Contractual Indemnification Granted Against Vehicle Lessee

AUTO – SUBROGATION – CONTRACTUAL INDEMNITY – COMMON LAW INDEMNIFICATION – VEHICLE & TRAFFIC LAW § 388
DaimlerChrysler Ins. Co. v. Roubeni
(Sup.Ct., NY Co., decided 5/7/2008)

Mr. Roubeni leased a new 2003 Mercedes-Benz E500. The lease contained a provision assigning the lease to DCFS Trust. It also contained a contractual indemnity provision, which read as follows:

If you are subjected to any claims, losses, injuries, expenses or costs related to the use, maintenance, or condition of the vehicle, I will pay all of your resulting costs and expenses, including attorneys' fees.

As required by the lease, Mr. Roubeni obtained a $100,000/$300,000 auto liability policy, naming DCFS as an additional insured. DCFS was also named as an additional insured under an excess policy issued by the plaintiff, DaimlerChrysler Insurance Company (DCIC), which policy provided that, in the event of payment under the policy, DCIC would be subrogated to all of its insured's rights of recovery.

While driving his new E500, Mr. Roubeni was in an accident with Ms. Hogan, who later sued him for personal injuries. DCFS's liability was predicated solely on New York Vehicle & Traffic Law § 388, which makes owners of New York-registered motor vehicles indirectly liable for injuries or damages negligently caused by permissive operators.

At some point during the litigation, the personal injury action was settled on the record for $790,000. Mr. Roubeni's insurer paid $100,000 and DCIC paid the $690,000 balance. The settlement agreement included an allocution in which Mr. Roubeni personally acknowledged the reasonableness of the settlement and that he understood that DCIC reserved its right to sue him for indemnification.

And so DCIC did, and the parties moved and cross-moved for summary judgment.

Justice Walter B. Tolub granted summary judgment to DCIC on its contractual indemnification claim only, noting:

A lessor of a motor vehicle can obtain contractual indemnification from the lessee where the agreement obligates the lessee to indemnify the lessor with respect to all claims arising out of the lessee's use of the vehicle, and the lessee is involved in an accident giving rise to such a claim while operating the leased vehicle (citation omitted). In contractual indemnification the one seeking indemnity need only establish that it was free from any negligence and was held liable solely pursuant to a statute.

In denying common law indemnification to DCIC, however, the court noted that unlike contractual indemnity, to prevail on a common law indemnification claim, a person seeking such indemnification must show the additional element of the lessor's negligence. In the underlying action, there had been no finding or admission of negligence by Mr. Roubeni.

One has to wonder how DCFS and/or DCIC wheedled Mr. Roubeni into personally acknowlegding the reasonableness of the $790,000 settlement on the record. Certainly Mr. Roubeni's own defense counsel could not (or should not) have recommended that he do so. By the same token, however, there's nothing Mr. Roubeni or his defense counsel ostensibly could have done to prevent DCIC from kicking in the $690,000 balance on behalf of DCFS to settle the underlying action.

The contractual indemnity provision is not an exemplar of draftmanship. Did someone think to argue that although it begins by referring to the possibility of the lessor being subject to "claims, losses, injuries, expenses or costs" (A, B, C, D and E), it obligates the indemnitor only to pay "resulting costs and expenses, including attorneys' fees." (D and E, and E1) What happened to claims, losses and injuries? Or if the lessor had wanted to be indemnified for costs and expenses resulting from claims, losses and injuries, the provision could have left out costs and expenses in the conditional phrase. That's a $690,000 contra proferentem argument Mr. Roubeni hopefully did not miss making.