Court Interprets Contractor’s Indemnification Clause

Deutsche Bank hired Henegan Construction, as general contractor, to renovate a building located at 60 Wall Street in Manhattan.  Henegan, in turn, entered into a subcontract with Adco Electrical which required Adco to install new transformers at the building.  Two transformers were delivered, but could not be installed until Con Edison arrived and shut off power to the building.  Consequently, the transformers were stored in the building for approximately two (2) months awaiting installation by Adco.  While in storage, unknown vandals stole parts from one of the units.  

Henegan submitted a claim to its carrier, St. Paul Travelers.  St. Paul paid Henegan’s claim of $137,358 for the stolen parts and brought a subrogation action against Adco.  Adco moved to dismiss the complaint, and St. Paul’s cross-moved for summary judgment. The Court ruled in Adco’s favor and dismissed St. Paul’s subrogation action [1].

The Court looked to the wording of the subcontract.  It provided that Adco would indemnify and hold Henegan harmless from any claims “arising out of … the performance of [Adco’s] work.”  The Court noted that Deutsche Bank controlled access to the area where the transformers were stored.  No proof was submitted to the Court that the damages to the unit were in any way “caused” by Adco or that the damages somehow “arose” from the work Adco was retained to perform.  Adco’s contractual duties were limited to rigging and installing a transformer Henegan purchased, and the subcontract with Adco did not make Adco responsible for safely storing the units pending installation.  As the Court noted: “The mere fact that an accident occurs does not mean that a defendant is liable unless the plaintiff can show how the defendant’s breach of some duty caused or contributed to the incident that allegedly caused plaintiff’s injuries.”

Bottom Line:  Where a potential subrogation action involves a contract entered into by your insured, all the provisions of the contract should be reviewed carefully.  Even where a contract requires your insured to be indemnified, the subrogating carrier will not be able to recover unless the other party was found to be at fault and this fault was the cause of the damage.

[1]  St. Paul Travelers aso Henegan v. Adco Electrical Corp., 20 Misc.3d 1129(A) (S Ct NY Cty 7/30/08)