CASTANO v. ZEE-JAY REALTY

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Docket Number

Nos. 2007-04250, 2007-09209.

Attorney(S)

Thomas D. Hughes, New York, N.Y. (Richard C. Rubinstein and Haydn J. Brill of counsel), for appellants Zee-Jay Realty Co. and Zvi Berger. Nowell, Amoroso, Klein, Bierman, P.A., New York, N.Y. (Michael J. Palma of counsel), for respondents.

Judges

Peter B. Skelos
Thomas A. Dickerson

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Smart Summary

Factual and Procedural Background

The plaintiff, Maria E. Castano, was injured when she allegedly tripped and fell on a dangerous and defective public sidewalk. She initiated an action to recover damages for personal injuries against multiple parties, including Zee-Jay Realty Co. and Zvi Berger (collectively, the landlord), owners of the abutting building, and Waroge Met, Ltd. and Sizzler #489 (collectively, the tenant), who leased the building. The landlord filed a cross claim against the tenant seeking contractual indemnification pursuant to the lease terms.

After a trial on liability, both the landlord and tenant were found at fault for the accident, but the court did not apportion fault between them. Subsequently, both parties settled with the plaintiff by each paying $150,000, leaving the landlord's cross claim for indemnification to be resolved by the court. The Supreme Court dismissed the landlord’s cross claim, holding the indemnification provision unenforceable under General Obligations Law § 5-321. The tenant then moved to apportion 100% of the fault to the landlord, and the court granted this motion. The landlord and Zvi Berger appealed these rulings.

Legal Issues Presented

Whether the indemnification provision in the commercial lease between the landlord and tenant is enforceable under General Obligations Law § 5-321, which prohibits agreements exempting a lessor from its own negligence.
Whether fault should be apportioned 100% to the landlord based on the indemnification provision and trial findings.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Great Northern Insurance Co. v Interior Construction Corp., 7 NY3d 412, 417	Enforcement of indemnification provisions in commercial leases that allocate risk of liability to third parties and require insurance procurement.	The court relied on this precedent to hold that such indemnification provisions are enforceable despite General Obligations Law § 5-321, as they do not exempt a lessor from liability to a victim but allocate risk between sophisticated parties.
Hogeland v Sibley, Lindsay Curr Co., 42 NY2d 153	Supports the principle that indemnification provisions allocating risk between parties in commercial leases are valid when involving third-party liability.	The court cited this case to reinforce that indemnification coupled with insurance procurement is not void under General Obligations Law § 5-321.
Schumacher v Lutheran Community Services, 177 AD2d 568	Recognition that indemnification provisions requiring insurance to protect third parties are enforceable.	Used to confirm that the lease’s indemnification clause, combined with insurance requirements, protects public interests and is valid.

Court's Reasoning and Analysis

The court examined General Obligations Law § 5-321, which invalidates agreements that exempt a lessor from liability for its own negligence. However, the court distinguished the present case because the indemnification provision concerns liability to a third party, not exemption from liability to the injured party. The lease was negotiated at arm's length between sophisticated commercial parties and included a requirement for insurance procurement. This arrangement effectively allocates the risk of third-party liability between landlord and tenant, with the tenant’s insurer ultimately responsible for indemnification payments. The court emphasized that such agreements, which provide insurance-based protection to the public, are generally upheld. Therefore, the Supreme Court erred in dismissing the indemnification provision as unenforceable under General Obligations Law § 5-321. Consequently, the denial of summary judgment to the landlord and the granting of the tenant’s motion to apportion all fault to the landlord were reversed.

Holding and Implications

The court reversed the Supreme Court’s orders:

Granted summary judgment to the landlord and Zvi Berger on their cross claim for contractual indemnification against the tenant and Sizzler #489.
Denied the tenant’s motion to apportion 100% of fault to the landlord as academic due to the indemnification ruling.

As a direct consequence, the indemnification provision in the lease is enforceable, requiring the tenant’s insurer to bear indemnification responsibility. No new precedent was established beyond affirming existing principles that indemnification provisions coupled with insurance requirements in commercial leases allocating third-party liability are valid under New York law.

