New York Law Review

Tag: indemnity agreement

  • Federal Ins. Co. v. Walker, 53 N.Y.2d 24 (1981): Indemnity Agreements and Duty to Mitigate Damages

    Federal Ins. Co. v. Walker, 53 N.Y.2d 24 (1981)

    An indemnity agreement does not automatically bar a third-party negligence action by the indemnitor against the indemnitee, and an indemnitor is not obligated to reimburse an indemnitee for losses resulting from the indemnitee’s failure to reasonably mitigate damages.

    Summary

    This case concerns interlocking indemnity agreements and the duty to mitigate damages. Ms. Walker received dividends for Union Camp stock she no longer owned due to a failure to record a transfer. She obtained duplicate certificates, agreeing to indemnify Union Camp and its agent, Morgan Guaranty. Federal Insurance issued a bond indemnifying Union Camp and Morgan, with Ms. Walker and her son, Alexander, indemnifying Federal. After the error was discovered, Union Camp waited nearly a year to purchase replacement shares, increasing the cost. Federal paid the claim and sued the Walkers, who impleaded Union Camp and Morgan for negligence. The court addressed whether the indemnity agreements barred the negligence claim and whether Federal was entitled to full reimbursement despite the delay in mitigating damages. The Court of Appeals held that the indemnity agreement did not bar the negligence claim and that the Walkers were not responsible for losses attributable to Union Camp’s unreasonable delay.

    Facts

    In 1970, Helen Walker acquired Union Camp shares but the transfer was not recorded. She continued receiving dividends. Her son, Alexander Walker, Jr., suggested she obtain duplicate certificates. Union Camp’s agent, Morgan Guaranty, required her to sign an agreement indemnifying them against losses arising from issuing the duplicates. Federal Insurance issued a blanket bond indemnifying Union Camp and Morgan, with the Walkers indemnifying Federal. Ms. Walker sold the duplicate shares for $52,800. In 1975, the unrecorded transfer was discovered, creating an “overissuance” problem. Union Camp and Morgan waited until August 1976 to purchase replacement shares, by which time the cost had risen to $108,515.25 due to a stock split.

    Procedural History

    Federal paid Union Camp and Morgan’s claim and sued Alexander Walker, Jr., and Ms. Walker’s estate for reimbursement. Walker impleaded Union Camp and Morgan for negligence. Special Term dismissed the third-party complaint but only partially granted summary judgment to Federal. The Appellate Division reinstated the third-party complaint and granted Federal full summary judgment. Walker appealed to the Court of Appeals, and Union Camp and Morgan also appealed by permission.

    Issue(s)

    1. Whether the indemnity agreement executed by Ms. Walker bars a third-party negligence action against Union Camp and Morgan.

    2. Whether Alexander Walker, Jr., is obligated to reimburse Federal for the full amount of the replacement shares, including the increase in cost due to Union Camp and Morgan’s delay in purchasing them.

    Holding

    1. No, because the indemnity agreement did not indicate an intention to waive rights or exonerate the third-party defendants from direct liability for their negligence.

    2. No, because the Walkers are not responsible for losses attributable to Union Camp and Morgan’s unreasonable delay in mitigating damages.

    Court’s Reasoning

    The Court reasoned that Ms. Walker’s indemnity agreement allocated the risk of liability to third parties but did not waive her right to sue for Union Camp’s and Morgan’s own negligence. The agreement only protected them from claims by “some stranger to the transaction.” The court distinguished this case from those involving explicit waivers of negligence claims. Alexander Walker, Jr.’s, indemnity agreement with Federal only bound him to Federal, not Union Camp or Morgan. Regarding mitigation of damages, the Court stated that Federal was not obligated to “remunerate the third-party defendants for losses occasioned strictly by their own failure to take remedial measures within a reasonable period of time.” The Court emphasized that “the surety agreed to reimburse the third-party defendants for any loss they might reasonably sustain.” Requiring the Walkers to pay for the increased cost resulting from the delay would be inequitable, especially since Federal acquiesced in the delay. The Court remanded for a trial to determine the reasonableness of the delay and the resulting damages. The court noted the “daisy chain” effect of the interlocking indemnity agreements but stated that the parties created this situation through their agreements.

  • Feigenbaum v. Singer, 42 N.Y.2d 362 (1977): Consideration Found in Detriment to Promisee Even Without Benefit to Promisor

    Feigenbaum v. Singer, 42 N.Y.2d 362 (1977)

    Consideration for a promise exists when the promisee incurs a specific, bargained-for legal detriment, even if the promisor receives no direct benefit.

    Summary

    This case clarifies that consideration in contract law doesn’t always require a direct benefit to the promisor; a detriment incurred by the promisee is sufficient. Feigenbaum promised to indemnify his co-shareholders in Mobile Modular Industries. When the corporation defaulted and the other shareholders paid, Feigenbaum refused to contribute, arguing he received no benefit as he hadn’t personally guaranteed the loan. The Court of Appeals held that the other shareholders’ promises to indemnify each other, a detriment to them, constituted sufficient consideration to enforce Feigenbaum’s promise, regardless of whether he directly benefited.

