By: John J.P. Krol Published: June 2015

Beware Of The Incorporation By Reference Of A Prime Contract Into A Subcontract; Not Every Provision Carries Over

In the case of Persaud v. Bovis Lend Lease, Inc., the Appellate Division reminded us that absent a specific reference or the attachment of a prime contract to a subcontract, not every provision of a prime contract carries over into a subcontract. In Persaud, the injured employee of an electrical sub-subcontractor sued various defendants, but not his employer - the Workers’ Compensation Law statutorily insulates the employer from actions for injuries by employees. Those defendants then sued that employer to recover for any damages they might incur as a result of the employee’s lawsuit. The suit against the employer was based on three legal theories: contribution, common-law indemnification, and contractual indemnification. The contribution and common law indemnity claims were dismissed because the injured employee did not suffer a “grave injury”, as that term is defined in the Worker’s Compensation Law.

As to the remaining claim, the Court observed that an employer may be subject to an indemnification claim based on a provision in a written contract. Certain of the defendants argued that the agreement between the general contractor and its subcontractor required insurance. However, the electrical sub-subcontractor was not a signatory to that agreement. Consequently, certain defendants argued that the subcontract signed by the electrical sub-subcontractor incorporated “by reference” the insurance requirements of the prime contract agreement. In rejecting that argument, the Court reaffirmed the long-standing principle of New York law that incorporation clauses in a construction subcontract bind the subcontractor only as to prime contract provisions relating to the scope, quality, character, and manner of the work to be performed. Therefore, the Court held the contractual indemnification and insurance requirements of the prime contract agreement here were not incorporated by reference. The electrical sub-subcontractor established that no other written agreement existed and the defendants failed to raise a triable issue of fact in opposition. 

The Lesson Of The Decision:

Should it be desired that all prime contract provisions apply to a subcontract, the prime contract in its entirety must be physically affixed to the subcontract, and the subcontract must contain language to the effect that “the subcontractor is on notice and acknowledges every contact provision in the prime contract agreement, attached hereto, is applicable to the subcontractor in addition to those prime contract provisions relating to the scope, quality, character, and manner of the work to be performed.”

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