Itri Brick & Concrete Corp. v. Aetna Cas. & Sur. Co.

• Decision Date: 13 May 1997
• Citation: 680 N.E.2d 1200,89 N.Y.2d 786,658 N.Y.S.2d 903
• Parties: , 680 N.E.2d 1200 ITRI BRICK & CONCRETE CORP. et al., Appellants, v. AETNA CASUALTY & SURETY COMPANY, Respondent, et al., Defendants. Charles STOTTLAR, Plaintiff, v. GINSBURG DEVELOPMENT CORP. et al., Defendants. (And a Second and Third-Party Action.) W.C. SHOPOVICK & CO., INC., Fourth-Party Plaintiff, v. STATE INSURANCE FUND, Fourth-Party Defendant-Respondent, and CNA Insurance Company, Fourth-Party Defendant-Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 903

658 N.Y.S.2d 903

89 N.Y.2d 786, 680 N.E.2d 1200

ITRI BRICK & CONCRETE CORP. et al., Appellants, v. AETNA CASUALTY & SURETY COMPANY, Respondent, et al., Defendants.

Charles STOTTLAR, Plaintiff, v. GINSBURG DEVELOPMENT CORP. et al., Defendants.

(And a Second and Third-Party Action.)

W.C. SHOPOVICK & CO., INC., Fourth-Party Plaintiff, v. STATE INSURANCE FUND, Fourth-Party Defendant-Respondent, and CNA Insurance Company, Fourth-Party Defendant-Appellant.

Court of Appeals of New York.

May 13, 1997.

Herzfeld & Rubin, P.C., New York City (David B. Hamm, Herbert Rubin and Miriam Skolnik, of counsel), and James P. O'Connor, for appellants in the first above-entitled action.

Michael Majewski, P.C., Garden City (Michael Majewski and Nicole Norris Poole, of counsel) for respondent in the first above-entitled action.

Ahmuty, Demers & McManus, Albertson (Frederick B. Simpson, Debra A. Edwards and James A. Edwards, of counsel), for fourth-party defendant-appellant in the second above-entitled action.

Mark Slotkin, New York City, James P. O'Connor and Raymond C. Green, for fourth-party defendant-respondent in the second above-entitled action.

OPINION OF THE COURT

WESLEY, Judge.

These appeals pose a question left unanswered in Brown v. Two Exch. Plaza Partners, 76 N.Y.2d 172, 556 N.Y.S.2d 991, 556 N.E.2d 430: whether, and to what extent, an indemnification agreement between a general contractor and subcontractor can be enforced where the general contractor has been found partially negligent in an action brought by an employee of the subcontractor against the general. We hold that, because the agreements in question contemplate full, rather than partial, indemnification, the agreements are unenforceable under General Obligations Law § 5-322.1 in the circumstances of these cases.

I.

Itri Brick & Concrete Corp. v. Aetna Cas. & Sur. Co.

Plaintiff Itri Brick & Concrete Corp. was a masonry subcontractor on a construction project at Queens College. The general contractor on the job was a joint venture consisting of Mars Associates, Normel Construction Corp., and West Terrace Construction Corp. (MNT). Kizmann, an employee of Itri, was injured on the job, and sued MNT under theories of common-law negligence and Labor Law §§ 240 and 241. MNT in turn impleaded Itri, asserting claims for common-law indemnification and contribution, as well as contractual indemnification. ¹

Itri made a demand to defend and indemnify upon its two insurers: the State Insurance Fund, Itri's workers' compensation carrier, which provided coverage for common-law indemnification and contribution claims, and Aetna, which had issued Itri a commercial general liability policy. Aetna responded that its policy did not cover the common-law claims, and that, while the policy did generally cover liability assumed by Itri under a contract or agreement, MNT's claim for contractual indemnification would be barred under General Obligations Law § 5-322.1 if Kizmann's injuries resulted in part from the negligence of MNT. ²

While the personal injury action was pending, Itri and the State Fund commenced this declaratory judgment action against Aetna demanding that Aetna partially defend and indemnify Itri. Upon a motion by Itri and the State Fund for summary judgment, Supreme Court denied the motion, searched the record and granted judgment in Aetna's favor. The court determined that the indemnification agreement was void under General Obligations Law § 5-322.1, and that MNT's claim for contractual indemnification against Itri was not covered by the Aetna policy. Two months later, the personal injury action settled. Shortly thereafter, Aetna and the State Fund entered into a stipulation: (1) that approved the settlement amount paid by State Fund on behalf of Itri in the personal injury action; (2) that specifically reserved the State Fund's right to seek to reargue Itri's coverage claim in the declaratory judgment action; and (3) that determined that MNT was 24.26% negligent, and Itri was 75.24% negligent.

