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Contractual Indemnity Provisions

Contractual Indemnity Provisions

The Supreme Court of New York County recently issued a decision in the case of Gell-Tejada v. Macy’s Retail Holdings. This case explores the intersection of negligence law with breach of contract law from a different angle than cases we have previously examined. Recall that the most recent line of New York cases on the subject say that mere breach of contract cannot amount to negligence – however in this case, the relevant portions of the contract actually deal with indemnity (responsibility for one party to pay another) for negligent actions that may have occurred.

Background of the Case

The plaintiff was an infant riding on an Otis-model escalator (“escalator 16”) located at the Macy’s at West 34th Street, New York, New York. Apparently he, reacting to a dropped water bottle, reached down to pick it up and had his finger caught in the escalator’s comb plate, severing the finger, a severe and tragic injury.

An escalator comb plate is located at the transition area between the fixed platform that people stand on before boarding the escalator and the first moving stair. It contains characteristic comb-like protrusions that mesh with grooves located on the edge of the stair. The purpose of the comb plate is to prevent objects, such as clothing, from snagging on the moving stair.

The plaintiff’s theory was that the comb plate was improperly installed or maintained via the negligence of Macy’s and/or the other named defendant, Thyssenkrupp Elevator Corporation.

The contractual issues arose from the relationship between Macy’s and Thyssenkrupp. The two parties had a contract for escalator repair and maintenance work with an indemnification provision.

The relevant portions of the indemnity clause read: “Each party agrees (as indemnitor) to indemnify and hold harmless the other [party] (as indemnitee) from any and all claims arising out of the indemnitor’s negligent actions, including, without limitation, any breach of this agreement.

Analysis

Thyssenkrupp sought both common-law and contractual indemnity from Macy’s. The court first analyzed the common-law indemnification claim under New York law. The rule was designed for the benefit of a party that was guilty of vicarious liability (liability for the action of another) without actual fault. (Tort law has many oddities, including the notion that parties innocent of any direct wrongdoing may still be at fault. The classic example is that an employer is generally liable for torts committed by an employee acting within the scope of employment, such as a nightclub bouncer who commits aggravated battery.) In this case the two required elements were that Macy’s was proven to be negligent and that Thyssenkrupp was proven to be non-negligent with respect to the installation and maintenance and operation of Escalator 16. Because of the procedural posture, which was a motion for summary judgment by Thyssenkrupp, the court said that to issue a decision would be premature as issues of negligence were best left to the jury.

The rule for contractual indemnity in this case was also interesting and tracked the common-law rule. Because of the wording of the contract, Thyssenkrupp would have to prove that Macy’s was, in fact, negligent. The indemnity clause was only triggered if Macy’s was negligent. In addition, because the indemnity clause applied to both parties, Thyssenkrupp’s negligence was also at issue! Any negligence on the part of Thyssenkrupp would actually trigger an obligation to indemnify Macy’s – if both parties were negligent, the indemnification obligations would theoretically offset and be dependent on the degree of comparative fault. It is very interesting that this reading of the contractual provisions tracks the rule for common-law indemnity so closely, and it may have an effect on the wording of future contractual provisions of this nature.

Indemnity clauses in contracts, triggered by breach or other actions can be critically important as they open up the door for liability. Please don’t hesitate to contact our officefor a consultation.

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