Anaya Nolan
The concept of common-law indemnity is derived from “common law” and is based on the principle of restitution, which allows the shifting of responsibility from one party to another. It is important to note that the availability and interpretation of common-law indemnity can vary across different jurisdictions, and it may coexist with contractual indemnity in some cases. In the context of construction law, understanding the court's inherent equitable powers in indemnity is crucial for practitioners when dealing with multiple parties responsible for a loss. While common-law indemnity focuses on vicarious liability, equitable indemnity addresses situations involving multiple wrongdoers who are jointly and severally liable for harm.
| Characteristics | Values |
|---|---|
| Definition | "Indemnity is the shifting of responsibility from one party to another." |
| Application | Common law indemnity is applicable when one party is held vicariously liable for the wrongdoing of another without any negligence or actual supervision on their part. |
| Prerequisites | There must be a relationship between the party seeking indemnity and the wrongdoer, such as employer-employee or principal-agent. |
| Nature | Common law indemnity is a restitution concept that aims to prevent unjust enrichment of one party at the expense of another. |
| Basis | It is based on the principle of equality, where the burden of a common right is shared equally. |
| Jurisdictional Variations | The interpretation and applicability of common law indemnity vary across different states and jurisdictions. |
| Co-existence with Contractual Indemnification | In some cases, claims for equitable or common-law indemnification may not co-exist with contractual indemnification claims, especially when based on breach of contract. |
| Equitable Indemnity | In states like California, equitable indemnity applies when there are two wrongdoers who are jointly and severally liable for harm, allowing them to split their liability based on their comparable fault. |
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What You'll Learn
Common law indemnity vs. contribution
The concept of "common law" or "implied" indemnity was redefined when the Court of Appeals introduced the remedy of contribution in the case of Dole v. Dow Chemical Co. in 1972. Prior to this, common law required that the tortfeasor selected by the injured party would either have to avoid liability altogether or assume full liability. In Dole, the Court of Appeals recognised a common law right to contribution, or "partial indemnity", among all joint tortfeasors based on the actual degree of fault. This meant that any loss was more equitably distributed among the culpable parties, according to their degree of fault.
Common law indemnity, or non-contractual indemnity, is based on the relationship between the parties and shifts the entire loss from one party to another. The plaintiff must show the discharge of an obligation, that the obligation is identical and co-extensive to an obligation owed by the defendant, that the defendant will be unjustly enriched if they do not reimburse the plaintiff, and that the defendant should have discharged the obligation in the first place.
Common law contribution, on the other hand, is based on each of the joint tortfeasors' degree of fault. It distributes the loss among the tortfeasors by requiring each to pay their proportionate share. A claim for contribution can be made when the breach of duty by the contributing party has caused or augmented the injury for which contribution is sought.
The line between common law indemnification and contribution can be blurred, and definitions vary depending on the jurisdiction. It is important to be aware of the laws of the applicable jurisdiction before taking any action.
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The active-passive test
The "active-passive" test is a significant aspect of common law indemnity, which was developed by courts to address the strict construction of common law. This test allows for complete indemnification for a party deemed to be only "passively" or "secondarily" negligent against a party considered "actively" or "primarily" negligent. In other words, it distinguishes between active negligence, which involves an action that causes harm, and passive negligence, which arises from a failure to act or fulfil a legal obligation.
The evolution of the active-passive test can be traced to the case of Dole v. Dow Chem. Co. in New York, where the Court of Appeals introduced the remedy of contribution, recognising a common-law right to partial indemnity among joint tortfeasors based on their actual degree of fault. This decision marked a shift from the previous binary approach to liability, allowing for a more nuanced consideration of relative fault and equitable distribution of losses among culpable parties.
However, the active-passive test has faced challenges in its application, as courts grapple with determining the relative fault of parties. In response, courts have re-examined the underlying equities and considered adopting contribution as a remedy, which involves apportioning responsibility among joint tortfeasors based on their degree of responsibility for the harm caused.
Despite the complexities, the active-passive test remains a critical tool in assessing claims for common-law indemnity, particularly in jurisdictions like North Carolina, where it serves as an exception to the general rule that joint tortfeasors are not entitled to indemnity from one another. The test ensures that passively negligent parties are not held primarily responsible for damages, providing a framework for fair allocation of liability.
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Common law indemnity in construction law
Common law indemnity is a restitution concept that permits the shifting of loss from one party to another. It is based on the premise of vicarious liability, where one party is held liable for the wrongdoing of another due to their relationship. In construction law, indemnity clauses are often included in contracts between project owners, general contractors, subcontractors, and owners to allocate risk, responsibilities, and liabilities for losses.
