Common Law Indemnification Claim Fails When the Putative Indemnitee Settles its Claims

On April 19, 2021, Justice Borrok of the New York County Commercial Division issued a decision in Board of Mgrs. of 141 Fifth Ave. Condominium v. 141 Acquisition Assoc. LLC, 2021 NY Slip Op. 50343(U), holding that a common law indemnification claim failed because the putative indemnitee had settled its claim, explaining:

The Board/Sponsor's common law indemnification claim against Mr. Karman must also be dismissed as a matter of law. Common law indemnity permits one who is compelled to pay for the wrong of another to recover from the wrongdoer the damages paid to the injured party. Here, arguably, Sponsor may have been entitled to common law indemnification if it was found vicariously liable to the Board based on Mr. Karman's wrongdoing. However, as Sponsor settled its claim before any finding of liability took place, no common law indemnification is warranted, either to it or to the Board by way of an assignment of the claim.

Nor is a different result required by Promenade v Schindler Elevator Corp. (39 AD3d 221 [1st Dept 2007]). In that action, a general contractor was sued for breach of contract and warranties in connection with its construction of a residential housing complex and the general contractor filed a third party action for contractual indemnification against its subcontractors. Eventually, the general contractor and the property owner settled the main action, and as part of this settlement the general contractor assigned to the owner its claim for contractual indemnification against the plumbing contractor for $1.04 million and paid the owner $1.8 million, i.e., for a total settlement value of $2.84 million, or approximately 60% of the owner's total $4.7 million claim against the general contractor. On appeal, the Appellate Division, First Department, held that that the plumbing contractor could not defeat the assignment because the settlement did not preclude subsequent liability for contractual indemnification because, as part of the settlement, the general contractor apportioned its own share of liability for the plumbing damages and was not a voluntary settlor, but merely satisfying its own liability to the owner for the defective plumbing work — i.e., it was not double dipping. This analysis simply does not apply to the Board's common law indemnification claim which lacks an appropriate predicate finding.

(Internal citations omitted).

We frequently litigate issues relating to the advancement or indemnification of litigation expenses such as attorneys' fees to corporate officers, directors and employees as well as to contractual counter-parties. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding indemnification and advancement claims.