First Department finds factual issues in §241(6) exclusion, and holds that claim by a lessee's contractor triggers the lessor's indemnity
| 241(6), contract law, contracts, Gartner + Bloom, indemnity, indemnity provision, labor law, Michael E. Kar
By: Michael E. Kar, Esq.
Associate, New York
Date: December 27, 2017
On March 1, 2018, the First Department entered their decision in Karwowski v. 1407 Broadway Real Estate LLC. This decision gleans two important considerations for insurers and practitioners, in the Appellate Division’s: (i) holding that a lessor’s indemnity provision will be triggered by a claim by a lessee’s contractor; and (ii) finding of factual issues with the lower court’s exclusion of a contractor’s workshop from liability under 241(6).
Defendant 1407 Broadway Real Estate LLC (“Broadway”) is the owner of the building wherein this claim arose. Broadway holds an operating lease for the entirety of the building, located in Midtown Manhattan, New York. Defendant Cayre Grp Ltd. (“Cayre”) leases the 41st and 42nd floors of Broadway’s building, and holds a lease extension with Broadway. Plaintiff is a former employee of XCEL Interior Contracting, Inc. (“XCEL”), a third-party defendant in the action. While employed by XCEL, Plaintiff injured his hand while cutting plywood on an unprotected table saw, located on the 16th floor of Broadway’s building. Plaintiff’s injury was in the furtherance of a project undertaken by Cayre, for which XCEL was hired as a contractor.
Pursuant to the lease extension with Broadway, Broadway was given direction and coordination over XCEL, who was one of the lease’s memorialized approved contractors (“[a]ll work done by the contractor [XCEL] must be coordinated with the Building Manager”). This lease extension also contained the following indemnity, recited in pertinent part: “Tenant shall indemnify, defend and save harmless Landlord… from and against (a) all claims of whatever nature against Landlord arising from any act, omission or negligence of Tenant, its subtenant, contractors, licensees, agents, servants, invitees, employees or visitors…”
Broadway cross-claimed below for summary judgment as to the issue of their contractual indemnification, a claim that was not granted. The First Department reversed and found for Broadway on this issue. The Appellate Division found that this indemnity was clear and unambiguous. In response, Cayre argued that this provision required a finding of “active negligence” or fault on behalf of Cayre. The First Department disagreed with this assertion, in holding that “all that is necessary to trigger the provision is a claim arising from any act or omission of Cayre or Cayre’s contractor…” (emphasis added). Cayre’s contractor here was XCEL, employer of the Plaintiff at the time of the alleged accident. The court held that no negligence was needed to trigger the indemnity, and instead, all that was needed was work being done by Cayre or their contractors within the building leased by Broadway.
Factual issue found in Labor Law §241(6) analysis:
At the Supreme Court below, Plaintiff’s claims under Labor Law §241(6) were dismissed. Section 241(6) imposes on property owners (and lessee’s under Article 10 of New York Labor Law) the duty to provide reasonable protection and safety for workers, and to comply with all Department of Labor regulations. The issue in application of §241(6) was, primarily, centered around the physical location at which the injury took place. The location was the 16th floor of the building in question. A portion of the 16th floor was XCEL’s in practice, an area where they would keep materials and tools used for renovations within the building. However, no personnel or office furniture existed in a permanent capacity, and XCEL had no lease and did not pay any rent for the space. XCEL maintains a separate permanent office and workshop in Queens.
In support of their motion for summary judgment as to the applicability of Labor Law §241(6), Defendant Cayre asserted that the 16th floor is a permanent workshop where “for the past 10 years, the… plaintiff reported to work each day….” Their argument concludes that due to these facts the 16th floor is not the statutorily protected “area in which construction, excavation or demolition work is being performed….” N.Y. Labor Law §241(6).
In granting Cayre’s motion for summary judgment below, the Supreme Court found that the 16th floor of the building “was a permanent workshop controlled by XCEL, not a temporary staging area ancillary to the Project and controlled by Cayre.” By extension, this also released Broadway under §241(6).
The First Department reversed and remanded for the court below, finding that “there are disputed issues of fact concerning whether the 16th floor space qualifies as a construction area.” In remanding, the Appellate Division cited such cases as Gerrish v. 56 Leonard, 147 A.D.3 511 (1st Dept. 2017) (factors for determining applicability of 241(6) are physical proximity, common ownership, and operation of off-site premises) and Gonnerman v. Huddleston, 78 A.D.3d 993 (2d Dept. 2010) (241(6) extends to areas where materials are being readied for use, contrary to areas where materials are merely stored for future use).
Lastly, and most important for Labor Law practitioners, the First Department then reasoned that because §241(6) would apply if the saw had been utilized on the 41st floor, the Plaintiff should not have an “automatic loss of the protections afforded by the statute” because Plaintiff chose instead to cut the wood on the 16th floor, and then bring it up to the 41st floor in an elevator.
