Third Party Beneficiary Status of Co-Prime Contractors - Lawrence, Worden, Rainis & Bard, P.C.

By: Roger B. Lawrence, Esq.
Lawrence Worden Rainis & Bard, P.C., Melville, New York

In New York State, municipal projects (over a certain dollar amount, depending upon the location) are subject to what are known as the “Wick’s Law”. Under the Wick’s Law (N.Y. Gen. Mun. Law § 101 and State Finance Law § 135,), the majority of public contracts must be let for bid to independent prime contractors for electrical, HVAC, plumbing and general structures. Most often there is also a separate construction manager, also under a prime contract with the municipality, hired to make sure that the other prime contractors are performing the work in accordance with the plans and specifications set forth by the municipality and that the finished product will conform with the contract documents. The purported reason for these laws is to ensure that each of the contractors in these critical areas have the appropriate expertise, rather than leave the selection of sub-contractors to the general contractor, as the public will ultimately bear the risk of poor performance. Under this scenario, when one prime contractor has failed to properly safeguard its employee and that employee is injured on the jobsite, the injured employee, in a quest for a recovery, will often bring an action against another prime contractor or the construction manager at the site.

A recent decision by Justice Billings of the New York State Supreme Court, New York County, provided an important holding for prime contractors held statutorily responsible for another prime contractor’s negligence or improper safety procedures at the jobsite. The holding inSilicato v. Malcolm Pirnie et al, (Sup. Ct., New York County, 2014) recognized a contractual right of prime contractors at the site to assert indemnity claims against other primes under contract with the municipal entity. Such a claim is permissible as a contractual indemnity claim even if the damages are for alleged personal injuries to an employee of the other prime, that might otherwise be blocked by Workers Compensation Law § 11, in the absence of a “grave injury” as defined under that statute.

As we’ve asserted in many cases involving this typical municipal contract language, Article 12, as included in most NYC DEP prime contracts, forms the basis for a contractual indemnity claim by one prime contractor against another despite the absence of contractual privity. The contract provisions is recognized as creating a specific set of rights and obligations as third-party beneficiaries, a result which also is intended to reduce the risk of the City being maintained as a party defendant in such litigation. Most of the Wick’s Law prime contracts with the City of New York, particularly New York City DEP, contain a clause, which states, in pertinent part:

12.5 Should the Contractor sustain any damage through any act or omission of any Other Contractor having a contract with the City for the performance of work upon the Site or of work which may be necessary to be performed for the proper prosecution of the Work to be performed hereunder, or through any act or omission of a Subcontractor of such Contractor, the Contractor shall have no claim against the City for such damage, but shall have a right to recover such damage from the Other Contractor under the provision similar to the following provisions which apply to this Contract and have been or will be inserted in the contracts with such Other Contractors:

12.5.1 Should any Other Contractor having or who shall hereafter have a contract with the City for the performance of work upon the Site sustain any damage through any act or omission of the Contractor hereunder or through the act or omission of any Subcontractor of the Contractor, the Contractor agrees to reimburse such Other Contractor for all such damage and to defend at its own expense any suit based upon such claim and if any judgment or claims (even if the allegations of the suit are without merit) …

Conspicuously absent from the Article 12 language is any prohibition to its application to claims involving other prime contractors. This is in contrast to other provisions of the contract, and specifically, Article 7 as it relates to general indemnification. Under Article 7, Protection of Work and of Persons and Property; Notices and Indemnification, section 7.6 states “The provisions of this Article shall not be deemed to create any new right of action in favor of third parties against the Contractor or the City.” Under common law rules of contract interpretation, the fact that Article 7 specifically addresses rights in favor of third parties against the contractor reveals that the contracting parties contemplated third party beneficiary rights and obligations, and determined to exclude such rights from Article 7 dealing with general indemnification, yet not limit indemnity claims under Article 12 among the prime contractors or sub-contractors working on the job.

This and similar language in municipal prime construction contracts has received inconsistent interpretation from the Courts. In Rogers v. City of New York, 20 Misc. 3d 1141(A) (2008), the Supreme Court, Kings County, consistent with the holding in Silicato, held that Article 12 type provisions were sufficient to constitute “a written indemnification provision encompass(ing) an agreement to indemnify the person asserting the indemnification claim” and that the “act or omission” language was sufficient to cover indemnification rights against co-prime employers of injured plaintiffs that would otherwise be blocked under New York’s Workers Compensation Law.

The same court held, in Tavella v. Skanska USA, Inc., 28 Misc.3d 885 (2010), speaking to the Article 12 language, that “it is clear from the language of the prime contract …that the prime contracts were intended to give other prime contractors the reciprocal right to seek indemnification from each other.

“That same Court, however, then did an about- face in its decision in O’Rourke v. City of New York, 35 Misc. 3d 1232(A) (2012), declining to follow the decisions in Rogers and Tavella. Judge Ash of Kings County viewed Article 7 of the prime contract as being in conflict with Article 12, holding that it was unclear whether Article 12 was to address personal injury claims as they were not mentioned specifically. We had contended that the broad language of Article 12 in providing rights among prime contractors fit the desired result of allowing primes to make claims against primes found to be at-fault, and lessened the impact of such litigation as to the municipal entity by allowing direct action among primes. We also argued that the broad language of the provision was meant to cover an expansive range of claims, including personal injury claims. Consistent with principles of contract interpretation we contended that since it was evident that the parties provided such limitations in Artcile 7 regarding general indemnification, they also could have limited the application of Article 12 if the parties so intended.

In conclusion, with the well-reasoned decision in Silicato, it appears that the Courts are willing to recognize the broader implications of the Article 12 language in the municipal Wicks Law contracts and how it protects the municipality while at the same time allowing claims between prime contractors on these projects. At this point, the flawed reasoning of the O’Rourke decision is in the minority, with Supreme Courts in two separate boroughs concluding that the subject language is sufficient to allow claims among the prime contractors.