Economic Damages to Adjacent Property

In general, when the property adjacent to a construction site is damaged as a result of the work being done, the contractor is required to indemnify the property owner for any claims brought against him for the damage to the adjacent property.  Such indemnification is essentially only required if the damage is to another person or the physical property adjacent to the work site.  Unless contracted to, indemnification for economic damages to adjacent property is usually not expected of the contractor.

In Watral & Sons, Inc. v. OC Riverhead 58, 10 N.Y.3d 180, 855 N.Y.S.2d 49 (2008), the contract between the property owner and contractor provided for indemnification for damage or loss of property as a result of the work being done; namely, “property at the site or adjacent thereto, including trees, shrubs, lawns, walks, pavements, roadways, structures and utilities not designated for removal, relocation or replacement in the course of construction.”  Further, the indemnification provision of the construction contract, requiring the excavation contractor to indemnify owner for damage caused by the contractor’s negligent acts, did not apply to require contractor to indemnify owner for damages allegedly sustained by neighboring landowner when ground adjacent to excavation site gave way, damaging an underground power cable that supplied electricity to neighboring property by dragging it out of place.  The employee of the construction manager was present and supervising contractor’s work at the time, and there was no contact between the excavation equipment and the cable.  Since the loss of electricity did not constitute damage of tangible property, but rather economic damage to the adjacent landowner due to his lack of electricity, neither the contract nor relevant law provided for contractor indemnification.

Similarly, in Roundabout Theatre Co., Inc. v. Tishman Realty & Const. Co., Inc. 302 A.D.2d 272, 756 N.Y.S.2d 12 (1st Dept. 2003), a theater owner sued the owner of nearby property and its construction contractor to recover for economic losses caused by a temporary street closure due to a construction site accident.  The court found that the defendants’ duty of care extended only to those who, as a result of this construction accident, suffered personal injury or property damage, and not to those who, like the theater owner, suffered only economic loss.  Since the theater owner only suffered economic loss as a result of the construction site accident forcing him to cancel shows, he did not have standing to bring suit against the owner of the property where the construction was being done, and the contractor was not required to indemnify the owner for such damages.

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