Great Northern Ins. Co. v. Interior Const.

• Decision Date: 19 October 2006
• Citation: 7 N.Y.3d 412,857 N.E.2d 60
• Parties: GREAT NORTHERN INSURANCE COMPANY, Plaintiff, v. INTERIOR CONSTRUCTION CORP. et al., Defendants, The Depository Trust & Clearing Corporation, Appellant, and New Water Street Corporation, Respondent. (And a Third-Party Action.)
• Court: New York Court of Appeals Court of Appeals

Page 60

857 N.E.2d 60

7 N.Y.3d 412

GREAT NORTHERN INSURANCE COMPANY, Plaintiff, v. INTERIOR CONSTRUCTION CORP. et al., Defendants The Depository Trust & Clearing Corporation, Appellant, and New Water Street Corporation, Respondent. (And a Third-Party Action.)

Court of Appeals of New York.

October 19, 2006.

Herzfeld & Rubin, P.C., New York City (David B. Hamm of counsel), and Morris, Duffy, Alonso & Faley, LLP (Yolanda L. Ayala and Kevin G. Faley of counsel), for appellant.

Quirk and Bakalor, P.C., New York City (Richard H. Bakalor of counsel), for respondent.

OPINION OF THE COURT

GRAFFEO, J.

At issue in this case is the enforceability of an indemnification provision in a commercial lease. We conclude that the indemnification clause, which was coupled with an insurance procurement provision, obligates the tenant to indemnify the landlord for its share of liability, and that such a lease provision does not violate General Obligations Law § 5-321. We therefore affirm the order of the Appellate Division so holding.

New Water Street Corporation leased a portion of the 28th floor of its building located at 55 Water Street in New York City to Depository Trust & Clearing Corporation. The lease required Depository to indemnify New Water as follows:

"Tenant shall indemnify and hold harmless Landlord . . . from and against any and all claims arising from or in connection with (A) the conduct or management of the Premises or of any business therein, or any work or thing whatsoever done, or any condition created (other than by Landlord) in or about the Premises during the term of this Lease . . .; (B) any act, omission or negligence of Tenant or any of its subtenants or licensees . . . or contractors; (C) any accident, injury or damage whatsoever (unless caused solely by Landlord's negligence) occurring in, at or upon the Premises; and (D) any breach or default by Tenant in the full and prompt payment and performance of Tenant's obligation under this Lease . . . ."

The lease further obligated Depository, at its expense, to maintain a comprehensive general liability insurance policy naming New Water as an additional insured with coverage to be no less than $5 million "combined single limit per occurrence for bodily injury and property damage liability." Another lease term directed New Water and Depository to obtain mutual waivers of subrogation in their respective insurance policies. Depository procured the specified insurance coverage, and New Water also maintained a separate insurance policy for the building.

After entering into the lease, Depository hired Interior Construction Corporation to renovate a portion of its premises. Interior subcontracted with TM & M Mechanical Corporation to perform work on an existing sprinkler system as part of the project. In August 1999, during construction, a flood occurred, causing property damage to the premises of Neuberger & Berman, LLC, a tenant on the floor below. The water damage resulted from the failure to drain the pipes properly before beginning the sprinkler work.

Great Northern Insurance Company — Neuberger's insurer — commenced a subrogation action against New Water, Depository and Interior in June 2001 to recover the monies it had paid to Neuberger on its property damage claim.¹ As relevant to this appeal, New Water interposed a cross claim against Depository for contractual indemnification. In 2004, the subrogation action was settled for $200,000 and all claims and cross claims among the parties were resolved, except for New Water's indemnification claim against Depository.² As part of the settlement, the parties stipulated that if the case had been tried by a jury, 90% of the liability would have been allocated to New Water and 10% to Interior. After the settlement, New Water moved for summary judgment against Depository on its claim for contractual indemnification. Supreme Court denied the motion. The Appellate Division initially affirmed but later granted reargument and reversed, thereby granting New Water's motion. We granted Depository leave to appeal.

Depository advances two arguments to support its position that New Water is not entitled to contractual indemnification. First, Depository asserts that the language of the lease provision at issue does not unmistakably require indemnification under the circumstances of this case. Alternatively, even if interpreted to entitle New Water to indemnification, Depository urges that the lease provision is unenforceable and contrary to public policy under General Obligations Law § 5-321 because it obligates a tenant to indemnify a landlord for the landlord's own negligence. We address each contention in turn.

Courts will construe a contract to provide indemnity to a party for its own negligence only where the contractual language evinces an "unmistakable intent" to indemnify (see Levine v. Shell Oil Co., 28 N.Y.2d 205, 212, 321 N.Y.S.2d 81, 269 N.E.2d 799 [1971]). As we have explained:

"When a party is under no legal duty to indemnify, a contract assuming that obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed. The promise should not be found unless it can be clearly implied from the language and purpose of the entire agreement and the surrounding facts and circumstances" (Hooper Assoc. v. AGS Computers, 74 N.Y.2d 487, 491-492, 549 N.Y.S.2d 365, 548 N.E.2d 903 [1989] [citations omitted]; see also Rodrigues v. N & S Bldg. Contrs., Inc., 5 N.Y.3d 427, 433, 805 N.Y.S.2d 299, 839 N.E.2d 357 [2005]).

Here, subsection (C) of the indemnification clause in the lease required Depository to indemnify New Water for "any" accident occurring in Depository's premises "unless caused solely by [New Water's] negligence." This broadly drawn provision unambiguously evinced an intent that Depository indemnify New Water for the latter's own negligence, provided New Water was not 100% negligent. In this case, the parties stipulated that New Water was 90% at fault and Depository's contractor was 10% responsible for the water damage. Hence, New Water was not solely liable under the terms of the stipulation and the clear language of the lease unmistakably affords indemnification under the circumstances of this case.³

Having concluded that the indemnification provision was triggered, we next consider Depository's contention that the provision is nevertheless unenforceable in light of General Obligations Law § 5-321. That statute provides:

"Every covenant, agreement or understanding in or in connection with or collateral to any lease of real property exempting the lessor from liability for damages for injuries to person or property caused by or resulting from the negligence of the lessor, his agents, servants or employees, in the operation or maintenance of the demised premises or the real property containing the demised premises shall be deemed to be void as against public policy and wholly unenforceable."

The controlling precedent regarding application of General Obligations Law § 5-321 is Hogeland v. Sibley, Lindsay & Curr Co., 42 N.Y.2d 153, 397 N.Y.S.2d 602, 366 N.E.2d 263 [1977]. In Hogeland, a...