By: WBG, LLP Published: September 2011

Showing of Actual Supervision Required Before a General Contractor must Indemnify an Owner for Damages Paid to an Injured Person

Construction site accidents and related injuries are a constant concern to contractors and owners, as are the lawsuits that may follow. A general contractor's agreement with a property owner may provide that the general contractor supervise and direct work. But what happens when the owner seeks to be indemnified by the general contractor for injuries a worker sustained at the site? Must the general contractor indemnify the owner where they have contractual authority to supervise and control work? Does the answer change if the general contractor has contracted the work out to someone else and didn't actively supervise and/or direct the work?

The New York Court of Appeals has provided an answer in McCarthy v. Turner Const., Inc., 17 N.Y.3d 369,953 N.E.2d 794 (2011).

Boston Properties and Times Square Tower Associates, LLC (the "Owners") own retail space at7 Times Square. Ann Taylor, a non party to this action, leases space from the Owners for its clothing store. In December of 2004, Ann Taylor contracted with John Gallin & Son, Inc. ("Gallin") to expand its retail space. The contract with Gallin required that Gallin "supervise and direct the [w]ork, 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 [w]ork." Id. at 372, 796. Furthermore, Gallin was required to take "reasonable safety precautions to protect the workers from injury." Id.

Gallin then engaged Linear Technologies, Inc. ("Linear") to install phone and data cables, via a purchase order. Linear subsequently subcontracted its work out to Samuels Datacom, LLC ("Samuels") to perform all of the installation. The plaintiff, while performing electrical work for Samuels, failed to defy Newton's law and fell from a ladder, sustaining injuries. Id. at 372, 796-797.

The plaintiff brought a personal injury action against the Owners and Gallin, asserting common law negligence and violations of Labor Law § 200, 240(1) and 240(6). Id. at 372, 797. The Owners cross-claimed against Gallin for, in relevant part, common law indemnification. Gallin then implead Linear, who implead Samuels. Id.

The plaintiff moved for summary judgment, and the Owner's cross-moved, seeking contractual indemnification against Gallin. The Supreme Court refused to require Gallin to indemnify the owners, finding that Gallin did not have supervisory authority over Samuel's work and did not provide any tools or ladders to the subcontractors, nor would Gallin have directed Samuel on how to perform its work. Id. The Owners and Gallin then settled with the plaintiff for $1.6 million, contributing $800,000 each.

The Owners then moved for summary judgment on common law indemnification against Gallin, which was likewise denied due to their failure to establish Gallin's direct control over the work. This denial was affirmed by the Appellate Division, First Department. Id.

The case reached the Court of Appeals, who likewise affirmed the lower courts' decisions. The Owners argued that Gallin did not need to directly supervise and control plaintiff's work, because Gallin's contract with Ann Taylor assumed sole responsibility and control, and likewise provided Gallin with the authority to exercise same. Id. at 374, 798.

The Court of Appeals refused to require that every general contractor owe a common law duty to indemnify the owner, where they aren't actively at fault. Id. New York case law does impose such a duty on ''parties who actually supervised and controlled the injury-producing work." Id. at 376, 799. However, the Court held that a contractual responsibility to supervise, ''where another party, with authority engaged in actual supervision of the injury-producing work", is insufficient to create such a duty. Id. at 377,800.

Therefore, "if a party with contractual authority to direct and supervise the work at a job site never exercises that authority because it subcontracted its contractual duties to an entity that actually directed and supervised the work, a common law indemnification claim will not lie against that party on the basis of its contractual authority alone." Id. at 378, 801. In conclusion, Gallin did not have to cover the Owners' $800,000 share of the settlement.

The take away lesson here is that if you are going to subcontract your authority to supervise, control and direct work at a site, do so completely. Do not subsequently engage in such supervision and direction if you want to avoid common law indemnification for sustained injuries, which in this case, is a savings of $800,000. Of course, the wording of your subcontract will control.

 

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