NY Court Holds Subcontractor’s Contribution Claims Against Architect And Supplier Barred By Economic Loss Doctrine And Its Common-Law Indemnification Claims Precluded By Allegations Of Subcontractor’s Active Fault

Structure Tone, Inc. v. Universal Services Group, Ltd.
929 N.Y.S. 2d 242 (App. Div. 2011)

This action arose out of the construction of a Whole Foods Market in the AOL/Time Warner Center at Columbus Circle in Manhattan. The general contractor, Structure Tone, Inc., (“STI”) retained Universal Service Group (“USG”) to waterproof the market. STI sued USG, claiming that the waterproofing failed on 15 occasions, causing water to leak from the Whole Foods Market into various tenant spaces below. STI undertook to remedy the problem, and as a result, allegedly sustained damages totaling $1.2 million. STI alleged causes of action for negligence and breach of contract, seeking as damages the costs of remediation, loss of profit, recovery of the amounts paid to USG and contract balances not paid by Whole Foods.

USG filed a third-party complaint against the plumbing subcontractor (Pace), the architect (SBLM), and the supplier of the waterproofing material (Tremco), asserting claims for contribution and indemnification. In addition, USG asserted separate causes of action for negligence against SBLM, and for negligence, strict products liability and breach of warranty against Tremco. The third-party defendants moved for summary judgment, asserting that USG’s claims for contribution were barred since STI sought to recover only damages for “economic loss.” They further asserted that the common-law indemnification claims were improper since, in the underlying action, USG was alleged to have been actively at fault.

The Appellate Division upheld the lower court’s dismissal of USG’s contribution claims, holding that, despite USG’s attempts to cast its claims in tort, the claims were based on alleged breaches of an express contract. The court noted that claims for contribution are governed by CPLR 1401 and apply only to damages for personal injury, injury to property or wrongful death. The court held that here there was no personal injury, and that a purely economic loss resulting from a breach of contract does not constitute an injury to property within the meaning of CPLR 1401. The court also upheld the dismissal of USG’s common-law indemnification claims, on the basis that STI had alleged active fault on the part of USG, rather than seeking to hold it vicariously liability for the acts of others. Finally, the court upheld the dismissal of USG’s third-party claims of negligence as against SBLM, and negligence, product liability and breach of warranty claims against Tremco, noting that there was no contractual relationship between USG and the third-party defendants, or any other relationship that would impose a duty running to USG.

Click here for full text of decision courtesy of LexisNexis.

Ann B. Graff

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