Can a party be indemnified for its own negligence? In many states, such provisions are void as against public policy. Other some states allow enforcement of indemnification for the indemnitee’s own negligence when the clause expressly references “negligence.” Likewise, many states will enforce indemnities where the indemnified party is strictly liable because of its status as an owner or operator if the clause refers to “strict liability”. As a result, environmental  indemnity clauses often contain a parenthetical reference to “including strict liability”  to ensure that such liability is covered.

Even in those states that where indemnification for the indemnified party’s negligence is void as a matter of public policy, there may be circumstances that allow enforcement of such a provision. For example, a New York case recently allowed enforcement of an indemnity where the tenant was required to obtain an insurance policy for third party liability.

In DiBuono v Abbey, LLC, et al, 2011 N.Y. App. Div. LEXIS 2822 (App. Div.-2^nd Dept. 4/5/11),  the plaintiffs commenced an action for property damage related to contamination that had migrated from three nearby  service stations. One of the defendants, L.M.C. Partners, LLC (LMC) filed a third party complaint against its former tenant, Palisades Resources, Inc. (Palisades), alleging that Palisades breached its the lease by failing to defend and indemnify LMC and for not obtaining insurance.

LMC moved for summary judgment.Palisadesargued that the General Obligations Law (GOL) § 5-321 prevented enforcement of the indemnification provision in the lease. GOL § 5-321 provides that exculpatory clauses that purports to exempt a lessor from its own negligence are void and unenforceable.  However, the trial court said that GOL § 5-321 does not apply to an indemnification provision in a commercial lease negotiated at arm’s length between two sophisticated parties when coupled with an insurance procurement requirement. Under such circumstances, the trial court explained, the purpose of the indemnity clause is not to exempt the lessor from liability to the victim, but to allocate the risk of liability to third parties between the lessor and the lessee. The said the lease indemnification provision operated as such an allocation since LMC and Palisades agreed in that Palisades would be responsible for liability to third parties arising from damages incurred during the lease period. Accordingly, the trial court granted summary judgment to LMC. The appellate division affirmed that the indemnification clause was enforceable but modified the order so that the indemnification was limited to damages incurred during the term of the lease.

An Illinois appeals court ruled that an insurer had a duty to defend a successor  of an insured where the insured made an assignment of benefits pursuant to a asset sales agreement. The assignment of benefits had been made without consent of the insured and the insurance policy had contained an anti-assignment clause..

In Illinois Tool Works, Inc. v Commerce and Industry Insurance Company and United States Fire Insurance Company, 2011 Ill. App. LEXIS 1250 (App. Ct. 12/12/11), a landlord had filed a lawsuit against its former tenant, Binks Manufacturing and Illinois Tools Works (ITW)as successor to Binks, for contamination alleged to have been caused by the tenant operations.Binks had leased the property from 1959 to 1998 when it sold its assets to a predecessor of ITW who continued to lease the premises until 2003 As part of the asset purchase, ITW received an assignment of rights to all insurance Binks’ insurance policies.

Defendants Commerce and Industry Insurance Company (C&I) and United States Fire Insurance Company (USF) defended Brinks in the lawsuit filed by the landlord but declined to defend ITW. In 2006, ITW  filed a declaratory judgment action in Illinois state court seeking a ruling that C&I and USF had breached their policies by refusing to defend ITW in the underlying landlord litigation. ITW asserted that it was entitled to a defense because it was a successor of Binks and had been assigned the rights under the policies.

On cross-motions for summary judgment, the trial court ruled in favor of the insurers but the appeals court reversed, holding that an assignment of rights can be made without consent of an insured since such as assignment does not expand the risk to carriers as the assignor cannot grant rights greater than it has under ther policy. The court also said that an assignment of a policy can be made without the insurer’s consent where a loss has occurred. Since in this case, the contamination had occurred prior to ITW’s purchase of the Binks assets, the court held the assignment was valid and the insurers should have provided defense to ITW,