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MARIA E. CASTANO, Plaintiff, v. ZEE-JAY REALTY CO. et al., Appellants, and WAROGE MET, LTD., et al., Respondents.

Ordered that the appeal by the defendant Joel Berger from the order dated March 23, 2007 is dismissed as abandoned ( see 22 NYCRR 670.8 [e]); and it is further,

Ordered that the appeal by the defendant Joel Berger from the order dated August 30, 2007 is dismissed as abandoned ( see 22 NYCRR 670.8 [e]), and on the ground that he is not aggrieved by the order ( see CPLR 5511); and it is further,

Ordered that the order dated March 23, 2007 is reversed insofar as appealed from by the defendants Zee-Jay Realty Co. and Zvi Berger, on the law, and that branch of the motion insofar as asserted by the defendants Zee-Jay Realty Co. and Zvi Berger which was for summary judgment on their cross claim against the defendant Waroge Met, Ltd., and Sizzler #489 for contractual indemnification is granted; and it is further,

Ordered that the order dated August 30, 2007 is reversed, on the law, and the motion of the defendants Waroge Met, Ltd., and Sizzler #489 to apportion 100% of the fault to the defendants Zee-Jay Realty Co. and Zvi Berger is denied as academic; and it is further,

Ordered that one bill of costs is awarded to the defendants Zee-Jay Realty Co. and Zvi Berger.

The plaintiff allegedly was injured when she tripped and fell on a dangerous and defective public sidewalk. She commenced this action to recover damages for personal injuries against, among others, the owner of the abutting building, Zee-Jay Realty Co., and one of its partners, Zvi Berger (hereinafter collectively the landlord), and against the tenant of the building, Waroge Met, Ltd., and Sizzler #489 (hereinafter collectively the tenant). The landlord cross-claimed against the tenant for contractual indemnification pursuant to the terms of the lease. After a trial on the issue of liability, at which the landlord and the tenant were found at fault in the happening of the accident, without apportionment of fault among them, they settled the action by each paying the plaintiff the sum of $150,000 with the understanding that the landlord's cross claim for contractual indemnification would be decided by the court. The Supreme Court dismissed the cross claim on the ground that the indemnification provision of the lease was unenforceable pursuant to General Obligations Law § 5-321. The tenant moved to apportion 100% of the fault to the landlord. The Supreme Court granted that relief. We reverse the denial of relief to the landlord and the granting of relief to the tenant.

General Obligations Law § 5-321 provides that an agreement to exempt a lessor from its own negligence is void and unenforceable. However, where, as here, the liability is to a third party, General Obligations Law § 5-321 does not preclude enforcement of an indemnification provision in a commercial lease negotiated at arm's length between two sophisticated parties when coupled with an insurance procurement requirement ( see Great N. Ins. Co. v Interior Constr. Corp., 7 NY3d 412, 417; Hogeland v Sibley, Lindsay Curr Co., 42 NY2d 153; Schumacher v Lutheran Community Servs., 177 AD2d 568). In such circumstances, the landlord is not exempting itself from liability to the victim for its own negligence. Rather, the parties are allocating the risk of liability to third parties between themselves, essentially through the employment of insurance, and the courts do not, as a general matter, look unfavorably on agreements which, by requiring parties to carry insurance, afford protection to the public ( see Great N. Ins. Co. v Interior Constr. Corp., 7 NY3d 412, 417; Hogeland v Sibley, Lindsay Curr Co., 42 NY2d 153; Schumacher v Lutheran Community Servs., 177 AD2d 568). Here, such an arrangement afforded the plaintiff adequate recourse for the injuries she sustained. Additionally, the tenant's insurer — not the tenant itself — will bear ultimate responsibility for the indemnification payment, which is precisely the result contemplated by the parties when they entered into the lease. Thus, the Supreme Court erred in holding the indemnification provision of the lease unenforceable pursuant to General Obligations Law § 5-321.

The parties' remaining contentions are without merit.