    Facts

    Mobile Modular Industries, Inc. needed capital and sought a loan from First National City Bank of Binghamton.

    The bank required personal guarantees from all shareholders.

    Most shareholders, including the plaintiffs (Singer, et al.), provided guarantees.

    Feigenbaum, the defendant, did not give a personal guarantee to the bank.

    All shareholders, including Feigenbaum, entered into a cross-indemnity agreement, promising to cover pro rata losses if any shareholder was liable to the bank.

    The agreement stated the guarantees were an inducement for the line of credit.

    Mobile Modular defaulted, and the bank recovered from six shareholders who then sought contribution from Feigenbaum per the indemnity agreement.

    Feigenbaum refused to pay.

    Procedural History

    Plaintiffs sued Feigenbaum to enforce the indemnity agreement.

    Special Term granted summary judgment for plaintiffs, estopping Feigenbaum from denying he was a guarantor.

    The Appellate Division affirmed, finding Feigenbaum benefited when the bank loaned funds to the corporation.

    The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether a promise to indemnify co-shareholders against disproportionate loss is enforceable when the promisor (Feigenbaum) received no direct benefit because he did not personally guarantee the underlying debt to the bank.

    Holding

    Yes, because consideration may consist of a detriment to the promisee (the shareholders who provided guarantees), even if the promisor (Feigenbaum) receives no direct benefit. The plaintiffs’ promise to indemnify each other constituted sufficient consideration.

    Court’s Reasoning

    The court rejected the argument that consideration requires a benefit flowing to the promisor.

    It traced the historical development of consideration from actions of debt (quid pro quo) to assumpsit (detriment to promisee).

    The court explained that modern contract law recognizes consideration as either a benefit to the promisor or a detriment to the promisee.

    The court cited Rector of St. Mark’s Church v Teed, 120 NY 583, 586, stating, ” ‘[a] valuable consideration may consist of some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.’ “

    Plaintiffs’ promises to indemnify each other, regardless of their value to Feigenbaum, represented a detriment since they assumed the added duty of sharing the corporation’s default costs. “Since this detriment was precisely what defendant had bargained for under the terms of that agreement, he cannot now avoid his own promise by claiming that it was not supported by legally sufficient consideration.”

    The court also noted the promises to the bank were identified in the cross-indemnity agreement as part of the consideration.

    Finally, the court addressed the sequence of events. Even if Feigenbaum’s promise came after the guarantees, General Obligations Law § 5-1105 allows enforcement if the past consideration (the guarantees) is expressed in the writing.

  • Margolin v. New York Life Ins. Co., 32 N.Y.2d 149 (1973): Scope of Indemnity Agreements

    Margolin v. New York Life Ins. Co., 32 N.Y.2d 149 (1973)

    An indemnity clause in a contract is only applicable to damages caused by or resulting from the performance of work specifically outlined in the agreement.

    Summary

    Margolin sued New York Life for injuries sustained after falling on an icy sidewalk. New York Life then filed a third-party claim against Park & Estate Maintenance, Inc., based on an indemnification clause in their maintenance contract. The court considered whether the indemnity clause covered New York Life’s liability for the sidewalk defect. The Court of Appeals held that the indemnity agreement only covered damages related to the work Park & Estate was contracted to perform, which did not include sidewalk repair. Therefore, Park & Estate was not liable to indemnify New York Life.

    Facts

    Plaintiff Margolin fell and sustained injuries due to a depression in the sidewalk outside a building owned by New York Life Insurance Company. The depression accumulated water, which froze and caused the fall. New York Life had contracted with Park & Estate Maintenance, Inc. for landscape maintenance, including snow plowing and ice removal. The contract did not include sidewalk maintenance or repair.

    Procedural History

    Margolin sued New York Life, who then filed a third-party complaint against Park & Estate, seeking indemnification based on their contract. The trial court dismissed both the plaintiff’s complaint against Park & Estate and New York Life’s third-party complaint against Park & Estate. New York Life appealed the dismissal of its cross-claim, but Margolin did not appeal the dismissal of the claim against Park & Estate. The Appellate Division reversed, finding Park & Estate liable for indemnification. The New York Court of Appeals then reviewed the Appellate Division’s order.

    Issue(s)

    Whether the indemnity clause in the contract between New York Life and Park & Estate requires Park & Estate to indemnify New York Life for damages arising from a structural defect in the sidewalk, when the contract only covered landscape maintenance including snow and ice removal, and not sidewalk repair.

    Holding

    No, because the indemnity clause only extends to damages caused by or resulting from the work Park & Estate was contracted to perform, and the structural defect in the sidewalk was not within the scope of that work.

