New York Law Review

Tag: indemnification

  • Chapel v. Mitchell, 84 N.Y.2d 345 (1994): Recovery of Legal Fees in Indemnification Claims

    Chapel v. Mitchell, 84 N.Y.2d 345 (1994)

    An indemnitee can recover legal expenses incurred defending against the primary action but cannot recover legal expenses incurred in prosecuting a third-party indemnification claim.

    Summary

    Chapel sued Mitchell for injuries sustained while working on Mitchell’s property. Mitchell, in turn, sued Chapel’s employer, Lee, for indemnification. The court granted summary judgment to Chapel against Mitchell and to Mitchell against Lee. Mitchell then sought to recover attorneys’ fees from Lee, including fees for both defending the main action and prosecuting the indemnification claim. The Court of Appeals held that Mitchell could recover fees for defending against Chapel’s suit, as Mitchell’s liability was purely vicarious, but could not recover fees for pursuing the indemnification claim against Lee. This decision reinforces the American Rule, which generally prohibits the recovery of legal fees absent a specific agreement, statute, or court rule.

    Facts

    David Chapel, an employee of Robert E. Lee, was injured in a fall from the roof of a building owned by Samuel Mitchell and S.J.M. Entertainment Corp. (Mitchell). Chapel sued Mitchell under Labor Law § 240. Mitchell then commenced a third-party action against Lee, seeking common-law indemnification for any liability to Chapel. The main action concerned a statutory violation, where Mitchell’s liability would be vicarious.

    Procedural History

    The Supreme Court granted summary judgment to Chapel against Mitchell and to Mitchell against Lee, finding Mitchell passively negligent and entitled to full indemnification. The Supreme Court then awarded Mitchell attorneys’ fees, including those incurred in the third-party action. The Appellate Division affirmed this award, finding the third-party action’s legal expenses legitimately incurred in defending the original lawsuit. The New York Court of Appeals then reviewed the case.

    Issue(s)

    1. Whether an indemnitee can recover legal expenses incurred in defending a primary action when their liability is vicarious.
    2. Whether an indemnitee can recover legal expenses incurred in prosecuting a third-party action for common-law indemnification.

    Holding

    1. Yes, because an owner vicariously liable under the Labor Law has a common-law right to full indemnification, encompassing attorneys’ fees, from the party wholly at fault.
    2. No, because the legal expenses of pursuing a common-law indemnification claim are not recoverable under the American Rule, absent a contractual or statutory provision.

    Court’s Reasoning

    The Court of Appeals distinguished between legal expenses incurred in defending the primary action and those incurred in prosecuting the third-party indemnification claim. It reaffirmed the principle that a vicariously liable owner may recover legal expenses from the party wholly at fault in the primary action, citing Kelly v Diesel Constr. Div. of Carl A. Morse, Inc., 35 NY2d 1, 6. However, the Court found no basis for recovering legal expenses incurred in prosecuting the indemnification claim itself.

    The Court stated, “We find no authority for the proposition that the legal expenses of pursuing a common-law indemnification claim are recoverable when such claim is incidental to another action.” The Court also emphasized the “American Rule,” under which “the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys’ fee from the loser” (citing Alyeska Pipeline Co. v Wilderness Socy., 421 US 240, 247). Allowing recovery of legal fees in the indemnification action would undermine this rule.

    The Court acknowledged that while the indemnification claim was related to the main action, this did not justify deviating from the American Rule. The court emphasized that deviating from the American Rule would require a specific contractual or statutory provision, which was absent in this case. The Court stated, “[A]ttorney’s fees are incidents of litigation and a prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties, statute or court rule” (citing Hooper Assocs. v AGS Computers, 74 NY2d 487, 491).

  • Morris v. Snappy Car Rental, Inc., 84 N.Y.2d 21 (1994): Enforceability of Indemnification Clauses in Car Rental Agreements

    84 N.Y.2d 21 (1994)

    A car rental company can secure indemnification from a renter for liability exceeding the minimum insurance coverage required by Vehicle and Traffic Law §§ 370 and 388, provided the indemnification agreement is clear, conscionable, and doesn’t attempt to disclaim the minimum liability mandated by statute.