Application of this trigger to indemnity warrants widespread consideration across the legal universe. The analysis of Labor Law §241(6) by the First Department should be applied by insurance carriers and Labor Law practitioners to all future cases concerning the Section. Insurers should be aware that the designation of a physical area as a construction area is increasingly subject to more liberal interpretations – especially in regards to defense-side summary judgments motions.
Appellate Court in Divorce Proceeding Gives Weight to Motive Behind Life Insurance Policy: What Doors Does This Open Moving Forward?
By: Michael E. Kar
Associate, New York
Date: October 4, 2017
In a recent decision, the Second Department has opened the door for matrimonial attorneys and parties to question the motive behind the failure to pay premiums for life insurance policies, for the purpose of automatic orders in divorce actions.
Upon the commencement of all matrimonial actions in New York, a series of automatic orders are initiated, pursuant to Domestic Relations Law § 236(B)(2)(b). The purpose behind these automatic orders, also called ‘notice provisions’, is to maintain the status quo and preserve assets in the time between the filing for divorce and the final determination, either by an agreement between the parties or the decision of the court. Among other restrictions, neither party can: dispose of particular assets (except in the “ordinary course of business”); incur unreasonable debts; or remove from medical insurance either, (i) the other spouse, or (ii) the children. Additionally, the last subsection of § 236(B)(2)(b) provides that upon the commencement of the action each party must “maintain existing life insurance… in full force and effect.” DRL § 236(B)(2)(b)(5).
This last automatic order, in particular, prevents a spouse from changing policies or withholding premiums/payments that may result in jeopardizing the future financial security of the children or the other spouse. If either spouse violates this rule, such as by refusing to pay the premium on a policy, that spouse can be held in contempt of court. A motion to be held in contempt may result in an order forcing the other party to pay arrears, and can even lead to a finding of criminal contempt and incarceration. If a party is held in contempt – by further refusing to comply with a court order -- “willful” disobedience could result in jail time.
In a recent Second Department decision, however, when faced with this exact scenario the court did none of the above. In fact, faced with a wife who refused to maintain her husband’s life insurance policy, the court approved her conduct.
In Savel v. Savel, the wife/mother stopped paying the premiums on her husband’s life insurance policy, after the automatic orders had been put into effect. 153 A.D.3d 872 (2d Dept 2017). The husband’s attorney moved to hold the wife in contempt for violation of the automatic orders, after which she continued to withhold payment. In a relatively-novel defense, the wife claimed that she did not violate the orders because the life insurance policy was intended to be a “savings vehicle.” The wife argued she should not be forced by the court to contribute her post-commencement income to a savings vehicle for the husband. Post-commencement income is of course separate property, not marital, as the filing for divorce stops the clock on the economic partnership.
The wife further argued that the husband’s rights were not “prejudiced” by this violation. Indeed, the parties in this case maintained three whole-life life insurance policies in the amounts of $12 million for the benefit of the children, $7.6 million for the wife, and the subject policy which was the supposed “savings vehicle” owned in the husband’s name.
During the proceedings below, the husband admitted to his policy serving as a “savings plan” as opposed to the traditional motive behind such a mechanism (to wit, as a safeguard for the family in the event of a death). This admission was enough for the Nassau County Supreme Court to rule in the wife’s favor. The Second Department affirmed the decision below denying the husband’s contempt motion and not requiring the wife to pay the premiums on the husband’s life insurance policy.
But for the husband’s admission of the purpose of the life insurance policy as a savings plan, would this whole-life policy be deemed an investment rather than a safeguard? Are policies such as this not usually the result of a hybrid of motives, including death benefit for the family and asset diversification? These questions in regard to the pre-judgment automatic orders are important, but have the potential to be overshadowed by the larger implications of the Savel court’s holding: how does the holding affect the equitable distribution of whole-life insurance policies collectively?
Currently, pre-marital life insurance accounts are deemed separate property, with an argument that premiums paid during the marriage from the marital funds are marital. In this scenario, the non-owning spouse may be entitled to a credit for half the monies paid toward the premiums, but not the balance of the cash value of the policy. On the other hand, investment accounts that are separate property stay separate, unless they are actively managed. Accounts where the appreciation of value is “passive” are deemed not furthered by the economic partnership, and therefore remain separate property. Alternatively, if an investment account fluctuates in value due to “active” involvement of the spouses, the other spouse can receive a credit for all increases in the balance during the marriage.
How many doors does Savel open? For example, are courts now required on pendente lite support motions (for temporary support during pendency of the action) to make a factual finding as to whether an insurance policy is, (i) an investment, or (ii) security/death benefit for a family? Also, now that the door is open to deeming life insurance policies “savings vehicles” in some circumstances, can the cash value of separate whole-life policies be actively managed, and the appreciation thereof subject to equitable distribution?
The Second Department’s evaluation of the motive behind a life insurance policy kicks down a door in relation to automatic orders, and in doing so, possibly opens the door in relation to insurance policy equitable distribution, or credit.