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Contractual Indemnification in Labor Law §§ 240(1) and 200 Cases and the Different Applications Between Construction Contracts and Leases

By Marc A. Schulz, Esq.

Parties are free to execute contractual agreements allowing for indemnification for their own negligence unless there is a state specific statutory prohibition. New York has such statutes, including the General Obligations Law (GOL) § 5-322.1, which pertains to construction contracts, and § 5-321, which applies to commercial leases.

The GOL§ 5-322.1 prohibits a party involved in the construction, alteration, maintenance or repair of a building from contracting with another to indemnify or hold it harmless for injuries arising out of its own negligence. The GOL§ 5-322.1 states:

A covenant, promise, agreement or understanding in, or in connection with or collateral to a contract or agreement relative to the construction, alteration, repair or maintenance of a building, structure, appurtenances and appliances including moving, demolition and excavating connected therewith, purporting to indemnify or hold harmless the promisee against liability for damage arising out of bodily injury to persons or damage to property contributed to, caused by or resulting from the negligence of the promisee, his agents or employees, or indemnitee, whether such negligence be in whole or in part, is against public policy and is void and unenforceable; provided that this section shall not affect the validity of any insurance contract workers’ compensation agreement or other agreement issued by an admitted insurer. This subdivision shall not preclude a promisee requiring indemnification for damages arising out of bodily injury to persons or damage to property caused by or resulting from the negligence of a party other than the promisee, whether or not the promisee is partially negligent.

Pursuant to the GOL§ 5-322.1, any construction contract that purports to indemnify a party for an accident caused, in part, by the promisee’s own negligence is void and unenforceable. Of course, there are exceptions to every rule, and New York is no different.

An indemnity clause can be saved from the reaches of the GOL simply by inserting the term of art “to the fullest extent permitted by law” or other “savings” language that should be read “to be limited only to the extent necessary to comply with … law” (Alarcon v UCAN White Plains Hous. Dev. Fund Corp., 100 AD3d 431, 954 NYS2d 13 [1st Dept 2012).

This magical phrase “to the fullest extent permitted by law” requires the court or jury to decide the active negligence of the purported indemnitee (see, e.g., Charney v LeChase Construction, 90 AD3d 1477, 935 NYS2d 392 [4th Dept 2011]). If negligence is found, then no indemnity right will exist for that portion of liability attributable to the negligent conduct of the party seeking indemnification (Divens v Finger Lakes Gaming and Racing Ass’n, Inc., 151 AD3d 1640, 57 NYS3d 575 [4th Dept 2017]).

An indemnity clause is not voided simply because it lacks the magical phrase or other savings language. Rather, the preclusive effects of the GOL § 5-322.1 are also avoided if the party seeking indemnification is not actually negligent, regardless of the anticipated scope of the contractual provision. Stated differently, the GOL § 5-322.1 does not preclude an indemnity claim unless the party seeking indemnity is actually negligent.

New York case law also permits claims for partial indemnification, which is nothing more than a claim for contribution, so long as the provision at issue contains the magical phase or other savings language because a party may be entitled to partial indemnity for any percentage of liability that was not attributable to the direct negligence of the party seeking indemnification (Brooks v Judlau Contracting Inc., 11 NY3d 204 [2008] [a partially negligent general contractor may seek contractual indemnity for the wrongful actions attributable to its subcontractor]).

Liability under Labor Law § 240(1) is statutory and does not establish any degree of negligence on a defendant. In the typical labor law fall from a height case, a property owner/general contractor who lacked supervision, direction or control over the injury-producing work will have a contractual indemnity claim against the injured worker’s employer. Where the owner was not negligent, it does not avail the employer to argue that because the indemnity clause conceivably provided indemnification for the owner’s own negligence, that provision was void under the GOL § 5-322.1 (see Grant v City of New York, 109 AD3d 961, 972 NYS2d 86 [2d Dept 2013]).

Where the owner and/or general contractor obtains dismissal of plaintiff’s Labor Law § 200 and common-law negligence claims, then both parties are entitled to contractual indemnification against the injured worker’s employer, regardless that the indemnity provision may have been in violation of the GOL § 5-322.1 (Mathews v Bank of America, 107 AD3d 495, 968 NYS2d 15 [1st Dept 2013]; see also Itri Brick & Concrete Corp. v Aetna Cas. & Sur. Co., 89 NY2d 786 [1997] [the purpose of the GOL § 5-322.1 was to prevent a prevalent practice in the construction industry of requirement subcontractors to assume liability by contract for the negligence of others]).

Where a triable issue of material exists regarding the indemnitee’s negligence under Labor Law § 200, a conditional order of summary judgment may be obtained (Aramburu v Midtown West B, LLC, 126 AD3d 498, 6 NYS3d 227 [1st Dept 2015]; Cuomo v 53rd and 2nd Associates, LLC, 111 AD3d 548, 975 NYS2d 53 [1st Dept 2013] [noting that the extent of the third-party plaintiff’s indemnification would depend on the extent to which any negligence on its part was found to have contribution to the accident]; (Picaso v 345 E. 73 Owners Corp., 101 AD3d 511, 956 NYS2d 27 [1st Dept 2012] [court noted that if an owner is assigned any percentage of negligence, its claims for contractual indemnification will be voided pursuant to the GOL§ 5-322.1]; Ventimiglia v Thatch, Ripley & Co., LLC, 96 AD3d 1043, 947 NYS2d 566 [2d Dept 2012]; c.f. Dwyer v Central Park Studios, 98 AD3d 882, 951 NYS2d 16 [1st Dept 2012] [where the owner was not negligent and its only liability was vicarious in nature, the GOL§ 5-322.1’s prohibitions were inapplicable]).

The GOL§ 5-322.1 also applies to “services” contracts such as those involving snow removal (see Mesler v Podd, LLC, 89 AD3d 1533, NYS2d 493 [4th Dept 2011]). In Mesler, the Fourth Department relied on the language of the GOL§ 5-322.1 in holding that the property owner was still required to show that they were free of negligence in order to enforce their contractual indemnification claim against the snowplow subcontractor.

Similar to the GOL§ 5-322.1, the GOL§ 5-321 prohibits certain indemnity claims based upon a lease agreement seeking to exempt a lessor from its own negligence. The GOL§ 322.1 states:

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 GOL§ 5-321 does not prohibit a party to a lease from being indemnified for its own negligence. Rather, it only prevents a party from absolving itself from liability to the injured party. The party seeking indemnification must met its burden by establishing the lease was negotiated at arm’s length between two sophisticated entities coupled with an insurance procurement requirement to avoid the application of the GOL§ 321.

In such circumstances, the landlord is not exempting itself from liability to the victim for its own negligence. Rather, the parties are allocating the risk of liability to third party between themselves, essentially through insurance, and courts generally do not look unfavorably on such agreements because they require parties to carry insurance, which affords protection to the public.

The difference between the GOL§ 5-322.1 and the GOL§ 5-321 is that an indemnity clause in a construction contract which purports to indemnify a party for its own negligence is void under GOL§ 5-322.1, but may still be enforceable where the indemnitee is found free of negligence. In commercial leases, however, the indemnity clause is still enforceable and does not violate public policy pursuant to GOL§ 5-321, although the party seeking indemnification is negligent.

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