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Breach of Construction Contracts Indemnification

Breach of Construction Contracts Indemnification

The Supreme Court of New York County recently heard the very interesting case of Bottcher v. West 44th Street Hotel – a case involving a complex construction contract between the parties, and also involving issues of indemnification (payment or remuneration for the actions of another) and failure to obtain insurance. These issues, collectively, are quite common in breach of contract cases involving construction work.

Background of the Case

Plaintiff was an electrician working on a construction project in August, 2009. He alleges that while being transported on a personnel hoist he was injured when it collided with a loading dock, causing a rear door to unexpectedly spring open and forcefully strike the plaintiff’s back. Plaintiff was employed by third-party defendant Five Star Electric. The building owner, West 44th Street Hotel (Hereafter “The Hotel”) had a contract with a construction company known as Tishman. Tishman then signed an agreement with Five Star, the electrical contractor on the project.

The Plaintiff sued the defendants (The Hotel and Tishman) for negligence and certain labor law violations which we won’t address here in any great detail. The Hotel and Tishman then sued Five Star for breach of contract, failure to obtain insurance, and indemnification as a 3rd party defendant.

Analysis: Contractual Indemnification

The court articulated the standard present in New York. Under the Canela decision the right to contractual indemnification depends upon the specific language of the contract. The court analyzed paragraph 7 of the contract which required Five Star to indemnify the owner and construction manager and outlined a detailed list of requirements. The court stated that ordinarily this language would be enough to rule in favor of The Hotel and Tishman and against Five Star on the issue of indemnification, however there was one exception that must be addressed.

That principle is simply that the party seeking indemnification (remember that means the party seeking remuneration from another party) must be free from fault of their own. In this case the court felt as if there were material issues of fact as to whether Tishman was negligent in its own right. Because this issue needs to be decided at trial, ruling in favor of The Hotel and Tishman via a motion for summary judgment would be premature.

Analysis: Breach of Contract for Failure to get Insurance

The Hotel and Tishman seek summary judgment via their motion alleging that Five Star breached the contract by failing to obtain the general liability insurance mentioned in paragraph 8 of the contract. Paragraph 8 required $5,000,000 in general insurance, plus additional coverage for other individuals known as “Additional Insureds.”

Five Star responds by entering into evidence a policy it had obtained. This policy had a limit of $1,000,000 per occurrence and a total limit of $2,000,000. Illustrating the difficulty of prevailing on a motion of summary judgment, the court denied the Hotel and Tishman’s motion stating that material issues of fact existed as to whether Five Star breached paragraph 8. These issues included whether the $2,000,000 policy was in breach of the requirement for $5,000,000 in general coverage, as well as whether or not it adequately covered the “Additional Insured” discussed in paragraph 8.

Insurance coverage in construction contracts is a highly contentious issue. Remember that contracts attempt to cover every conceivable eventuality – including who bears certain risks. It is imperative to retain experienced counsel in these matters - please do not hesitate to contact our office for a consultation.

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