There are three main types of indemnity: express indemnity, indemnity implied-in-fact, and indemnity implied-in-law. Express indemnity, or contractual indemnity, is specifically stated in a written contract and is the most common type. Indemnity implied-in-fact arises from a binding contract, even if it lacks an express indemnity clause, implying a right to indemnification based on the parties' relationship and intent. Indemnity implied-in-law stems from equitable concepts and requires an underlying injury sounding in tort rather than a breach of contractual obligations.
In construction litigation, indemnity implied-in-law is commonly pursued through a third-party complaint, while indemnity implied-in-fact is rarely invoked. To be entitled to common law indemnification, a party must show that they were held vicariously liable without negligence or supervision on their part, and that the proposed indemnitor was negligent or exercised control over the injury-producing work.
Common law indemnity and contractual indemnity can coexist as long as both claims flow in the same direction. However, specific circumstances may prevent an entity from seeking common law indemnification from a negligent entity, such as when the entity seeking indemnification also bears some negligence or supervision. In such cases, common law contribution may be claimed instead, where loss is distributed among culpable parties according to their degree of fault.
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Common law indemnity and vicarious liability
Common law indemnity is a restitution concept that allows a party that has been held vicariously liable to shift the entire loss back to the actual wrongdoer. Vicarious liability is defined as "liability that a supervisory party (such as an employer) bears for the actionable conduct of a subordinate or associate (such as an employee) based on the relationship between the two parties".
For example, an employer may be held vicariously liable for the wrongdoing of an employee, a principal may be held responsible for the actions of its agent, or a vehicle owner may be held liable for the tortious operation of its driver. In such cases, the party that has committed no actual wrong has a right to indemnification from the actual wrongdoer.
To obtain common law indemnification, the entity seeking it must establish that it was not negligent and that the entity from which indemnification is sought was negligent or had the authority to direct, supervise and control the work that caused the injury. The right to indemnity "springs from a contract, express or implied, and full, not partial, reimbursement is sought".
Common law indemnity is not limited to vicarious liability or non-delegable duty scenarios. It is based on notions of "fairness" to prevent an "unjust or unsatisfactory result". However, common law indemnity does have some limitations. For example, if the proposed indemnitee has any degree of fault, even as little as 1%, it is entirely barred from obtaining common law indemnity from any other entity. Additionally, the right of common law indemnity only accrues once the indemnitee has actually paid the underlying judgment or settlement.
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Common law indemnity and contractual indemnification
Contractual indemnification, on the other hand, arises from express or implied contracts between parties. It involves a party seeking to hold another party liable for breach of contract or failure to fulfil contractual obligations. The key distinction here is the presence of a contractual agreement outlining the responsibilities and liabilities of each party.
The line between common law indemnity and contractual indemnification can sometimes blur, and it is crucial to understand the specific laws and precedents within the applicable jurisdiction. For example, in New York, the Court of Appeals in McDermott v. City of New York recognised that implied indemnification stems from principles of equity, and full reimbursement is sought. However, in Live Invest, Inc. v. Morgan Justice, the court dismissed equitable and common-law indemnification claims, emphasising that the breach of contract took precedence over the relationship between the parties.
Practitioners must also be aware of unique state nuances when dealing with these concepts. For instance, in New York, the Court of Appeals' decision in Dole v. Dow Chem. Co. introduced the remedy of contribution, allowing for partial indemnity among joint tortfeasors based on their actual degree of fault. This decision reshaped the landscape of common law indemnification in the state.
In summary, while common law indemnity focuses on vicarious liability and fairness among parties, contractual indemnification arises from contractual agreements and breach of contract claims. Understanding these nuances is essential for effectively representing clients and navigating the complexities of contribution and indemnity.
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Frequently asked questions
Common law indemnity is a restitution concept that permits the shifting of loss from one party to another. This is based on the relationship between the two parties and the degree of fault.
A classic indemnification case would be where an employer is held vicariously liable for the wrongdoing of their employee. In this case, the employer has the right to indemnity from the employee, who is the actual wrongdoer.
Equitable indemnity applies when there are two wrongdoers who are jointly and severally liable for harm to a third party. The liability is split between the two wrongdoers based on their degree of fault. Common law indemnity, on the other hand, can apply to cases where there is more than one party responsible for a loss, but the degree of fault is not considered.
