In Marolf v. Rapid Response Monitoring Services Incorporated, the Appellate Division, Fourth Department articulated the distinction between indemnification and exculpatory clauses and their corresponding limitations. 2018 NY Slip Op. 07906 (4th Dep't 2018). In Marolf, there were two contracts at issue. The first was between an apartment complex and an alarm company for the installation and maintenance of emergency pull cords located in apartments for senior and disabled residents. The alarm company subsequently entered into a subcontract with a monitoring company to monitor the pull-cord system.
When a resident at the complex began to bleed profusely, she activated the emergency pull cord in her bedroom. No one responded, however, and she tragically bled to death in her apartment. In the ensuing wrongful-death action, the administrator of the deceased resident's estate sued the apartment complex, the alarm company, and the monitoring company. The monitoring company and the apartment complex moved for partial summary judgment on their cross claims for contractual indemnification against the alarm company. The trial court granted both motions and held that the alarm company owed contractual indemnification to both co-defendants.
On appeal to the Fourth Department, the alarm company argued the trial court erred in granting the motions because questions of fact existed with respect to whether the monitoring company was grossly negligent and thus barred by public policy from enforcing the indemnification provision. The appellate court rejected this argument, holding that an indemnification provision "simply shift[s] the source of compensation without restricting the injured party's ability to recover," in contrast to an exculpatory clause, which seeks to "deprive a contracting party of the right to recover for damages suffered as a result of the [other contracting] party's tortious act."
Unlike exculpatory clauses, indemnification provisions are invalid on public-policy grounds "only to the extent that they purport to indemnify a party for damages flowing from the intentional causation of injury." Since there were no allegations of intentional misconduct, the Fourth Department held that, even in the event that the monitoring company was grossly negligent, it was not barred by public policy from enforcing the indemnification provision and requiring indemnification from the alarm company.
This case highlights New York State's longstanding tradition and practice of allowing parties to freely enter into contracts and allocate risk. Thus, parties entering into contracts must be cognizant of the fact that indemnification provisions are likely to be upheld in future litigation, and they should carefully negotiate the terms of any indemnification clause.
If you have any questions regarding the content of this alert, please contact Julie Cahill, associate, at jcahill@barclaydamon.com or another member of the firm's Torts & Products Liability Defense Practice Area.