Oversight Duties Defeat Common‑Law Indemnity and Contribution; Prime‑Contract Indemnity Does Not Flow Down Without Clear Incorporation

Case: Town of Oyster Bay v. Peter Scalamandre & Sons, Inc., 2025 NY Slip Op 04679 (App Div, 2d Dept, Aug. 13, 2025)

Introduction

This Second Department decision addresses recurrent issues in construction defect litigation: whether upstream parties (an architect/engineer and a general contractor) can shift liability to lower‑tier participants (a subcontractor and a materials supplier) through common‑law indemnification, contractual indemnification, or contribution when a project owner seeks purely economic damages for alleged construction and design deficiencies.

The Town of Oyster Bay sued its consulting engineer/architect, Sidney B. Bowne & Sons, LLP (Bowne), and its general contractor, Peter Scalamandre & Sons, Inc. (Scalamandre), for breach of contract arising from defects in a municipal parking garage, including water infiltration. Bowne brought third‑party claims against UrbanTech Consulting Engineering, P.C. (a subcontractor retained by Scalamandre) and Midstate Filigree Systems, Inc. (a supplier engaged by purchase order), seeking contractual indemnification, common‑law indemnification, and contribution. Scalamandre separately brought common‑law indemnity claims against UrbanTech and Midstate in a fourth third‑party action.

The Supreme Court, Nassau County, dismissed these third‑party and fourth third‑party claims on motions under CPLR 3211(a). The Appellate Division affirmed, announcing a clear set of guardrails on indemnity and contribution in construction defect suits centered on economic loss and reinforcing strict requirements for flow‑down of indemnity obligations.

Key issues:

Whether common‑law indemnification is available to an architect and a general contractor who had contractual oversight and supervisory responsibilities for the project.
Whether an architect can obtain contractual indemnification from a subcontractor or supplier with whom it has no privity, by invoking prime‑contract indemnity terms via incorporation by reference or third‑party‑beneficiary theory.
Whether contribution under CPLR 1401 is available when the owner seeks purely economic damages for breach of contract.

Summary of the Judgment

The Appellate Division affirmed the dismissal of Bowne’s and Scalamandre’s indemnification and contribution claims against UrbanTech and Midstate:

Common‑law indemnification: Dismissed. Because Bowne and Scalamandre had contractual duties to design, supervise, oversee, and ensure the adequacy of the work, any liability to the Town would reflect their own fault rather than purely vicarious liability. Common‑law indemnity requires vicarious liability without actual fault by the indemnitee.
Contractual indemnification: Dismissed. There was no contract between Bowne and UrbanTech or Midstate, and Bowne was not an intended third‑party beneficiary of UrbanTech’s subcontract or Midstate’s purchase order. The prime contract’s indemnity provisions were not incorporated by reference into those downstream agreements.
Contribution (CPLR 1401): Dismissed. The Town seeks purely economic loss for breach of contract; under the economic loss doctrine, contribution is not available absent an independent tort duty and tort damages.

The court relied on documentary evidence to dismiss the contractual indemnity claims and on settled indemnity and economic‑loss doctrines to dismiss the common‑law indemnity and contribution claims at the pleadings stage.

Analysis

Precedents Cited and Their Influence

The court anchored its analysis in a set of well‑developed New York doctrines, drawing from both recent Appellate Division decisions and Court of Appeals authority:

1) Common‑law indemnification requires vicarious liability without fault

25‑86 41st St., LLC v Chong, 235 AD3d 813, 815: Reiterates that the predicate for common‑law indemnity is vicarious liability in the absence of actual fault by the party seeking indemnity.
Santoro v Poughkeepsie Crossings, LLC, 180 AD3d 12, 16: The “key element” is a separate duty the indemnitor owes to the indemnitee; it is not about duties to the injured party. The doctrine shifts the entire loss only when equity compels it because the indemnitee is faultless.
De Heras v Avant Gardner, LLC, 224 AD3d 883, 884; Board of Mgrs. of the 125 N. 10th Condominium v 125North10, LLC, 150 AD3d 1063, 1064–65; American Ins. Co. v Schnall, 134 AD3d 746, 749; Vasquez v Kennedy, 221 AD3d 936, 938: A line of cases denying common‑law indemnity where the party seeking it bears responsibility for its own acts or omissions.

These authorities drove the core holding: because Bowne and Scalamandre retained oversight and responsibility under their contracts, any liability to the Town would not be purely vicarious.

