Federal District Court Upholds Indemnity Language Requiring General Contractor To Defend and Indemnify Railroad Company Even Where Railroad Company Is Allegedly Negligent
The U.S. District Court for the Southern District of New York held that D.C. law required a general contractor to pay the defense costs of and indemnify a railroad company in a personal injury suit brought by one of the general contractor’s employees who was injured while working on a bridge owned by the railroad company. The railroad company had rejected the general contractor’s original offer to provide defense counsel in the suit.
The general contractor’s employee sued the railroad company, alleging negligence and violations of New York Labor Law. In turn, the railroad company filed a third-party complaint against the general contractor for breach of its contractual duties to defend and indemnify, contractual indemnity, implied indemnity, and failure to procure insurance. The general contractor then filed a fourth-party complaint against the railroad’s surplus insurer asserting that the surplus insurer should cover the railroad company’s claims.
Ruling on competing motions for summary judgment, the court concluded that the general contractor had a contractual duty to defend and indemnify the railroad company, which included paying the railroad’s defense costs. Specifically, the court found that under D.C. law, the duty to indemnify and defend were separate claims that did not rest upon one another. Therefore, the court found that contrary to the railroad company’s assertions, the general contractor had not breached its contractual duties to defend and indemnify merely because it had offered to defend the railroad company while failing to simultaneously acknowledge its indemnification obligations. Likewise, the court also found that the railroad company could recover its costs of defense, despite rejecting the general contractor’s offer to defend. The court found that in this case, because the general contractor had reserved its right to challenge coverage, a conflict of interest existed that allowed the railroad company to seek its own counsel rather than use the counsel provided by the general contractor. Thus, in this context, the general contractor was still obligated to cover the full costs of the suit under its duties to defend and indemnify the railroad company.
Further, the court also found that despite the railroad company’s rejection of the offer of counsel, the railroad company still maintained its right to indemnification from the general contractor. First, the court found that there had been no breach of the right to indemnification because under D.C. law, the right to indemnification did not accrue until the first payment was actually made by the party holding the right. Notwithstanding that finding, the court concluded that the railroad company could go ahead and seek summary judgment on the indemnity claim even though the right to recover had not yet accrued. The court noted that this was an issue of procedure which was governed by federal law, under which third-party claims could be brought when a third party “may be” liable to the defendant for a share of the plaintiff’s primary judgment. The court then found that the general contractor was obligated to indemnify the railroad company because the broad contractual language clearly expressed the intent of the parties to indemnify all claims against the railroad company, even claims for injuries allegedly caused by the railroad company’s own negligence.
Lastly, the court found that the railroad company could seek indemnification from the general contractor first, before seeking recovery from the railroad company’s surplus insurance carrier. The general contractor’s indemnification took precedence over the surplus insurer’s responsibilities under the general contractor/railroad company contract and, furthermore, the general contractor’s indemnity obligation would ultimately be covered by the general contractor’s liability insurer rather than the railroad company’s insurer.
