New York District Court Strictly Interprets Contractual Indemnification Provision and Insurance Requirements

Wausau Business Insurance Company v. Turner Construction Company
No. 99 Civ. 0682 (RWS), 2001 U.S. Dist. LEXIS 5821(SDNY May 9, 2001)

Turner Construction Company (“Construction Manager”) entered into a written agreement with Central Synagogue (the “Owner”) to provide construction management services in connection with renovations of the Central Synagogue Sanctuary (the “Agreement”). The Agreement provided that the Owner would “defend, indemnify and hold the Construction Manager harmless from claims arising out of the acts or omissions on the part of the architects, engineers, attorneys or contractors.” However, the Agreement qualified this obligation by stating that “it is understood and agreed that the Construction Manager shall be liable to the Owner . . . and shall indemnify Owner against Loss, liability, damages, costs and expenses . . . for any negligence or willful misconduct of Construction Manager . . . which results in any loss, claim or injury to the Owner, its successors or assigns.” The Agreement also provided that “Owner shall name the Construction Manager an additional insured party or cause its Contractors to so name the Construction Manager an additional insured party on the Contractors’ insurances.” The Owner opted for the latter, and the Construction Manager was named an additional insured on the contractors’ policies.
During construction, a fire started on the roof of the synagogue and destroyed the building. The fire was allegedly ignited by a propane torch operated by a roofing contractor working on the northeast tower of the synagogue.

Central Synagogue’s insurer, as subrogee, filed suit to recover for losses sustained as a result of the fire. The Construction Manager filed a timely motion for summary judgment arguing that it (1) might be held liable only for its own negligence or willful misconduct; (2) was entitled to indemnification by the Owner for the conduct of any other entity; (3) could not be held jointly and severally liable; and (4) was entitled to insurance coverage from the Owner. The Court denied the Construction Manager’s motion in all regards.
The first three components of the Construction Manager’s argument were premised on the express language of the indemnification clause in the Agreement. The Construction Manager argued that it contracted out of joint and several liability when it agreed to abide by the contractual indemnification clause which limited its liability to that caused by its own willful misconduct or negligence rather than the conduct of others.

The District Court rejected this argument stating:
“[a]lthough the Agreement clearly sets forth the ways in which liability is to be limited and apportioned between the parties in various scenarios, it includes no explicit abrogation of the otherwise applicable rule of joint and several liability. As a rule, indemnification clauses must be strictly construed to avoid reading into them a duty which the parties did not intend to be assumed. Under these circumstances, it would be improper to infer language limiting the imposition of joint and several liability.”

The Court also held that the express language of the indemnification clause and New York law rendered the indemnification clause inapplicable if the Construction Manager were negligent in performing its duties. Thus, the Court concluded that until a jury determines if the Construction Manager acted negligently, it was premature to determine if the indemnification clause might be enforced.

Finally, the Court held that the Owner did not breach the Agreement by failing to name the Construction Manager an additional insured on the Owner’s insurance policy. The Court reasoned that although the Agreement required that the Owner provide insurance for the Construction Manager, it could be satisfied in two ways: by naming the Construction Manager an additional insured on the Owner’s policy or by the contractors naming the Construction Manager an additional insured. The Owner satisfied this requirement by having the contractors on the project name the Construction Manager an additional insured and, thus, did not breach the Agreement.

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