Key Points

  • The Second Department held that section 20.1 of the trade agreement between Henick-Lane and Red Apple unambiguously limited the contractor's indemnity duty to losses connected with personal injury, wrongful death or property damage.
  • The panel relied on red-line edits in the agreement showing that the parties specifically removed the phrase 'any other economic loss' from the indemnity provision, and it affirmed dismissal of the counterclaims for purely economic losses, including lost rental income.
  • The court applied the rule of Hooper Assoc. v. AGS Computers that an indemnity contract must be strictly construed when the party assuming it has no independent legal duty to indemnify.
  • The panel vacated the portions of the $291,180.71 summary judgment covering security costs and lost gas trains, holding that triable issues remained on whether the security detail was a consequential damage the parties reasonably contemplated and on whether Henick-Lane was responsible for the lost gas trains.

A New York appeals court ruled on Oct. 14 that a building owner cannot recover rent it lost after four water leaks from the contractor that installed its HVAC system, because the two companies had struck the words "any other economic loss" from the indemnity clause of their contract.

The Appellate Division, Second Department, in an unsigned decision and order joined by Justices Francesca E. Connolly, Linda Christopher, Lillian Wan and Susan Quirk, affirmed a trial judge's dismissal of the lost-rent claims brought by owner Red Apple 86 Fleet Place Development LLC and its insurer, Hartford Fire Insurance Co. The panel also gave the contractor, Henick-Lane Inc., a partial win on its cross-appeal. It struck the cost of a security detail and of replacement equipment from a $291,180.71 summary judgment the owner and insurer had won in the trial court.

The trade agreement between Henick-Lane and Red Apple contained red-line edits, and the panel held that those edits showed the parties had removed general economic losses from the contractor's indemnity obligation. The decision confines the owner's counterclaims to property-damage costs, and two components of those costs now remain in dispute.

Henick-Lane installed the HVAC system in a mixed-use building owned by Red Apple. It sued Red Apple and Hudson Meridian Construction Group LLC, among others, for breach of contract, alleging that they had failed to pay Henick-Lane its final payment for the work. Red Apple and Hartford responded with counterclaims against Henick-Lane and a second company, Vivid Mechanical LLC. The counterclaims alleged that the two companies' defective work caused four major water leaks, which required repairs to the property and cost Red Apple rental income.

Henick-Lane and Vivid moved for summary judgment dismissing the claims for lost rental income. They argued that the trade agreement specifically excluded the recovery of such economic losses. Red Apple and Hartford moved for summary judgment on their claims for damages caused by the property damage itself. They put those damages at $291,180.71, a figure that included the cost of security hired during the repairs and the loss of equipment known as "gas trains" that Red Apple had to replace.

In an order dated Dec. 3, 2024, Justice Larry D. Martin of the Supreme Court in Kings County granted both motions. The court dismissed the counterclaims to the extent they sought purely economic losses and awarded Red Apple and Hartford the full $291,180.71 in property damages. Red Apple appealed the dismissal, and Henick-Lane cross-appealed the award.

The appeals court's holding rested on the contract's text. Section 20.1 of the agreement, titled "Indemnity," required Henick-Lane to indemnify Red Apple for damages and liability "of any nature whatsoever which arise out of or are connected with or are claimed to arise out of or be connected with personal injury, wrongful death or property damages" in the performance of Henick-Lane's work. The panel held that the clause was unambiguous.

The agreement, the panel wrote, "which contained red-line edits, demonstrated that Henick-Lane and Red Apple specifically removed the phrase 'any other economic loss' from the indemnification provision." The court held that Red Apple, in opposing the motion, failed to raise a triable issue of fact, and it concluded that the trial court "properly granted" dismissal of the claims for purely economic losses.

The panel grounded that conclusion in settled rules of contract interpretation. It wrote that a provision is ambiguous only if it is "susceptible of two reasonable interpretations," quoting State of New York v. Home Indem. Co. The panel also quoted an earlier Appellate Division decision: "The mere assertion by one [party] that contract language means something different to him or her, where it is otherwise clear, unequivocal, and understandable when read in connection with the whole contract, is not in and of itself enough to raise a triable issue of fact."

The court also applied the rule of strict construction that governs indemnity agreements. It quoted Hooper Assoc. v. AGS Computers: "When a party is under no legal duty to indemnify, a contract assuming that obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed."

The panel held that the trial court "should have denied" summary judgment on the security and equipment costs. Red Apple and Hartford had shown, on their initial papers, that Red Apple paid for security to monitor the repairs to the building. But Henick-Lane, the court held, had raised a triable issue on whether the security detail was a "consequential damage reasonably contemplated by the parties." For that point the panel cited Ashland Mgt. v. Janien.

On the gas trains, the panel wrote that "Red Apple and Hartford failed to eliminate triable issues of fact as to whether Henick-Lane was responsible for the loss of the gas trains." The decision does not describe the gas trains beyond calling them "certain equipment," and it does not state how much of the $291,180.71 the security and gas-train items represented.

The panel modified the December 2024 order to deny summary judgment on those two items and otherwise affirmed it, without costs or disbursements. It wrote that the parties' remaining contentions "either need not be reached in light of our determination or are without merit."

Lawyers for Red Apple included Daniel J. Ansell of Greenberg Traurig LLP. Henick-Lane and Vivid were represented by George E. Pallas of Cohen Seglias Pallas Greenhall & Furman PC.

The decision leaves the claims for security costs and the lost gas trains unresolved. The decision does not address Henick-Lane's own claim for its final payment. The decision is uncorrected and subject to revision before publication in the Official Reports. The case is Henick-Lane, Inc. v. Hudson Meridian Construction Group, LLC, No. 2025-01326.