Two recent judicial and legislative developments have raised issues regarding the coverage and interpretation of indemnification provisions in construction contracts. These developments—dealing with first-party attorney fees and the liability for the actions of third parties—should cause counsel for owners and contractors to revisit their indemnification provisions to determine that there is adequate protection for their clients.

In Shah v. 20 E. 64th St., LLC, — NYS3d —, 2021 NY Slip Op 04587 [1st Dept. 2021], the Appellate Division found that the indemnification provisions at issue (contained in a neighbor access agreement) allowed the recovery of plaintiff's attorney fees incurred in its direct action against the defendant, despite the absence of third-party claims. The legislation, dealing with "wage theft" (2021 NY Senate-Assembly Bill S2766C, A3350), assigns joint and several liability to prime contractors in any action against a subcontractor by the subcontractor's employees for wages and benefits.

First-Party Attorney Fees

Shah involved a dispute between neighboring property owners relating to construction on the principal defendant's property causing damage to plaintiff's property. The Appellate Division found that the particular indemnification provision in the access agreement allowed the plaintiff (a "first-party") to recover attorney fees from the defendant which, on first blush, appeared to run counter to the seminal case of Hooper Associates v. AGS Computers, 74 N.Y.2d 487 (1989), which interpreted indemnities, generally speaking, to apply to third-party claims.