    Summary

    Barbara Morris rented a car from Snappy Car Rental. She was injured in an accident while her husband was driving. Morris sued Snappy, among others. Snappy sought indemnification from Morris based on a clause in the rental agreement. The New York Court of Appeals held that Snappy could enforce the indemnification clause for liability exceeding the statutory minimum insurance requirements, but not for amounts within that minimum. The court emphasized the importance of freedom of contract and found the indemnification clause was not unconscionable, as it was clearly stated and the renter had the opportunity to read it. The court affirmed that Snappy was not entitled to litigation costs and attorney’s fees.

    Facts

    On October 5, 1989, Barbara Morris rented a car from Snappy Car Rental for 30 days. Three days later, she sustained injuries in a collision while her husband, a permissive user under the agreement, was driving. The other vehicle was driven by Eric Sherry, who was working for Franco’s Pizzeria. Morris suffered a fractured femur requiring multiple surgeries.

    Procedural History

    Morris sued Snappy, Eric Sherry, Laura Sherry, and Franco’s Pizzeria. Snappy denied negligence and asserted an affirmative defense and counterclaim for indemnification based on the rental agreement. Supreme Court denied Snappy’s motion to dismiss the complaint but granted a conditional order of summary judgment for Snappy on its indemnification counterclaim, also granting Snappy attorney’s fees and denying Morris’s cross-motion for summary judgment. The Appellate Division modified the order, limiting Snappy’s indemnification to amounts exceeding the statutory minimum insurance and denying Snappy costs and attorney’s fees. Both parties appealed to the Court of Appeals.

    Issue(s)

    Whether a car rental company can enforce an indemnification clause in its rental agreement, requiring the renter to indemnify the company for liability arising out of the use of the vehicle, specifically regarding:

    1. Whether such an indemnification clause is void as against public policy to the extent it seeks to disclaim liability imposed by Vehicle and Traffic Law § 388.

    2. Whether the indemnification agreement is unenforceable as an adhesion contract or the result of procedural unconscionability.

    Holding

    1. No, because while a car rental company cannot disclaim the minimum liability coverage mandated by Vehicle and Traffic Law § 388, it can secure indemnification for amounts exceeding that minimum.

    2. No, because the indemnification agreement was not an adhesion contract, nor was it procedurally unconscionable, as the renter had the opportunity to read and understand the terms.

    Court’s Reasoning

    The Court of Appeals reasoned that Vehicle and Traffic Law § 388 was enacted to ensure injured parties have access to financially responsible insured persons. However, the statute does not prevent a lessor/owner from securing indemnification from a lessee/driver for liability exceeding the statutory minimum insurance. The court emphasized the importance of freedom of contract, stating that the Legislature did not intend to abrogate the right of indemnification. Quoting the Restatement of Restitution § 76, the court said, “[a] person who, in whole or in part, has discharged a duty which is owed by him but which as between himself and another should have been discharged by the other, is entitled to indemnity’”. The court distinguished this case from MVAIC v. Continental Natl. Am. Group Co., where the rental agreement sought to entirely evade liability. Here, Snappy only sought indemnification for amounts exceeding the statutory minimum. The court found no evidence of high-pressure tactics or deceptive language, and the plaintiff signed the agreement, affirming she had read and understood it. Therefore, the indemnification agreement was enforceable up to the point of overage of mandatory insurance requirements. The court agreed with the Appellate Division in denying Snappy its costs and expenses of litigation.

  • Soto v. State Farm Insurance Company, 83 N.Y.2d 718 (1994): Insurer Bad Faith and Punitive Damages

    83 N.Y.2d 718 (1994)

    An insurer cannot be held liable for the punitive damages portion of a judgment exceeding policy limits, even if the insurer acted in bad faith by refusing a settlement offer within those limits.