2) Contractual indemnification and third‑party beneficiary limits

Cassese v SVJ Joralemon, LLC, 168 AD3d 667, 669; Razdolskaya v Lyubarsky, 160 AD3d 994, 998: Absent privity, a party must show it was an intended—not incidental—third‑party beneficiary to enforce a contract’s indemnity provision. Mere involvement in the same project does not suffice.
Persaud v Bovis Lend Lease, Inc., 93 AD3d 831, 833: Incorporation by reference requires clear, specific language; general references to a prime contract do not automatically import all terms, especially indemnity obligations.

Applying this framework, the court concluded that Bowne had neither a direct contractual indemnity against UrbanTech or Midstate nor an enforceable flow‑down right via incorporation or third‑party‑beneficiary status.

3) Contribution is barred for purely economic loss in contract cases

Board of Educ. of Hudson City School Dist. v Sargent, Webster, Crenshaw & Folley, 71 NY2d 21, 26, 28 (Ct App): Establishes the “economic loss doctrine” in New York’s contribution context—contribution requires tort liability; when the underlying damages are economic and arise from contract, contribution does not apply.
Galvin Bros., Inc. v Town of Babylon, N.Y., 91 AD3d 715, 715; Cobblestone Foods, LLC v Branded Concept Dev., Inc., 200 AD3d 845, 846–47: Second Department applications reiterating that CPLR 1401 contribution is unavailable for purely contractual economic losses.

These authorities compelled dismissal of Bowne’s contribution claims against UrbanTech and Midstate, given the Town’s contract‑based, economic loss claims.

Legal Reasoning

A. Common‑law indemnification

The duty landscape defined by the master services agreement (Bowne–Town) and the prime contract (Scalamandre–Town) was decisive. Bowne assumed responsibility for the sufficiency and adequacy of design, plans, and specifications; Scalamandre assumed responsibility for the entire work, including its subcontractors and suppliers, and agreed to indemnify the Town for misconduct or negligence by itself or its subcontractors.

Because these contracts placed non‑delegable oversight and performance obligations on Bowne and Scalamandre, any liability to the Town would necessarily rest, at least in part, on their own breach of contractual duties. That is the antithesis of vicarious liability, which is the sine qua non of common‑law indemnity. As a result, their common‑law indemnity claims against UrbanTech and Midstate were legally insufficient and dismissible under CPLR 3211(a).

B. Contractual indemnification and incorporation by reference

Bowne had no contract with UrbanTech or Midstate. The court examined the documentary evidence (the subcontract and purchase order) and found no indemnity promises running to Bowne, and no language demonstrating Bowne was an intended third‑party beneficiary. Nor did those documents clearly and specifically incorporate the prime contract’s indemnity provisions. Under Second Department precedent, broad or generic incorporation clauses are inadequate to import indemnity duties, particularly where the indemnitee is not named or defined as a protected party. Consequently, Bowne’s contractual indemnity claims failed as a matter of law (CPLR 3211[a][1]).

C. Contribution (CPLR 1401) and the economic loss doctrine

The Town sought classic economic losses—costs to remedy alleged construction and design defects—under contract theories. New York law forbids contribution where the damages are solely economic and the gravamen is contractual rather than tort‑based. Since Bowne did not identify an independent tort duty owed by UrbanTech or Midstate that would support tort damages, contribution was barred at the threshold.

D. Procedural posture: CPLR 3211(a)

The court employed CPLR 3211(a)(1) to dispose of claims contradicted by documentary evidence (no privity, no incorporation, no third‑party‑beneficiary status) and CPLR 3211(a)(7) to dismiss legally insufficient indemnity and contribution claims based on the pleadings and controlling doctrine. The opinion underscores that these risk‑shifting theories can be extinguished at the pleading stage when the contracts are clear.

Impact and Practical Significance

1) Reinforced limits on risk shifting in construction defect litigation

The decision fortifies a predictable allocation of risk in construction projects:

Architects/Engineers and General Contractors who contractually assume oversight and performance responsibilities cannot rely on common‑law indemnity to offload liability onto subcontractors or suppliers when sued for economic loss by the owner. Their exposure is tethered to their own contractual obligations.
Contribution will not rescue upstream parties in contract‑only, economic loss cases unless an independent tort duty and tort damages are both plausibly alleged.
Contractual Indemnity will protect upstream parties only if expressly granted in the downstream agreements or unmistakably incorporated by reference—and if the upstream party is clearly identified as an intended beneficiary.

