BIGELOW v. GENERAL ELECTRIC COMPANY (2014)

In 2005 plaintiff's decedent was injured in a fire in his mobile home, and he died from those injuries nine days later. The fire originated in the area of an electrical outlet with a window air conditioning unit plugged into it, and an investigation conducted by the Genesee County Sheriff's Office concluded that the cause of the fire was most likely electrical in nature. The subject air conditioning unit was manufactured by third-party defendant, Carrier Corporation (Carrier), and marketed and sold by defendant-third-party plaintiff, General Electric Company (GE), under its brand name. Plaintiff commenced this negligence and strict products liability action against three defendants, including GE, on the theory that the fire was caused by the allegedly defective air conditioning unit. When Carrier refused to provide a defense and indemnification for GE in the main action, GE commenced this third-party action seeking, inter alia, common-law indemnification from Carrier in the underlying action.

GE thereafter moved for summary judgment granting “common[-]law indemnification for all potential liability which may arise with respect to plaintiff's claims,” and sought reimbursement from Carrier for all fees, costs, and expenses incurred by GE in defending the underlying action. Carrier cross-moved for summary judgment dismissing the third-party complaint on the ground that there had been no determination that GE or Carrier was liable for decedent's injuries and, further, that there was no evidence that the subject air conditioning unit was defective. GE also moved for summary judgment dismissing the complaint in the main action, and Carrier joined in that request by way of a cross motion. In a single decision, the court granted GE's motion in the underlying action, concluding that the air conditioning unit was not defective and that the fire was likely caused by a faulty wiring at the outlet and granted Carrier's cross motion to dismiss the third-party complaint, concluding that GE was not entitled to common-law indemnification from Carrier because there was no finding of fault on the part of Carrier.

The issue in this case is whether GE, a downstream retailer, is entitled to recoup its costs in defending a products liability action from Carrier, an upstream manufacturer, when they both are ultimately absolved of liability. We conclude that GE is not entitled to recoupment, and we therefore affirm.

Indemnification is grounded in the equitable principle that the party who has committed a wrong should pay for the consequences of that wrong (see North Star Reins. Corp. v. Continental Ins. Co., 82 N.Y.2d 281, 291; Oceanic Steam Nav. Co. [Ltd.] v. Compania Transatlantica Espanola, 134 N.Y. 461, 468). Thus, New York courts have consistently held that “common-law indemnification lies only against those who are actually at fault ” (Nourse v. Fulton County Community Heritage Corp., 2 AD3d 1121, 1122 [emphasis added]; see Colyer v. K Mart Corp., 273 A.D.2d 809, 810), i.e., the “actual wrongdoer ” (Trustees of Columbia Univ. v. Mitchell/Giurgola Assoc., 109 A.D.2d 449, 451 [emphasis added] ). In the products liability context, a manufacturer is held accountable as a “wrongdoer” when it releases a defective product into the stream of commerce (see Rosado v. Proctor & Schwartz, 66 N.Y.2d 21, 25–26), and “innocent” sellers who merely distribute the defective product are entitled to indemnification from the at-fault manufacturer (see Godoy v. Abamaster of Miami, 302 A.D.2d 57, 62, lv dismissed 100 N.Y.2d 614). That common-law right of indemnification “encompasses the right to recover attorneys' fees, costs, and disbursements incurred in connection with defending the suit brought by the injured party” (Chapel v. Mitchell, 84 N.Y.2d 345, 347; see Lowe v. Dollar Tree Stores, Inc., 40 AD3d 264, 265, lv dismissed 9 NY3d 891; Colyer, 273 A.D.2d at 810).

Although there are no state court cases in New York that directly address the issue presented here, we note that federal courts and the vast majority of courts in other states have concluded that, in the absence of fault on the part of the manufacturer for producing a defective product, there is no implied right to indemnification for defense costs assumed by downstream distributors (see e.g. Innovation Ventures, LLC v. Ultimate One Distrib. Corp., ––– F Supp 2d ––––, –––– [ED NY]; Luna v. American Airlines, 769 F Supp 2d 231, 239 [SD NY]; Papas v. Kohler Co., Inc., 581 F Supp 1272, 1274[Pa]; Merck & Co., Inc. v. Knox Glass, Inc., 328 F Supp 374, 378 [Pa]; Clark v. Hauck Mfg. Co., 910 S.W.2d 247, 252–253, overruled on other grounds by Martin v. Ohio County Hosp., 295 SW3d 104[Ky]; Krasny–Kaplan Corp. v. Flo–Tork, Inc., 66 Ohio St 3d 75, 78–80, 609 N.E.2d 152, 154–155; Borchard v.. WEFCO, Inc., 112 Idaho 555, 559, 733 P.2d 776, 780; Greenland v. Ford Motor Co., Inc., 115 NH 564, 571, 347 A.2d 159, 165; SEMCO Energy, Inc. v. Eclipse, Inc., 2012 WL 6049655, *6–7 [Mich.App]; Automatic Time & Control Co., Inc. v. ifm Electronics, 410 Pa Super 437, 438–442, 600 A.2d 220, 221–223; Oates v. Diamond Shamrock Corp., 23 Mass App Ct 446, 448–449, 503 N.E.2d 58, 59–60, review denied 399 Mass 1104). In our view, those cases are persuasive and in accord with New York law on common-law indemnification and sound considerations of public policy.

Where, as here, it is ultimately determined that the subject product is free from defect, there is no “fault” or “wrongdoing” on the part of the manufacturer (see generally Rosado, 66 N.Y.2d at 25–26). In that situation, we see no valid basis for shifting the retailer's defense costs onto the manufacturer inasmuch as both the retailer and the manufacturer are innocent parties. Thus, “the retailer is in a position no different from that of any other defendant forced to defend against spurious claims” (Hanover Ltd. v. Cessna Aircraft Co., 758 P.2d 443, 448 [Utah App] ). We therefore conclude that the “ ‘general rule [that] attorneys' fees and disbursements are incidents of litigation’ “ and that each litigant is required to bear its own costs should apply (Mount Vernon City Sch. Dist. v. Nova Cas. Co., 19 NY3d 28, 39; see Papas, 581 F Supp at 1274; Oates, 23 Mass App Ct at 448–449, 503 N.E.2d at 59–60). To hold otherwise would require manufacturers to “become the insurer of [the] seller's defense costs, irrespective of whether the product was defectively manufactured” (Merck & Co., Inc., 328 F Supp at 378; see Greenland, 115 NH at 571, 347 A.2d at 165; Automatic Time & Control Co., Inc., 410 Pa Super at 440, 600 A.2d at 222). We decline to adopt such a rule.

It is hereby ORDERED that the order so appealed from is unanimously affirmed without costs.

MEMORANDUM: