22 N.Y.2d 204 (1968)

A third-party plaintiff in an indemnity action can obtain a conditional judgment against a third-party defendant, fixing potential liability, even before the third-party plaintiff has sustained an actual loss by paying the underlying judgment, allowing for an early determination of reimbursement obligations.

Summary

McCabe sued Gelfand, a roofing contractor, for injuries sustained at a construction site. Gelfand then impleaded Banner Roofing, alleging a joint venture agreement to share losses. After McCabe won against Gelfand, Banner moved to dismiss the third-party complaint, arguing Gelfand hadn’t personally paid the judgment since his insurer covered part of it. The Court of Appeals held that while actual loss is required for recovery under an indemnity agreement, a conditional judgment can be issued to determine potential liability before payment. This allows for earlier resolution of the indemnity claim, promoting judicial efficiency, and Gelfand is entitled to reimbursement regardless of whether his insurer paid part of the judgment.

Facts

Bernard McCabe was injured at a construction site and sued Sam Gelfand, the roofing contractor.
Gelfand impleaded Banner Roofing Co., claiming they were joint venturers and agreed to share losses.
The main action (McCabe v. Gelfand) was severed and proceeded to trial, resulting in a judgment for McCabe against Gelfand for over $176,000.
Gelfand’s insurance paid $55,000 towards the judgment.

Procedural History

McCabe sued Gelfand in Supreme Court.
Gelfand filed a third-party complaint against Banner Roofing, which was severed.
The main action resulted in a judgment for McCabe against Gelfand.
Gelfand amended his third-party complaint against Banner to reflect the judgment amount.
Banner moved to dismiss the third-party complaint, arguing Gelfand had not personally paid the judgment.
Special Term denied the motion, but the Appellate Division reversed and dismissed the third-party complaint.
Gelfand appealed to the Court of Appeals.

Issue(s)

Whether a third-party plaintiff seeking indemnity must demonstrate actual loss by personal payment of the underlying judgment before obtaining a conditional judgment against the third-party defendant.
Whether payments made by the third-party plaintiff’s insurance company towards the underlying judgment constitute a loss that triggers the indemnity agreement with the third-party defendant.

Holding

No, because while actual loss is required for ultimate recovery under an indemnity agreement, a third-party plaintiff can obtain a conditional judgment fixing potential liability before demonstrating actual loss, which promotes judicial efficiency.
Yes, because whether Gelfand pays the judgment himself or his insurer pays it, he is entitled to reimbursement from his partner under the joint venture agreement.

Court’s Reasoning

The court stated that under the joint venture agreement, Banner was obligated to indemnify Gelfand for half of any loss suffered due to McCabe’s lawsuit, assuming Gelfand wasn’t actively negligent. Quoting 755 Seventh Ave. Corp. v. Carroll, 266 N.Y. 157, 161, the court acknowledged that no obligation accrues under an agreement for indemnity against loss until actual loss has been sustained.
Despite the absence of payment, the court allowed Gelfand to implead Banner, reasoning that while a showing of actual loss is required before recovery, a conditional judgment can fix potential liability 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 in support.
The court rejected Banner’s argument that Gelfand’s insurer’s payment didn’t count as a loss, holding that the joint venture agreement and insurance policy are independent contracts, and Gelfand is entitled to reimbursement regardless of who pays the judgment.
The court emphasized efficiency and the proper administration of justice, demanding the contractual obligation between Banner and Gelfand be determined without further delay. The court reversed the order dismissing the complaint, remanding the case for trial to determine the nature of Banner’s obligation. Should Gelfand prevail, he can recover half of any amounts paid toward the satisfaction of McCabe’s judgment, even if the payment was made by his insurer.