    Summary

    This case addresses whether an insurer, acting in bad faith by refusing a settlement offer within policy limits, can be liable for the punitive damages portion of a judgment exceeding those limits. The New York Court of Appeals held that public policy precludes such liability. While an insurer may be liable for the excess judgment when refusing to settle in bad faith, this does not extend to punitive damages because these are meant to punish the wrongdoer (the insured), and allowing the insurer to pay would undermine this purpose. The insured’s own conduct is the reason punitive damages were awarded.

    Facts

    Elisio Montanez, driving Mary Casey’s car (his girlfriend), caused a fatal accident, killing Nelson Rivera and Angel Luis Echevarria. Montanez was legally blind without glasses and intoxicated. The victims’ administrators sued Casey and Montanez. The insurance policy limit was $50,000 per death. The insurer, State Farm, refused to settle within the policy limits, arguing Casey had not consented to Montanez driving the car. The jury found Montanez had permission and awarded significant compensatory and punitive damages exceeding the policy limits. State Farm paid the compensatory damages but refused to pay the punitive damages.

    Procedural History

    The victims’ administrators, as assignees of Montanez’s and Casey’s rights, sued State Farm, alleging bad faith refusal to settle. The trial court dismissed the complaint. The Appellate Division affirmed. The New York Court of Appeals granted leave to appeal and affirmed the dismissal.

    Issue(s)

    Whether an insurer who acts in bad faith by refusing to settle a claim within the policy limits can be held liable for the portion of a judgment that represents punitive damages assessed against the insured.

    Holding

    No, because New York’s public policy prohibits indemnification for punitive damages, even when the insurer acted in bad faith. The court reasoned that allowing recovery for punitive damages would undermine their purpose of punishing the wrongdoer.

    Court’s Reasoning

    The court acknowledged that an insurer refusing a reasonable settlement offer in bad faith is generally liable for the excess judgment. However, punitive damages are different. The court emphasized New York’s long-standing policy against indemnification for punitive damages, stating it is a “fundamental principle that no one shall be permitted to take advantage of his own wrong”. The court reasoned that punitive damages are designed to punish and deter the wrongdoer, not to compensate the plaintiff. Allowing the insurer to pay these damages would defeat this purpose, even if the insurer acted wrongfully in refusing to settle. The court stated that the insurer’s bad faith only put the insured at risk of a jury finding them morally culpable, warranting punitive damages. “Regardless of how egregious the insurer’s conduct has been, the fact remains that any award of punitive damages that might ensue is still directly attributable to the insured’s immoral and blameworthy behavior.” The court distinguished this situation from one where the insured seeks punitive damages from the insurer for the insurer’s own misconduct.

  • Ebert v. New York City Health & Hospitals Corp., 82 N.Y.2d 863 (1993): Interest Rate on Judgments Against Indemnified Employees

    Ebert v. New York City Health & Hospitals Corp., 82 N.Y.2d 863 (1993)

    When a public entity is obligated to indemnify an employee for a judgment, the statutory interest rate applicable to judgments against the public entity applies to the judgment against the employee.

    Summary

    This case concerns the applicable interest rate on a judgment against a doctor employed by New York City Health and Hospitals Corporation (NYCHHC), who was entitled to indemnification. The Court of Appeals held that the 3% interest rate applicable to judgments against NYCHHC, as prescribed by McKinney’s Unconsolidated Laws of NY § 7401, should apply, rather than the standard 9% rate. The Court reasoned that because NYCHHC was ultimately responsible for paying the judgment due to its obligation to indemnify its employee, it was the real party in interest and the lower statutory rate should prevail. The court prioritized the statute’s purpose over strict formalism.

    Facts

    The plaintiff, Ebert, obtained a judgment against Doctor Escaño, an employee of the New York City Health and Hospitals Corporation (NYCHHC). NYCHHC was obligated to indemnify Doctor Escaño for the judgment. The Appellate Division ruled that the 9% interest rate should apply because the action against NYCHHC had been dismissed.

    Procedural History

    The Supreme Court entered judgment against Doctor Escaño. The Appellate Division affirmed the judgment but modified the interest rate calculation, concluding that the standard 9% interest rate should apply since the claim against NYCHHC was dismissed. The New York Court of Appeals granted leave to appeal and reviewed the Appellate Division’s decision regarding the applicable interest rate.