2) Drafting and procurement implications

Flow‑down indemnity must be explicit: If the owner’s prime contract contains indemnity for “Owner and its consultants,” downstream agreements should expressly name the architect/engineer and general contractor as additional indemnitees and incorporate the specific indemnity clause by section number and date.
Third‑party beneficiary clauses: Add clear language conferring intended‑beneficiary status on the architect/engineer and GC for indemnity and insurance obligations in subcontracts and purchase orders.
Insurance complements indemnity: Require additional insured coverage (with primary and non‑contributory endorsements) for upstream parties; this may provide protection where indemnity claims are limited by statute (e.g., GOL § 5‑322.1) or contract structure.
Pleading strategy: Where appropriate and factually supportable, consider tort‑based cross‑claims (e.g., negligent misrepresentation, professional negligence) that allege independent duties and non‑economic damages. Absent such allegations, contribution will be dismissed.

3) Public sector projects

Municipal owners frequently centralize responsibility in the prime contracts and professional services agreements. This decision signals that courts will hold upstream parties to those duties and resist attempts to reallocate responsibility via common‑law indemnity or contribution absent clear, contractual risk‑transfer mechanisms.

4) Early dismissal at the pleading stage

The case illustrates that indemnity and contribution claims lacking contractual support or vicarious‑liability predicates are susceptible to CPLR 3211 dismissal early in the litigation, reducing litigation costs and clarifying party alignments.

Complex Concepts Simplified

Common‑law indemnification: An equitable remedy shifting the entire loss to the party truly at fault, available only when the party seeking indemnity is held liable purely because of its legal relationship to the wrongdoer (vicarious liability), not because of its own fault.
Contractual indemnification: A right created by contract to have another party defend and/or reimburse you for claims or losses. Enforceable only if expressly promised to you (or if you are a clearly intended third‑party beneficiary). It does not arise by implication.
Contribution (CPLR 1401): A mechanism to apportion loss among joint tortfeasors. It applies to tort liability—if the plaintiff’s claim is purely for economic loss under a contract, contribution is generally unavailable.
Economic loss doctrine (New York contribution context): Prevents parties from converting contract disputes about economic expectations into tort apportionment via contribution; requires a tort duty and tort damages.
Vicarious liability: Liability imposed on one party for the acts of another (e.g., employer for employee), even if the vicariously liable party did not commit wrongdoing. This is the foundation for common‑law indemnity.
Incorporation by reference: A drafting technique to pull specific terms from one contract into another. To incorporate indemnity terms, New York courts require clear, specific references to the particular clause(s); generic references are insufficient.
Third‑party beneficiary: A non‑signatory who can enforce a contract only if the contract plainly shows the parties’ intent to benefit that person or entity; incidental beneficiaries cannot enforce the contract.
CPLR 3211(a)(1) and (a)(7): Subsections authorizing dismissal based on documentary evidence (a)(1) or failure to state a cause of action (a)(7). Contracts annexed to motions often suffice as documentary evidence.

What the Court Did Not Decide

Whether UrbanTech or Midstate breached their own agreements or performed negligently—the decision addresses only the viability of Bowne’s and Scalamandre’s indemnity and contribution claims against them at the pleading stage.
Any indemnity issues under General Obligations Law § 5‑322.1; the case turned on absence of privity, lack of incorporation/third‑party‑beneficiary status, and the common‑law indemnity predicate, not on statutory limitations on indemnity for one’s own negligence.
Whether different drafting (e.g., explicit flow‑down indemnity naming the architect) would have changed the outcome—though the reasoning strongly suggests it could.

Conclusion

Town of Oyster Bay v. Peter Scalamandre & Sons, Inc. crystallizes three interlocking principles in New York construction litigation:

Common‑law indemnity is unavailable to upstream parties where their contracts impose oversight and performance responsibilities that make any liability their own rather than purely vicarious.
Contractual indemnity does not flow down to protect non‑signatories absent clear privity, unmistakable incorporation by reference of the precise indemnity clause, or explicit third‑party‑beneficiary language naming the upstream party.
Contribution is barred when the owner’s claims seek solely economic loss arising from contract, unless an independent tort duty and tort damages are pled.

The decision advances predictable risk allocation in construction projects and provides a drafting roadmap: parties seeking downstream protection must secure it expressly in subcontracts and purchase orders and should not expect courts to infer indemnity or contribution in contract‑only, economic loss cases. For litigators, it highlights the power of CPLR 3211 to resolve indemnity and contribution disputes at the outset when the documentary record is clear.

Oversight Duties Defeat Common‑Law Indemnity and Contribution; Prime‑Contract Indemnity Does Not Flow Down Without Clear Incorporation — Town of Oyster Bay v. Peter Scalamandre & Sons, Inc. (2025 NY Slip Op 04679)