    Court’s Reasoning

    The court focused on the specific language of the indemnity clause and the scope of the contract between New York Life and Park & Estate. The indemnity clause stated that Park & Estate assumed responsibility for damage or injury “caused by or resulting from the execution of the work or occurring in connection therewith.” The court emphasized that the contract outlined specific landscaping services, including snow plowing and ice removal, but did not include sidewalk maintenance or repair. New York Life’s own superintendent conceded that the company was responsible for sidewalk repairs. The court reasoned that New York Life’s liability to Margolin stemmed from its duty, as the property owner, to maintain the sidewalk in a reasonably safe condition and that the breach of that duty was due to the structural defect, not from any actions or omissions by Park & Estate related to their contracted work. As Judge Jones dissenting opinion stated, the indemnity, though broad, extended only to damages caused by the performance of work under the agreement and was “accordingly…restricted to reimbursement of New York Life for liability and damages sustained by New York Life in consequence of negligent snow plowing or ice removal.” Since the loss wasn’t caused by work Park & Estate was to perform under their agreement, Park & Estate had no liability in contract to New York Life. The court modified the Appellate Division’s order to reflect this determination.

  • Kurek v. Port Chester Housing Authority, 18 N.Y.2d 450 (1966): Contractual Indemnification for Active Negligence

    Kurek v. Port Chester Housing Authority, 18 N.Y.2d 450 (1966)

    A contractual indemnification clause can provide indemnity for a party’s own active negligence if the contract language is sufficiently broad and unequivocal, demonstrating a clear intent by the parties to provide such coverage.

    Summary

    Mrs. Kurek, a tenant in a housing project, was injured by a defective washing machine in the building’s laundry room. She sued both the Housing Authority and the laundry service company. The Housing Authority cross-claimed against the laundry service for indemnity. The jury found both defendants liable, and the trial judge granted the Housing Authority’s contractual cross-claim. The Court of Appeals affirmed, holding that the indemnification clause was broad enough to cover the Housing Authority’s own active negligence because the language of the contract demonstrated a clear intention to provide such coverage.

    Facts

    Mrs. Kurek, a tenant in a housing project operated by the Port Chester Housing Authority, was injured when a washing machine in the building’s laundry room unexpectedly restarted. The washing machines were owned and serviced by John Liammari, doing business as Westchester Metered Laundry Service. The Housing Authority received a monthly sum and a percentage of revenue for allowing the machines to be placed in the basement and for providing water and electricity.

    Procedural History

    Mrs. Kurek and her husband sued the Port Chester Housing Authority and John Liammari for personal injuries and loss of services. The Housing Authority cross-claimed against Liammari for indemnity based on a contractual provision and common-law right. The trial court found for the plaintiffs against both defendants and in favor of the Authority on its contractual cross-claim. The Appellate Division affirmed the judgment upon a stipulation by the plaintiffs agreeing to accept a reduced judgment. The Court of Appeals granted further review.

    Issue(s)

    1. Whether there was sufficient evidence to justify the verdict against both the Housing Authority and Liammari.

    2. Whether the trial judge was correct in allowing recovery on the cross-claim in favor of the Housing Authority, given that the Authority may have been actively negligent.

    Holding

    1. Yes, because there was sufficient evidence in the record from which the jury could have reached its determination that the injury to the plaintiffs resulted from the negligence of both defendants.

    2. Yes, because the contractual indemnification clause was broad enough to cover the Authority’s own active negligence, given the unmistakable intent of the parties as expressed in the contract.

    Court’s Reasoning

    The Court of Appeals affirmed the lower courts’ decisions. Regarding the cross-claim, the court acknowledged that the Housing Authority’s negligence was considered “active,” precluding common-law indemnification. However, the court focused on the contractual indemnity clause, which stated that the Licensee (Liammari) would “hold the Authority and State of New York harmless against all claims and demands of persons not parties to this agreement, of whatsoever kind or nature, which may arise in connection with the installation, operation, maintenance, servicing, supervision, ownership and control of the Machines…or which may arise in the performance of this Contract.”

    The court emphasized that such clauses are strictly construed and that “contracts will not be construed to indemnify a person against his own negligence unless such intention is expressed in unequivocal terms” (Thompson-Starrett Co. v. Otis Elevator Co., 271 N.Y. 36, 41). However, the court also cautioned against construing these provisions in a way that would render them meaningless, particularly where common-law indemnity would already apply to passive negligence. The Court noted prior cases like Jordan v. City of New York, 3 A.D.2d 507, 509, affd. 5 N.Y.2d 723, where indemnification was permitted even when the language didn’t expressly cover active negligence, because that was the parties’ clear intent.

    The court found the indemnification clause here sufficiently broad, covering “all claims and demands” of third persons “of whatsoever kind or nature” arising out of the machines’ operation and maintenance. The claim against the Authority arose from the operation and maintenance of the machine. Therefore, the agreement applied unless the court were to disregard the clear and unequivocal wording of the agreement. The court stated, “Unless we are to disregard the clear and unequivocal wording of this agreement and engraft an exception to the ‘claims * * * of whatsoever kind or nature’ for which indemnification is provided, the agreement must be held applicable here.”