    Issue(s)

    Whether the statutory 3% interest rate applicable to judgments against the New York City Health and Hospitals Corporation (NYCHHC) applies to a judgment against an employee of NYCHHC when NYCHHC is obligated to indemnify that employee.

    Holding

    Yes, because NYCHHC is ultimately responsible for satisfying the judgment against its indemnified employee, it stands in place of the employee, and the statutory 3% interest rate applies.

    Court’s Reasoning

    The Court of Appeals reasoned that while the standard interest rate on judgments is 9% under CPLR 5004, McKinney’s Unconsolidated Laws of NY § 7401(5) specifically prescribes a 3% interest rate for judgments against NYCHHC. The court found that this specific statute should prevail over the general one. The court rejected the plaintiff’s argument that there was no judgment or accrued claim pending against NYCHHC. The court stated, “A de facto accrued claim exists against NYCHHC because it is inevitably and unavoidably responsible to its indemnitee, Doctor Escaño. The essential purpose of the statute should prevail over pure formalism.” The court further noted that because NYCHHC must indemnify its officers and employees pursuant to General Municipal Law § 50-k and any judgment payable under that provision shall be payable from the public moneys of the corporation (McKinney’s Uncons Laws of NY §7401 [6]), NYCHHC effectively stands in the place of its employee. The court emphasized that “Ultimately NYCHHC cannot escape payment of the judgment at issue against Doctor Escaño and, thus, becomes by operation of law the real party in interest, obligated to pay only the 3% interest.” The Court prioritized the substance of the situation—NYCHHC’s ultimate responsibility for the debt—over the formalistic argument that the judgment was technically against the employee. This decision underscores the principle that courts should look beyond the surface to identify the real parties in interest and apply the law in a manner consistent with its underlying purpose.

  • Valentin v. City of New York, 83 N.Y.2d 28 (1993): Rejection of “Preindemnification” Doctrine in Insurance Coverage Disputes

    Valentin v. City of New York, 83 N.Y.2d 28 (1993)

    New York rejects the “preindemnification” doctrine, which would automatically place the insurance coverage of a construction site owner (vicariously liable) ahead of the contractor’s insurance (primarily liable), in favor of common-law indemnification principles and the antisubrogation rule.

    Summary

    These consolidated cases involve disputes among insurance carriers over liability for employee work site injuries. The central issue is whether New York recognizes “preindemnification,” where a contractor’s purchase of insurance for a site owner automatically makes that policy primary, even if the contractor was the primary wrongdoer. The Court of Appeals rejected this doctrine, emphasizing that simply requiring a contractor to obtain insurance does not waive the owner’s right to common-law indemnification. The Court also applied the antisubrogation rule to prevent an insurer from seeking subrogation against its own insured.

    Facts

    Several construction contracts required contractors to indemnify property owners (City or State) for claims arising from the contractor’s work and to procure Owners’ and Contractors’ Protective (OCP) insurance naming the owner as the insured. Separately, the contractors also held General Contractor Liability (GCL) insurance policies. In each case, a worker was injured, and the injured party sued the owner of the premises, who in turn sought indemnification from the contractor. The insurance companies then disputed which policies should cover the losses. The OCP policies had lower premiums than the GCL policies, suggesting the parties anticipated the OCP would primarily cover the owner’s own negligence.

    Procedural History

    In Valentin and Prince, the lower courts dismissed the owner’s third-party claims for indemnification based on the preindemnification doctrine. The Appellate Division reversed, but certified a question to the Court of Appeals. In North Star, the Appellate Division granted Continental’s motion, holding that the exclusions in the GCL policy rendered it inapplicable to the loss, and that the $1 million OCP policy could not be applied to the settlement. The Court of Appeals consolidated the cases to address the preindemnification doctrine.

    Issue(s)

    1. Whether requiring a contractor to procure insurance naming the owner as an insured constitutes an automatic waiver of the owner’s right to common-law indemnification, up to the policy limits (i.e., whether the “preindemnification” doctrine is valid).

