New York Law Review

Tag: Indemnity

  • State of New York v. Brundige Oil Corp., 63 N.Y.2d 87 (1984): Statute of Limitations for Oil Spill Cleanup Cost Recovery

    63 N.Y.2d 87 (1984)

    When the State incurs expenses to clean up an oil spill, it can bring a common-law indemnity action against the responsible party, which is governed by a six-year statute of limitations that begins to run with each expenditure made by the State.

    Summary

    This case concerns the statute of limitations applicable to New York State’s action to recover costs for cleaning up an oil spill from the responsible party, Brundige Oil Corp. The State sought to recover cleanup costs from Brundige Oil after a leak from Brundige’s storage tanks contaminated a local water well. The Court of Appeals held that the State’s claim was a common-law indemnity action governed by a six-year statute of limitations, which accrues upon each expenditure made by the State for cleanup. Thus, the State’s action, filed within six years of the expenditures, was timely.

    Facts

    Brundige Oil Company owned oil storage tanks in Montgomery County. In September 1978, a leak was discovered in the tanks, contaminating the water well of a nearby restaurant. The State of New York undertook cleanup and containment efforts starting in late 1979 and ultimately spent nearly $10,000. The State then sued Brundige Oil in August 1982 to recover these costs.

    Procedural History

    The Supreme Court denied Brundige Oil’s motion to dismiss, finding a three-year statute of limitations applied but that the action accrued upon the State’s payments. However, it deemed the suit untimely as to payments made more than three years before the action began. The Appellate Division modified, holding the statute began to run upon the State’s final payment or discovery of the responsible party, whichever was later. The Court of Appeals affirmed on different grounds, finding a six-year statute of limitations applied and the action was timely.

    Issue(s)

    1. Whether the State’s action to recover oil spill cleanup costs from the responsible party is governed by a three-year statute of limitations for liabilities imposed by statute or a six-year statute of limitations for contractual obligations.
    2. When does the statute of limitations accrue for the State’s action to recover oil spill cleanup costs?

    Holding

    1. No, because the action is based on common-law indemnity, which is governed by the six-year statute of limitations for contractual obligations or liabilities.
    2. The statute of limitations accrues when the State suffers a loss, meaning when the State makes expenditures for the cleanup.

    Court’s Reasoning

    The Court reasoned that the State’s action was for common-law indemnity because the State discharged a duty (oil spill cleanup) that was primarily the responsibility of Brundige Oil, the party that caused the spill. The court stated, “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”. Indemnity actions are based on the prevention of unjust enrichment, where “a contract to reimburse or indemnify is implied by law.” Thus, the six-year statute of limitations for contractual obligations applies. The Court rejected the argument that the three-year statute for liabilities imposed by statute applied, noting that liability for damage to land caused by an oil spill exists independently of the Oil Spill Prevention, Control, and Compensation Act. The court further held that the statute of limitations accrues when the party seeking indemnity suffers a loss. In this case, the State suffered a loss each time it expended funds for the cleanup. The Court declined to create a new accrual date, stating “no compelling reason is presented in this case to diverge from the traditional view that an action for indemnity accrues when any ‘loss is suffered’ by the party seeking indemnity.” Because the suit was commenced within six years of the State’s expenditures, the action was timely.

  • Celeste v. Prudential-Grace Lines, 35 N.Y.2d 60 (1974): Accrual of Indemnity Claim in Maritime Law

    Celeste v. Prudential-Grace Lines, 35 N.Y.2d 60 (1974)

    In maritime cases, a cause of action for indemnity does not accrue until the indemnitee’s liability is fixed by a judgment against or payment by the indemnitee.

    Summary

    Carmine Celeste, a longshoreman, sued Prudential-Grace Lines (Prudential) for negligence and unseaworthiness. Prudential initiated a third-party action against American Stevedores, Celeste’s employer, seeking indemnification for breach of warranty of workmanlike service. American Stevedores argued the indemnity claim was time-barred by the six-year statute of limitations. The New York Court of Appeals reversed the lower courts, holding that under federal maritime law, the indemnity claim did not accrue until Prudential’s liability to Celeste was fixed by judgment or payment. The court emphasized the need for uniformity in maritime law and the application of federal laches, not state statutes of limitations, once liability is established.

    Facts

    Carmine Celeste, an employee of American Stevedores, was injured on November 8, 1965, while working on Prudential-Grace Lines’ ship, the S.S. Biddeford Victory.

    Celeste sued Prudential, alleging negligence in the maintenance of the ship’s deck and the vessel’s unseaworthiness.

    Prudential then brought a third-party action against American Stevedores, claiming breach of its warranty of workmanlike service and seeking indemnification for any judgment against Prudential in Celeste’s action.