Thereafter, Itri and the State Fund moved to renew and to reargue the summary judgment motion. Supreme Court denied the motion to reargue, granted the motion to renew and adhered to its previous decision, again holding that since MNT had been found partially negligent, the indemnification agreement between MNT and Itri was unenforceable under General Obligations Law § 5-322.1. Itri and the State Fund appealed. The Appellate Division unanimously affirmed, holding that, because the stipulation determined that MNT was partially negligent, the indemnification agreement was invalid under General Obligations Law § 5-322.1 and therefore there was no coverage under the applicable provision of the Aetna policy. Leave to appeal to this Court was granted by the Appellate Division.

Stottlar v. Ginsburg Dev. Corp.

Plaintiff Stottlar was an employee of W.C. Shopovick & Co., Inc., a carpentry subcontractor on a construction project on which defendant Ginsburg Development Corporation was the general contractor. Stottlar fell from a plank and was injured while on the job. He then sued Ginsburg under theories of common-law negligence and Labor Law §§ 200 and 240. Ginsburg in turn impleaded Shopovick, asserting claims for common-law contribution and indemnification, as well as contractual indemnification. ³

Shopovick made a demand for defense and indemnification from its two insurers--the State Insurance Fund, Shopovick's workers' compensation insurer, and CNA Insurance Company, Shopovick's insurer under a commercial general liability policy. ⁴ CNA agreed to defend Shopovick, but reserved its right to disclaim coverage on Ginsburg's contractual indemnification claim if Ginsburg was found negligent.

At trial on the issue of liability only, the court dismissed the Labor Law § 241(6) claim. Plaintiff's remaining causes of action were submitted to the jury. The jury determined that Ginsburg's violation of Labor Law § 240(1) was not a proximate cause of plaintiff's injuries. The jury returned a verdict for plaintiff on the negligence and Labor Law § 200 causes of action and determined that Shopovick was 50% negligent, Ginsburg was 35% negligent, and Stottlar was 15% negligent. Prior to a trial on plaintiff's damages, Shopovick commenced a fourth-party action against CNA and the State Fund seeking a declaratory judgment to determine the carriers' responsibilities under their respective policies with Shopovick. The personal injury case was ultimately settled and CNA reserved its right to seek a judicial determination of its duty to indemnify Shopovick in the fourth-party action.

CNA and the State Fund submitted an agreed statement of facts for a stipulated controversy to Supreme Court. That court held that the indemnification agreement between Ginsburg and Shopovick was unenforceable under General Obligations Law § 5-322.1, because of the jury's apportionment of negligence to include Ginsburg. Thus, since the agreement was invalid, CNA was not liable under the provisions of its policy to indemnify Shopovick on Ginsburg's contractual indemnification claim.

The Appellate Division reversed. Noting that General Obligations Law § 5-322.1 was intended only to preclude a contractor Ginsburg) from seeking contractual indemnification for damages caused by the negligence of the contractor, the court went on to hold that CNA was "required to honor its contractual obligation to the extent that the [indemnification] contract requires indemnification caused by or resulting from the negligence of a party other than" Ginsburg (Stottlar v. Ginsburg Dev. Corp., 229 A.D.2d 483, 485, 645 N.Y.S.2d 833). The Appellate Division concluded that the contractual indemnification clause remained in effect and rendered CNA and the State Fund coinsurers. We granted CNA leave to appeal.

II.

Both agreements are drawn in extremely broad terms. The Itri/MNT agreement states that Itri "shall hold the first party [MNT] harmless from all liability * * * from claims for injuries or death from any cause while on or near the project * * * whether or not it is contended the first party contributed thereto in whole or in part " (emphasis added). The agreement imposes an indemnification obligation on Itri merely upon a determination that the claim arose from activity "while on or near the project" without regard to whether Itri or its employees were a cause of the injury and notwithstanding culpability by MNT in whole or in part.

The Ginsburg/Shopovick agreement states that Ginsburg "shall be indemnified and held harmless from any and all liability, action or claims (just or unjust), and from any and all resulting damages, expenses, costs or fees * * * made by any person * * * in connection with or resulting from the work or by reason of the operations performed on behalf of, or on the property of GINSBURG DEVELOPMENT CORP. by the named insured Subcontractor, his agents, servants or employees" (emphasis added). This agreement closely parallels the language of the indemnification agreement at issue in Brown v. Two Exch. Plaza Partners, supra, 76 N.Y.2d, at 177, n. 3, 556 N.Y.S.2d 991, 556 N.E.2d 430. The agreement requires Shopovick to indemnify Ginsburg for all claims that arise "from the work" without regard to who or what caused the injury.

The agreements here contemplate a complete rather than partial shifting of liability from the general contractor to the subcontractor. They were obviously intended to broaden the liability of the respective subcontractors, by providing for indemnification from claims for injuries; (a) "from any cause while on or near the project" (Itri ), or (b) "in connection with or resulting from the work" (Stottlar ) (see, Brown v. Two Exch. Plaza Partners, supra, 76 N.Y.2d, at 178, 556 N.Y.S.2d 991, 556 N.E.2d 430). Both impose an indemnification obligation on the subcontractors without limitation in terms of the negligence of the general contractor/owner. Indeed, in Itri, the...