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An Agreement to Indemnify "To the Fullest Extent Permitted By Law" Does Not Violate New York’s General Obligations Law § 5-322.1

Article

Construction Group Newsletter

July 1, 2009

The New York Court of Appeals decision in Brooks v. Judlau Contracting, Inc., 11 N.Y.3d 204 (N.Y. 2008) further clarified the scope of permissible contractual indemnification provisions and held that New York’s General Obligations Law § 5-322.1 permits a partially negligent general contractor to seek contractual indemnification from its subcontractor for those negligent acts attributable to its subcontractor.

Plaintiff Stephen J. Brooks, an ironworker, sued the general contractor, Judlau Contracting, Inc. (“Judlau”), for injuries sustained on a highway project while employed by Judlau’s subcontractor Thunderbird Constructors, Inc. (“Thunderbird”). Judlau filed a Third-Party Complaint against Thunderbird based on an indemnification agreement entered into between the parties by which Thunderbird agreed to hold Judlau harmless from all liability arising from Thunderbird’s work, including all claims relating to its subcontractors, suppliers or employees. Thunderbird sought to a directed verdict on Judlau’s Third-Party Complaint and, after trial, the Supreme Court dismissed the Third-Party Complaint on the basis that Judlau’s installation of a safety cable in an unsafe manner was a substantial factor in causing plaintiff’s accident, that Judlau was accordingly actively negligent to some degree and that such negligence foreclosed Judlau’s entitlement to contractual indemnification from Thunderbird under General Obligations Law § 5-322.1. That statutory provision provides in relevant part that:

“A covenant, promise, agreement or understanding in, or in connection with . . . a contract or agreement relative to the construction, alteration, repair or maintenance of a building . . . 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.”

The Appellate Division affirmed, but certified a question of law to the New York Court of Appeals as to whether the dismissal of the third-party claim for contractual indemnification was proper.

The New York Court of Appeals reversed and held that the indemnification provision in the Judlau contract was enforceable and did not violate General Obligations Law § 5-322.1. The underlying indemnification provision obligated Thunderbird to indemnify Judlau “to the fullest extent permitted by law.” The Court determined that this language did not enlarge Thunderbird’s obligation to require full contractual indemnification, which would include Judlau’s negligence. As the Court stated, “the phrase ‘to the fullest extent permitted by law’ limits rather than expands a promisor’s indemnification obligation . . . [and] such phrases create a partial indemnification obligation on behalf of the subcontractor promisor.” Thus, consistent with General Obligations Law § 5-322.1, the provision required indemnification only where the underlying damages were caused by Thunderbird’s negligence.

Contractors working in New York should be guided by the Brooks decision when crafting contractual indemnification provisions. In particular, the Court’s holding that “there is no language within General Obligations Law § 5-322.1 that prevents partial indemnification provisions such as the one currently before us from being enforced in a case where it is shown that both a general contractor and its subcontractor are joint tortfeasors” suggests that, under New York law, contractual indemnification provisions utilizing the “fullest extent of the law” language contained in the provision at issue in Brooks will not violate General Obligations Law § 5-322.1 and will permit a contractor, even one that is partially negligent, to pursue a contractual indemnification claim for damages caused by the subcontractor’s negligence.