agreement; whether Gelfand pays directly or his insurer does, he’s still entitled to reimbursement.r
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Court’s Reasoning
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The court reasoned that Gelfand’s claim against Banner was based on an agreement to share losses from their joint venture. The court distinguished between a right to indemnity against liability and indemnity against loss. “Unless Gelfand himself was actively negligent in causing the injury, such an agreement would entitle him to be indemnified for one half of any loss which he might suffer as a result of McCabe’s lawsuit. Unlike a right to indemnity against liability, however, no obligation would accrue under such an agreement unless and until an actual loss has been sustained—in this instance, until the judgment has been paid.”r
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Even without payment, Gelfand could implead Banner for a conditional judgment. This allows determining potential liability early without requiring payment until the main judgment is satisfied. The court cited 125 W. 45th St. Rest. Corp. v. Framax Realty Corp., 249 App. Div. 589, 590, and other cases supporting the issuance of a conditional judgement in advance of actual loss.r
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The court addressed the severance of the third-party action, stating that it shouldn’t affect the validity of the complaint, and the determination of Banner’s obligation should be made without further delay. r
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Regarding the insurance payment, the court stated: