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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: May 13, 2020

Party Whose Liability Was Only Vicarious Entitled to Common Law Indemnification

On April 20, 2020, Justice Cohen of the New York County Commercial Division issued a decision in Shah v. 20 E. 64th St. LLC, 2020 NY Slip Op. 31002(U), holding that a party whose liability was only vicarious was entitled to common law indemnification, explaining:

Common-law indemnification is warranted where a defendant’s role in causing the plaintiff’s injury is solely passive, and thus its liability is purely vicarious. Since the predicate of common law indemnification is purely vicarious liability (that is, without actual fault on the part of the proposed indemnitee), it follows that a party who has itself participated to some degree in the wrongdoing cannot receive the benefit of the doctrine.

Tri-Star and Urban do not dispute that, under Judge Kotler’s summary judgment decision, 20 East is entitled to common law indemnification for its liability on Plaintiffs’ claim based on a theory of strict liability. Accordingly, 20 East is granted judgment on its cross-claim for indemnification with respect to amounts paid by 20 East in satisfaction of its liability to Plaintiffs claim based on strict liability, to be apportioned 60% to Tri-Star and 40% to Urban. By contrast, 20 East is not entitled to common law indemnification for its liability to Plaintiffs based on 20 East’s breach of contract. Judge Kotler’ s grant of conditional common law indemnification was based on her conclusion that 20 East could only be found liable for negligence based on a theory of vicarious liability. SJ Op. at 24. She made no such finding with respect to 20 East’s potential liability for breach of contract.

20 East is correct that although common law indemnification typically is applied in the tort realm, there is no per se rule against applying it in the context of a breach of contract. However, such indemnification is not available when the would-be indemnitee has participated “to some degree” in the wrongdoing. Here, although 20 East delegated responsibility for the “Work” to Tri-Star and Urban, it retained independent obligations under the Agreement, including the obligation under Paragraph 19 to “cause its contractors to promptly¬∑ repair or, if agreed by [Plaintiffs] in lieu of making a repair, compensate [Plaintiffs].” Although 20 East argues that Tri-Star undertook a contractual obligation to 20 East to undertake repairs, that does not absolve 20 East of its obligation vis-ii-vis the Plaintiffe to “cause” or authorize that such repairs be undertaken, which in this case it did not.

In sum, the law does not impose an obligation upon Tri-Star and/or Urban to backstop 20 East’s contractual liability to Plaintiffs. Any right to such indemnification would have to be contractual.

(Internal citations omitted).

We frequently litigate issues relating to the advancement or indemnification of litigation expenses such as attorneys’ fees to corporate officers, directors and employees, as well as claims for common law indemnification as is described in this decision. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a situation where you may be held liable for someone else’s negligence.

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