Cromwell Towers Construction Co. v. Florence & George Plastering Co., 78 N.Y.2d 1096 (1991)
An agreement to procure insurance in a construction contract is distinct from an agreement to indemnify or hold harmless and does not violate General Obligations Law § 5-322.1, even if the insurance policy covers the promisee’s own negligence.
Summary
This case clarifies the distinction between agreements to indemnify and agreements to procure insurance within the context of New York’s General Obligations Law § 5-322.1. Cromwell Construction, a general contractor, sought indemnification from its subcontractor, Hudson Steel, after Hudson’s employee was injured and Cromwell was found partly liable. Cromwell argued that Hudson breached their contract by failing to procure insurance covering Cromwell’s liability. The New York Court of Appeals held that Hudson’s agreement to obtain insurance for Cromwell was enforceable and did not violate General Obligations Law § 5-322.1, even though the insurance would cover Cromwell’s own negligence. The Court emphasized that procuring insurance is different from indemnifying or holding harmless, and such agreements are consistent with public policy.
Facts
Cromwell Construction, Inc. (general contractor) hired Hudson Steel Fabricators & Erectors, Inc. (subcontractor) for work on property owned by G. W. Lisk Co., Inc.
Hudson’s employee was injured on the job and received a settlement against Cromwell and Lisk.
The jury apportioned negligence: Cromwell (12%) and Hudson (88%).
The subcontract between Cromwell and Hudson required Hudson to maintain insurance policies to protect both parties from bodily injury claims arising out of the work.
Procedural History
The trial court granted summary judgment to Cromwell in its third-party action against Hudson, based on Hudson’s failure to procure the required insurance.
The Appellate Division affirmed the trial court’s decision, holding that the insurance procurement provision did not violate General Obligations Law § 5-322.1.
Hudson appealed to the New York Court of Appeals.
Issue(s)
Whether a contractual provision requiring a subcontractor to maintain insurance coverage for the general contractor against personal injury claims violates General Obligations Law § 5-322.1 when the injury is caused, in part, by the general contractor’s negligence.
Holding
No, because General Obligations Law § 5-322.1 only prohibits agreements to indemnify or hold harmless, and an agreement to procure insurance is distinct from such agreements.
Court’s Reasoning
The Court of Appeals reasoned that General Obligations Law § 5-322.1 explicitly addresses agreements to indemnify or hold harmless, not agreements to purchase or maintain insurance. The statute renders void agreements “purporting to indemnify or hold harmless the promisee against liability for damage arising out of bodily injuries to persons * * * contributed to, caused by or resulting from the negligence of the promisee, his agents or employees”.
The court emphasized a “well recognized” distinction: “Whereas the essence of an indemnification agreement is to relieve the promisee of liability, an agreement to procure insurance specifically anticipates the promisee’s ‘continued responsibility’ for its own negligence for which the promisor is obligated to furnish insurance”.
The Court cited legislative history indicating that the statute targeted “’broad form hold-harmless’ clauses” that caused contractors to “assume liability for the negligence of others”. The legislature understood that liability protection insurance was less expensive than hold-harmless coverage and expected insurance-procurement agreements to continue in construction contracts.
The Court referenced prior decisions like Board of Educ. v Valden Assocs., 46 NY2d 653, 657, and Hogeland v Sibley, Lindsay & Curr Co., 42 NY2d 153, 160 which upheld similar agreements.
Because Hudson breached its agreement to procure liability insurance covering Cromwell, it was liable for the resulting damages, including Cromwell’s liability to the injured employee. The court explicitly stated that “To the extent that Patenaude v General Elec. Co. (147 AD2d 335) is to the contrary, it should not be followed.”