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March 2, 2012

Contractual Authority to Supervise and Control Alone is Insufficient to Merit Indemnification

The Court of Appeals has held that the contractual authority to supervise and control alone is not enough to hold a party liable for common law indemnification. McCarthy v. Turner Construction, Inc., 17 N.Y.3d 369; 929 N.Y.S.2d 556 (2011). In fact, a demonstrated lack of actual supervision and/or direction over the work establishes that a contractor is not required to indemnify a property owner for an injury to a subcontractor's employee. Id.

In McCarthy, Boston Properties, Inc. ("Property Owners") leased a retail storefront to non-party Ann Taylor, Inc. ("Ann Taylor"). Ann Taylor engaged John Gallin ("Gallin"), as general construction manager, to build-out its space. Under this agreement, Gallin was required to "supervise and direct the work, using [its] best skill and attention [, and] be solely responsible for and have control over construction means, methods, techniques, sequences and procedures for coordinating all portions of the work under the contract . . . ." Gallin was required to take reasonable, safe precautions to protect the workers from injury.

Gallin engaged Linear Technologies, Inc. ("Linear") as subcontractor to install data cables, and Linear engaged Plaintiff's employer, Samuels Datacom, LLC ("Samuels"), to perform the actual cable installation.

Plaintiff was injured at the project site when he fell from an A-frame ladder. Plaintiff sued Turner Construction, Inc. ("Turner"), Gallin, and Property Owners, asserting claims under Labor Law §§ 200, 240(1), 241(6), and common law negligence. Property Owners asserted cross-claims for contribution and common law indemnification, contractual indemnification, and breach of contract against Gallin.

The trial court granted Plaintiff summary judgment on his Labor Law § 240(1) claim, finding the Property Owners and Gallin vicariously liable for Plaintiff's injuries. The court denied Property Owners' cross-motion for summary judgment seeking contractual indemnification against Gallin, finding that there was no contract between Property Owners and Gallin, and the Property Owners were not third-party beneficiaries of the Taylor/Gallin agreement and any contractual indemnification claim that might be owed by Gallin. The court also determined that there was not any evidence of Gallin's negligence, nor did Gallin have any supervisory authority over the work that gave rise to the injury.

The Appellate Division affirmed, finding Gallin was neither negligent, nor directly supervised and controlled Plaintiff's work. Thereafter, the First Department granted the Property Owners leave to appeal to the Court of Appeals.

Property Owners argued that regardless of whether Gallin directly supervised and controlled Plaintiff's work, Gallin's agreement with Ann Taylor provided indemnification, and wherein Gallin also assumed sole responsibility and control of the entire project. Only Gallin was in the position to protect Plaintiff and prevent the accident.

The Court of Appeals rejected Property Owners' arguments finding that its arguments were not consistent with the equitable purpose underlying common law indemnification.

The Court of Appeals acknowledged that there are cases that appear to stand for the proposition that contractual authority to supervise, direct, or control, standing alone, is enough to merit indemnification under common law. See, e.g., Ortega v. Catamount Constr. Corp., 264 A.D.2d 323; 694 N.Y.S.2d 367 (1st Dept 1999). "However, these cases do not adequately address the question whether a party who is contractually responsible for supervision at a work site is liable in indemnity even if there is a showing that another party, with authority, engaged in actual supervision of the injury-producing work at the site." McCarthy, 17 N.Y.2d at 377.

"[A] party's (e.g., a general contractor's) authority to supervise the work and implement safety procedures is not alone a sufficient basis for requiring common law indemnification. Liability for indemnification may only be imposed against those parties (i.e., indemnitors) who exercise actual supervision." Id at 377 - 78.

Contractors and subcontractors must recognize that paperwork alone that requires a party to supervise and direct the work on a project is insufficient to establish that the party actually supervised or directed the injured Plaintiff's work. Actual proof of who supervised the injured party must be demonstrated in considering appropriate indemnification priority.

If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact any of the members of the Torts & Products Liability Defense Practice Area.

If you have received this alert from a colleague and would like to subscribe to our Torts & Products Liability Defense Legal Alerts, please reply to reachus@hblaw.com.

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