    2. Whether the antisubrogation rule applies when an owner and contractor are insured under two policies covering the same risk, issued simultaneously by the same insurer.

    Holding

    1. No, because requiring a contractor to obtain insurance does not automatically waive the owner’s right to common-law indemnification. The contracts explicitly reserved the owners’ right to indemnification.

    2. Yes, because the public policy considerations preventing an insurer from recouping proceeds from its own insured and avoiding conflicts of interest are equally applicable whether there is a single policy or two policies covering the same risk.

    Court’s Reasoning

    The Court rejected the preindemnification doctrine, stating that any notion of waiver is contradicted by the plain language of the contracts, which explicitly reserve the owners’ right to indemnification from the contractor. It also noted the disparity in premiums paid for the policies, signaling that indemnification was contemplated by the parties. The Court found that preindemnification was not supported by the policy arguments underlying Pennsylvania Gen. Ins. Co. v. Austin Powder Co., 68 N.Y.2d 465 (1986), because it is potentially broader than the antisubrogation rule. The Court also reasoned the vicariously liable owner is entitled to recover the entire amount paid, so there is no “mitigation” of the right to be indemnified. Citing Pennsylvania Gen., the Court stated, “an insurer has no right of subrogation against its own insured for a claim arising from the very risk for which the insured was covered”. The Court extended this rule to situations where an owner and contractor are insured under two policies covering the same risk, issued simultaneously by the same insurer because the potential conflict of interest and the insurer’s ability to manipulate the litigation were the same as in the single policy situation. In North Star, however, the antisubrogation rule did not apply because exclusions in the GCL rendered that policy inapplicable to the loss.

  • Cromwell Towers Construction Co. v. Florence & George Plastering Co., 78 N.Y.2d 1096 (1991): Enforceability of Insurance Procurement Agreements in Construction Contracts

    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.”

  • City of New York v. Kalikow Realty Co., 71 N.Y.2d 957 (1988): Indemnification When a Landowner Assumes Responsibility for Sidewalk Repair

    City of New York v. Kalikow Realty Co., 71 N.Y.2d 957 (1988)

    A property owner who explicitly assumes responsibility for sidewalk repair and maintenance, after the city initiates repair action, must indemnify the city for damages paid to a pedestrian injured due to the owner’s failure to maintain the sidewalk, despite the city’s nondelegable duty to maintain sidewalks.

    Summary

    Kalikow Realty received a violation notice from the City of New York regarding a damaged sidewalk abutting its property. Kalikow responded by stating it would repair the sidewalk and maintain it safely during construction, requesting the city not to proceed with its own repairs. Two years later, a pedestrian was injured due to the broken sidewalk, and the City was found liable. The City then sought indemnification from Kalikow. The Court of Appeals held that Kalikow was obligated to indemnify the City because Kalikow explicitly assumed the responsibility to repair and maintain the sidewalk, thereby inducing the City’s forbearance from making its own repairs.

    Facts

    The City’s Department of Highways issued a violation notice to Kalikow Realty regarding the poor condition of the sidewalk adjacent to its property. Kalikow responded with a letter stating it had erected a fence and repaired the sidewalk to a safe condition. Kalikow further stated that it intended to begin construction within the next year and would maintain the sidewalk safely during construction, requesting the City not to conduct any repairs as they would be destroyed by construction. Approximately two years later, a pedestrian was injured due to a broken sidewalk during Kalikow’s construction project.

    Procedural History

    The injured pedestrian sued the City and Kalikow’s construction contractor. The City was held solely liable for breaching its statutory duty to maintain the sidewalks and paid the full judgment. The City then sued Kalikow for indemnification. Special Term granted the City’s motion for summary judgment, and the Appellate Division affirmed.

    Issue(s)

    Whether a property owner who explicitly assumes responsibility for sidewalk repair, inducing the City’s forbearance, must indemnify the City for damages paid to a pedestrian injured due to the owner’s failure to maintain the sidewalk, despite the City’s nondelegable duty to maintain sidewalks.

