The right to indemnification may be express or may be implied in law to prevent a result which is regarded as unjust or unsatisfactory. Ordinarily, on large constructions projects an owner will hire a construction manager and/or general contractor as well as architects. The parties interact in fulfillment of their contractual duties (to the owner) but are not contractually obligated to one another so express indemnification is usually not available. If matters go awry common-law indemnification permits one who has been compelled to pay for the wrong of another to recover from the wrongdoer the damages it paid to the injured party. Contractors may be entitled to implied indemnification when they have committed no wrong but are held vicariously liable for the wrongdoing of another.
In Genesee/Wyoming YMCA v. Bovis Lend Lease LMB, Inc. (2012 N.Y. Slip Op. 06407 ), the Appellate Division, Fourth Department, had an opportunity to examine common law indemnification. InYMCA, the owner (YMCA) retained the services of construction manager (Bovis) to administer the construction of a wellness facility including a pool. The owner also hired an architect (Thomas) to design the building roof and insulation system, and a general contractor (Whitney) to perform the work on the project. Bovis, over the objections of Whitney, further approved Thomas's design, and materials selected, and directed work to begin. Shortly after the project was completed it was discovered the roof and insulation systems were defectively designed and the materials used were improper or inferior.
The YMCA was forced to repair and replace the roof and insulation system, and brought suit against Bovis to recover under a breach of contract and unjust enrichment theory. The YMCA maintained that Bovis breached its contractual obligations by failing to fully and effectively provide the required services under its contract in approving a defective proposed design by Thomas and permitting the use of inadequate materials. Bovis brought a third-party cause of action for contribution and indemnification against Thomas. Thomas immediately moved to dismiss the action by arguing that Bovis was not entitled, as a matter of law, to an award of common law indemnity. The Court agreed noting that indemnity permits a non-negligent party to shift its exposure to the culpable party. But, here, the allegations against Bovis were based on its own negligence and failure to honor the terms of its contract.
It is not clear from the Court's opinion but it appears Bovis was contractually obligated to "review and approve design, constructability and materials" for the project. This will serve as a lesson that parties should take great care in negotiating a construction contract, and should be clear what responsibility they have undertaken. A construction manager will not normally take on the ultimate burden for approval of designs by an owner appointed architect. If this was indeed the agreement, the construction manager could have tried to insert risk shifting clauses into its contract with the Owner or negotiated a separate agreement with the Architect. Additionally, if Bovis was not contractually obligated to review and approve the project design and materials it illustrates that contractors should not go beyond the scope of their contractual responsibilities or they may be held liable for the resulting damages. If that was the case, Bovis' affirmative act of approving the designs and directing work to commence, over the objections of the general contractor, was enough not only to allow YMCA to sustain a breach of contract claim but to preclude any indemnification from Thomas. Remember the party seeking common law indemnification must be free of any culpability.
YMCA further shows that a construction manager or general contractor will often face an uphill battle to offset liability. Bovis was sued for breach of contract so they may not be able to sustain a claim for contribution from the architect as this type of liability offset is only available under a negligence claim.
If you would like more information on this issue or any other construction related issue, please contact Welby, Brady & Greenblatt, LLP at (914) 428-2100.