    Procedural History

    Special Term dismissed Prudential’s third-party complaint, finding it was essentially an indemnity action that accrued when the breach occurred (Celeste’s injury) and was therefore barred by the six-year statute of limitations (CPLR 213).

    The Appellate Division affirmed without opinion.

    The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether, in a maritime indemnity action brought in state court, the cause of action accrues at the time of the underlying injury or when the indemnitee’s liability is fixed by judgment or payment.

    Holding

    No, because under federal maritime law, a cause of action for indemnity does not accrue until the indemnitee’s liability is fixed by a judgment against or payment by the indemnitee.

    Court’s Reasoning

    The court emphasized that maritime actions in state court are governed by federal maritime principles. Federal law dictates that an indemnity cause of action accrues only when the indemnitee’s liability is established, either by judgment or payment. The court cited several federal cases, including United New York Sandy Hook Pilots Assn. v. Rodermond Ind., which directly addressed the issue and held that an indemnity claim does not accrue until the indemnitee’s liability is fixed.

    The court distinguished the Ryan Co. v. Pan-Atlantic Corp. case, clarifying that its analogy of a breach of warranty of workmanlike service to a manufacturer’s warranty was only to emphasize the contract nature of the cause of action, not to determine the applicable statute of limitations.

    The court noted that once liability is fixed, federal laches, rather than the state’s six-year statute of limitations, would govern the continued viability of the indemnity action.

    The court quoted Matter of Rederi (Dow Chem. Co.), stating that state rules of procedure cannot be applied in maritime cases if they significantly affect the outcome of the litigation. Requiring state courts to apply federal law ensures a uniform body of maritime law.

    “The general rule, applicable to this case, is that a claim for indemnity does not accrue until the indemnitee’s liability is fixed by a judgment against or payment by the indemnitee” (United New York Sandy Hook Pilots Assn. v. Rodermond Ind.).

  • Gull Contracting Co., Inc. v. Esterly, 33 N.Y.2d 649 (1973): Derivative Liability After ‘Active-Passive’ Distinction Abrogation

    Gull Contracting Co., Inc. v. Esterly, 33 N.Y.2d 649 (1973)

    Even after the abrogation of the “active-passive” negligence distinction, a defendant derivatively liable due to the active negligence of an agent, employee, or contractor under its control can still seek full indemnity from the actively negligent party; furthermore, all active tortfeasors should have their relative liability determined.

    Summary

    This case concerns an automobile accident and the apportionment of liability among multiple defendants, including a contractor (Gull-Mac), the City of New York, and the driver and owner of the vehicle involved (the Esterlys). The Court of Appeals addressed whether the city, found derivatively liable, could be indemnified by the actively negligent contractor after the abrogation of the “active-passive” negligence doctrine in Dole v. Dow Chem. Co. The court held that the city could still seek full indemnity and further directed the trial court to determine the relative liability between the active tortfeasors, Gull-Mac and the Esterlys, ensuring a fair allocation of responsibility based on their respective contributions to the accident.

    Facts

    An accident occurred involving a vehicle driven by Esterly. The accident also implicated Gull-Mac due to its actions or omissions at the construction site and the City of New York, potentially through its oversight or control of the site. The infant plaintiffs sued multiple parties including Gull Contracting Co., Inc. The jury found other defendants also contributed to the cause of the accident. The city’s liability stemmed from Gull-Mac’s negligence at the construction site it controlled. The parties agreed that the trial judge should determine the city’s right to indemnity on its cross claim against Gull-Mac.

    Procedural History

    The trial court ruled in favor of the plaintiffs against the defendants. The Appellate Division affirmed, finding the requests to charge the assumption of risk doctrine were deficient. The Court of Appeals reviewed the apportionment of liability between Gull-Mac and the City of New York, and considered a new argument regarding the relative liability of Gull-Mac and the Esterlys in light of Dole v. Dow Chem. Co.

    Issue(s)

    1. Whether the abrogation of the “active-passive” negligence distinction in Dole v. Dow Chem. Co. precludes a derivatively liable defendant (the City of New York) from seeking full indemnity from the actively negligent party (Gull-Mac)?

    2. Whether the case should be remanded for a determination of the relative liability between the active tortfeasors (Gull-Mac and the Esterlys) in light of the Dole decision?

    Holding

    1. No, because the abrogation of the “active-passive” distinction does not prevent a derivatively liable defendant from seeking full indemnity from the actively negligent party, especially when the active negligence arises from the actions of an agent, employee, or contractor under the derivatively liable party’s control.

    2. Yes, because fairness dictates that the relative liability of all active tortfeasors should be determined to ensure a proper apportionment of responsibility for the damages.