    Holding

    Yes, because Kalikow explicitly assumed the duty to repair and maintain the sidewalk, inducing the city to refrain from making its own repairs; therefore, Kalikow must indemnify the City for the damages paid to the injured pedestrian.

    Court’s Reasoning

    The Court emphasized that the decision was limited to determining which party, the City or the property owner, should ultimately bear the cost of the judgment. The Court highlighted Kalikow’s letter, in response to the City’s violation notice, which unequivocally assumed responsibility for the sidewalk’s repair and maintenance during the construction project. The Court analogized the situation to Rogers v. Dorchester Assocs., where a building owner was entitled to indemnification from a company that agreed to maintain elevator equipment. The Court distinguished the case from D’Ambrosio v. City of New York and Guzman v. Haven Plaza Hous. Dev. Fund Co., noting that in those cases, there was no explicit undertaking by the landowner to perform repairs after the city had initiated action. The court stated: “By denying a right of indemnification in the circumstances presented, the dissent would extend the law beyond any previous decision of this court, and would effectively preclude implied indemnification whenever a nondelegable duty is involved — the very situation when implied indemnification is likely most necessary.” The Court concluded that the law should give effect to the particular dealings between the City and the landowner, particularly Kalikow’s explicit undertaking to maintain the sidewalk, which induced the City’s reliance. The Court also rejected Kalikow’s argument that the City failed to present an adequate defense in the personal injury action.

  • Glaser v. M. Fortunoff of Westbury Corp., 71 N.Y.2d 643 (1988): Contribution vs. Indemnification for Successive Tortfeasors

    71 N.Y.2d 643 (1988)

    A tortfeasor who settles with the injured party is barred from seeking contribution from successive tortfeasors whose negligence aggravated the original injury, but may still seek indemnification if they were not negligent.

    Summary

    This case addresses whether a settling tortfeasor can seek reimbursement from successive tortfeasors whose negligence aggravated the plaintiff’s initial injuries. Carol Glaser was injured in Fortunoff’s store and later suffered complications due to negligent medical treatment. Glaser sued Fortunoff, who then brought a third-party claim against the doctors. Fortunoff settled with Glaser, and the doctors sought dismissal based on General Obligations Law § 15-108(c), which bars contribution claims by settling tortfeasors. The New York Court of Appeals held that Fortunoff’s claim was one for contribution, not indemnification, and was therefore barred by the statute because Fortunoff’s liability was based, at least in part, on its own negligence.

    Facts

    On November 18, 1982, Carol Glaser fell and fractured her knee in a Long Island store operated by M. Fortunoff of Westbury Corp.
    Glaser was taken to a local medical center and subsequently transferred to New Rochelle Hospital Medical Center, where she underwent surgery.
    Following the surgery, Glaser developed congestive heart failure and suffered brain damage.
    Glaser and her husband sued Fortunoff for all injuries, including those sustained at the hospital.
    Fortunoff filed a third-party complaint against Salvatore Orsini and Drs. George Froehlich and Jaime Javier, who treated Glaser at New Rochelle, seeking indemnification.

    Procedural History

    Fortunoff settled with Glaser in the main action.
    Orsini, Froehlich, and Javier moved to dismiss Fortunoff’s third-party complaint, arguing it was barred by General Obligations Law § 15-108(c).
    Special Term agreed and dismissed Fortunoff’s complaint.
    The Appellate Division affirmed.
    The New York Court of Appeals granted Fortunoff permission to appeal.

    Issue(s)

    Whether Fortunoff’s claim against the third-party defendants is one for common-law indemnification or contribution.
    Whether General Obligations Law § 15-108(c) bars a tortfeasor who has settled with the injured party from seeking contribution from successive, independent tortfeasors whose negligence aggravated the injured plaintiff’s damages.

    Holding

    1. Fortunoff’s claim is one for contribution, not indemnification because Fortunoff’s liability is predicated, at least in part, on its own negligence.
    2. Yes, because General Obligations Law § 15-108(c) bars a tortfeasor who has obtained a release from seeking contribution from any other person.

    Court’s Reasoning

    The court distinguished between contribution and indemnification. Indemnification applies when a party is held liable without having committed a wrong, due to a relationship with the tortfeasor or an obligation imposed by law. Contribution applies when a party is held liable at least partially due to its own negligence.
    The court stated, “where one is held liable solely on account of the negligence of another, indemnification, not contribution, principles apply to shift the entire liability to the one who was negligent”.
    The court reasoned that Fortunoff, as the initial tortfeasor, was liable for Glaser’s knee injury and any aggravation resulting from subsequent negligent treatment. This liability is based, in part, on Fortunoff’s own negligence and the foreseeable consequences thereof.
    Conversely, the third-party defendants were only liable for the aggravation of Glaser’s condition, not the original injury.
    Because Fortunoff’s liability was partly based on its own negligence, its claim against the doctors was for contribution and therefore barred by General Obligations Law § 15-108(c).
    The court emphasized that the designation of the claim by the parties is not controlling; rather, the theory of recovery against each tortfeasor must be analyzed.

  • Rosado v. Proctor & Schwartz, Inc., 66 N.Y.2d 21 (1985): Barring Indemnification for Manufacturers of Defective Products

    Rosado v. Proctor & Schwartz, Inc., 66 N.Y.2d 21 (1985)

    A manufacturer of a defective product cannot obtain indemnification from the purchaser when the purchaser’s employee is injured due to the manufacturer’s failure to provide adequate safety devices, even if the sales contract requires the purchaser to install such devices.

    Summary

    Hector Rosado, an employee of Comet Fibers, was injured while operating a garnett machine purchased by Comet from Proctor & Schwartz. The sales contract required Comet to install necessary safety guards, but the machine lacked adequate safeguards, leading to Rosado’s injuries. Rosado sued Proctor, who then sought indemnification from Comet. The New York Court of Appeals held that Proctor, as the manufacturer of a defective product, could not obtain indemnification from Comet, as Proctor had a non-delegable duty to ensure the machine was reasonably safe when it left their control. Allowing indemnification in this situation would undermine the policy goals of strict products liability.

    Facts

    Comet Fibers purchased a garnett machine from Proctor & Schwartz in 1970. The sales contract stipulated that Comet was responsible for installing safety guards and disconnect switches.
    The machine was delivered without safety devices. Comet installed a mesh fence with a gap and doors that exposed moving parts when opened.
    Hector Rosado, a Comet employee, was injured when his hand came into contact with unprotected chains and gears while cleaning the machine, which was often operated with the safety gate open.

    Procedural History

    Rosado sued Proctor & Schwartz.
    Proctor initiated a third-party action against Comet, seeking contribution and indemnity.
    The trial court dismissed Proctor’s indemnification claim. Comet settled with Rosado, precluding Proctor’s contribution claim.
    Proctor settled with Rosado before a verdict and appealed the dismissal of its indemnification claim.
    The Appellate Division affirmed the dismissal, and Proctor appealed to the New York Court of Appeals.

    Issue(s)

    Whether a manufacturer of a defective product can obtain indemnification from the purchaser when the sales contract requires the purchaser to install safety devices and the purchaser’s employee is injured due to the absence of such devices.

    Holding

    No, because the manufacturer has a non-delegable duty to provide a reasonably safe product, and allowing indemnification in this circumstance would undermine the public policy goals of strict products liability.