    Court’s Reasoning

    The court reasoned that while Dole v. Dow Chem. Co. eliminated the strict “active-passive” distinction for indemnity purposes, it did not eliminate the right of a derivatively liable party to seek full indemnity from the actively negligent party whose actions directly caused the harm. The court emphasized the commentary by David D. Siegel, noting that the abrogation does not disturb the principle that an actively negligent party can be held fully responsible when another party’s liability is merely derivative. The Trial Judge found that Gull-Mac created the hazard and that, in effect, the city’s liability was only derivative. Regarding the liability between Gull-Mac and the Esterlys, the court, citing Kelly v. Long Is. Light. Co., held that a determination of their relative liability was proper. The court stated, “We agree that this disposition would be proper (Kelly v. Long Is. Light. Co., 31 Y 2d 25, 29).” It directed the trial court to determine their respective degrees of fault on the existing record, ensuring that each active tortfeasor bears a responsibility proportionate to its contribution to the accident. This approach ensures a more equitable distribution of liability among all parties involved, reflecting their respective roles in causing the harm.

  • McCabe v. Queensboro Farm Products, Inc., 22 N.Y.2d 204 (1968): Third-Party Indemnity Before Actual Loss

    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.

  • In pari delicto, Indemnity: Cadillac Hotel, Inc. v. Wm. F. Weeks Elevator Co., Inc., 19 A.D.2d 826 (N.Y. App. Div. 1963): Hotel’s Shared Fault Bars Indemnity

    Cadillac Hotel, Inc. v. Wm. F. Weeks Elevator Co., Inc., 19 A.D.2d 826 (N.Y. App. Div. 1963)

    A party cannot claim common-law indemnity from another party if its own active negligence contributed to the injury, placing both parties equally at fault (in pari delicto).

    Summary

    Cadillac Hotel sought indemnity from Wm. F. Weeks Elevator Co. after a beer keg deliveryman was injured when the hotel elevator fell. The court denied indemnity, finding the hotel was equally at fault due to its long-standing knowledge of the elevator’s defect, which contributed to the accident. The dissent argued the hotel’s failure to repair the known defect made it equally culpable, precluding common-law indemnity. The court affirmed, underscoring that active negligence prevents a party from shifting liability to another. The key issue revolved around whether the hotel’s negligence was passive or active.

    Facts

    A deliveryman was injured when an elevator in the Cadillac Hotel fell. The accident occurred while the deliveryman was loading beer kegs onto the elevator. The elevator platform had been malfunctioning for years, stopping several inches short of street level. The hotel was aware of this condition but did not repair it due to the expense involved. An expert testified the defective condition caused impact stresses that weakened the chain bolt over time.

    Procedural History

    The injured deliveryman sued both the Cadillac Hotel and the Wm. F. Weeks Elevator Co. The hotel then filed a cross-claim against the elevator company, seeking indemnity. The trial court ruled in favor of the plaintiff and found the hotel liable. The Appellate Division affirmed the trial court’s decision, denying the hotel’s claim for indemnity.

    Issue(s)

    Whether the Cadillac Hotel, having knowledge of a long-standing elevator defect, is entitled to common-law indemnity from the elevator maintenance company for injuries sustained as a result of that defect.

    Holding

    No, because the hotel’s awareness and failure to repair the known defect constituted active negligence, placing it in pari delicto (in equal fault) with the elevator maintenance company, thus barring common-law indemnity.

    Court’s Reasoning

    The court reasoned that the hotel’s long-standing knowledge of the elevator’s defect, coupled with its failure to remedy the situation, constituted active negligence. The dissent emphasized that the defective construction of the elevator, which caused the platform to consistently fall short of street level, led to cumulative impact stresses that weakened the chain bolt over time. This condition was known to the hotel, which chose not to repair it due to the cost. The court considered the expert testimony indicating the shock impact of loading the elevator, combined with the existing weight, likely exceeded the elevator’s rated capacity, causing the bolt to break. Because the hotel was aware of this dangerous condition and failed to act, it was deemed equally responsible for the accident. Citing Colon v. Board of Educ. of City of N. Y., the dissent argued that because the hotel was in pari delicto with the elevator maintenance company, it was not entitled to recover over on principles of common-law indemnity. The dissent quoted Restatement, Restitution, emphasizing that a party cannot seek indemnity if their own fault contributed to the injury. The court determined that the hotel’s negligence was not merely passive but actively contributed to the accident by knowingly maintaining a defective elevator, thereby precluding its claim for indemnity from the elevator maintenance company. As stated in the dissent, the hotel was “at least equally responsible with the elevator maintenance company for the defect which caused the accident.”