    Court’s Reasoning

    The court distinguished between contribution and indemnity, noting that contribution involves distributing the loss among tortfeasors, while indemnity shifts the entire loss to another party.
    Indemnity arises from contract, either express or implied. Proctor conceded there was no express agreement for indemnification.
    The court rejected Proctor’s argument for implied indemnity, stating that strict products liability is not akin to vicarious liability; manufacturers are held accountable as wrongdoers and must ensure their products are reasonably safe when they leave their control. The court stated that “a prima facie case is not established unless it is shown, among other things, that in relation to those who will use it, the product was defective when it left the hands of the manufacturer because it was not reasonably safe”.
    The court disagreed with the Sixth Circuit’s decision in Proctor & Schwartz v. United States Equip. Co., which allowed a similar indemnity claim, stating that the manufacturer is in the best position to determine appropriate safety devices, particularly when the dangers do not vary by job site.
    The court emphasized that “Preventing injuries in the first place is the primary public policy underlying the doctrine of strict products liability.”
    Allowing manufacturers to shift their duty of care through boilerplate contract language would erode the incentive to maintain safety and sanction the marketing of dangerous machines.
    The court distinguished McDermott v. City of New York, where indemnification was allowed because the manufacturer breached a duty to the injured plaintiff, whereas in this case, Proctor sought to recover from Comet based on a contract between them, despite Proctor’s breach of duty to Comet’s employee.

  • Grant-Howard Associates v. General Housewares Corp., 63 N.Y.2d 291 (1984): Contractual Allocation of Tort Liability Between Successor and Predecessor Corporations

    Grant-Howard Associates v. General Housewares Corp., 63 N.Y.2d 291 (1984)

    A successor corporation is not required to indemnify its predecessor for tort liabilities when the reorganization agreement between them explicitly excludes liabilities that did not exist at the time of the closing, irrespective of the successor liability doctrine’s effect on third-party claims.

    Summary

    Grant-Howard Associates sought a declaration that General Housewares Corporation was obligated to indemnify them for a product liability lawsuit stemming from a ceramic pitcher sold by Grant-Howard’s predecessor. The New York Court of Appeals held that the reorganization agreement between the companies controlled the allocation of liability. Because the injury occurred after the closing date and was thus not an existing liability at that time, General Housewares was not obligated to indemnify Grant-Howard, regardless of whether General Housewares could be held directly liable to the injured party as a successor corporation. The court emphasized that companies can allocate risk contractually but cannot alter the rights of third parties.

    Facts

    Holt Howard Associates, Inc. (later Grant-Howard Associates) sold housewares. General Housewares Corporation purchased Holt Howard’s assets via a Reorganization Agreement. The agreement included a section where General Housewares assumed Holt Howard’s existing liabilities, with specific exclusions. Stephanie Pohl allegedly suffered injuries in 1974 from a ceramic pitcher Holt Howard sold in 1967. Pohl sued Holt Howard and General Housewares.

    Procedural History

    Grant-Howard sued General Housewares for a declaration that General Housewares was liable for the Pohl injuries and must provide indemnity. Special Term granted summary judgment for Grant-Howard, finding General Housewares liable as a successor corporation and owing common-law indemnity. The Appellate Division affirmed. The New York Court of Appeals granted General Housewares’ motion for leave to appeal.

    Issue(s)

    Whether General Housewares was obligated to indemnify Grant-Howard for the Pohl lawsuit based on the Reorganization Agreement, considering the claim arose from an injury that occurred after the closing date.

    Holding

    No, because the Reorganization Agreement only obligated General Housewares to assume existing liabilities, and the Pohl claim did not exist at the time of closing because the injury had not yet occurred.

    Court’s Reasoning

    The court reasoned that the doctrine of successor corporation liability, which allows an injured party to recover from a company that has taken over the assets of the original tortfeasor, is distinct from the issue of indemnification between the predecessor and successor companies. The court stated that “Allowing recovery in tort against a successor corporation is merely an extension of the concept of products liability… Strict liability assures that a responsible source is available to compensate the injured party.” While the injured party can elect to proceed against either corporation, the companies themselves can contractually determine how such liability is allocated between them. The Reorganization Agreement specified that General Housewares assumed existing liabilities. Because Pohl’s injury occurred after the closing, the liability was not “existing” at the time of the agreement. The court rejected the argument that a contingent liability existed simply because the pitcher had been sold before the closing. “A tort action does not accrue until injury occurs.” The court added, “An uninjured party simply is not a ‘contingent liability’ in the usual sense of that term.” The court reversed the lower courts’ rulings and remanded for consideration of General Housewares’ counterclaims.