
    Federal Insurance Company, Respondent, v Alexander D. Walker, Jr., Individually and as Administrator of the Estate of Helen E. Walker, Deceased, Defendant-Appellant and Third-Party Plaintiff-Respondent. Union Camp Corporation et al., Third-Party Defendants-Appellants.
    Argued March 31, 1981;
    decided May 14, 1981
    
      POINTS OF COUNSEL
    
      Charles M. Newman, Barry Singer and William A. Zutt for defendant-appellant and third-party plaintiff-respondent.
    I. The court below was correct in reinstating the third-party complaint, as to do so properly puts the monetary consequences of Morgan’s errors on Morgan. (William v Williams, 23 NY2d 592.) II. As matters of fact and law, the documents signed by the Walkers did not shift to them the monetary consequences of Morgan’s and Union Camp’s errors. (Gross v Sweet, 49 NY2d 102; Hertzog v Harrison Is. Shares, 21 AD2d 859; Rappaport v Phil Gottlieb-Sattler, Inc., 280 App Div 424, 305 NY 594; Van Dyke Prods, v Eastman Kodak Co., 12 NY2d 301; Colton v New York Hosp., 53 AD2d 588, 98 Misc 2d 957; Levine v Shell Oil Co., 28 NY2d 205; Hogeland v Sibley, Lindsay & Curr Co., 42 NY2d 153; Liff v Consolidated Edison Co. of N. Y., 29 AD2d 665, 23 NY2d 854; Kurek v Port Chester Housing Auth., 18 NY2d 450; Margolin v New York Life Ins. Co., 32 NY2d 149; Ciofalo v Vic Tanney Gyms, 10 NY2d 294.) III. The “circularity” theory urged by Morgan and rejected by the court below does not create any liability on Walker. (Boll v Sharp & Dohme, 281 App Div 568, 307 NY 646; Saladino v Stuyvesant Ins. Co., 39 AD2d 765.) IV. Morgan and Union Camp were negligent. V. Since the documents do not shift liability to Walker, it was improper for Federal to have paid Morgan as demanded. Federal’s recourse is against Morgan. VI. The existence of the surety cannot strip Walker of his claims against Morgan. (Fidelity & Cas. Co. of N. Y. v Finch, 3 AD2d 141; Continental Cas. Co. v National Slovak Sokol, 269 NY 283; American Sur. Co. of N. Y. v Town of Islip, 268 App Div 92.) VII. Federal paid Morgan as a volunteer, and is not entitled to recovery against Walker. (Continental Cas. Co. v National Slovak Sokol, 269 NY 283; Fidelity & Cas. Co. of N. Y. v Finch, 3 AD2d 141; Kinnan v Forty-second St. Ry. Co., 1 Misc 457, 140 NY 183.)
    
      Richard J. Cunningham, Henry L. King and Ahuva Genack for third-party defendants-appellants.
    The indemnity agreements and bond involved in this case require decedent and Walker to indemnify Morgan Guaranty and Union Camp for any and all liabilities arising out of the issuance of the replacement stock certificate even if such losses occurred by reason of their negligence. Accordingly, the third-party complaint should have been dismissed. (Kurek v Port Chester Housing Auth., 18 NY2d 450; Liff v Consolidated Edison Co. of N. Y., 23 NY2d 854; Levine v Shell Oil Co., 28 NY2d 205; Margolin v New York Life Ins. Co., 32 NY2d 149.)
    
      Arthur N. Lambert, William R. Mait and Michael Mail-let for respondent.
    I. The court below properly found as a matter of law that plaintiff, is entitled to indemnification from defendant under the terms of the indemnity agreements for the full amount of its loss. (Maryland Cas. Co. v Grace, 292 NY 194; United States Fid. & Guar. Co. v Green, 64 Misc 2d 1, 34 AD2d 935; MacArthur Bros. Co. v Kerr, 213 NY 360; Maryland Cas. Co. v Spector, 28 AD2d 990; Janos v Peck, 21 AD2d 529; Overmyer v Fidelity & Deposit Co. of Md., 554 F2d 539, 48 AD2d 768; Gray Mfg. Co. v Pathe Inds., 33 AD2d 739; Continental Cas. Co. v National Slovak Sokol, 269 NY 283.) II. The agreements of indemnity executed by decedent and defendant in favor of Federal unmistakably encompass the alleged negligent acts of Morgan and Union Camp. (Levine v Shell Oil Co., 28 NY2d 205; Liff v Consolidated Edison Co. of N. Y., 23 NY2d 854; Kurek v Port Chester Housing Auth., 18 NY2d 450; Hogeland v Sibley, Landsay & Curr Co., 42 NY2d 153; Lopez v Consolidated Edison Co. of N. Y., 40 NY2d 605; Nicolosi v Aberthaw-Cowper & Forbes Buffalo, 49 AD2d 670; Dillion v Riverso Constr. Co., 39 AD2d 744, 33 NY2d 530; Hershkowitz v Menorah Caterers, 72 Misc 2d 199; Margolin v New York Life Ins. Co., 32 NY2d 149; Gross v Sweet, 49 NY2d 102.) III. The lost instrument bond and the agreements of indemnity are not exculpatory agreements, nor is there any overriding public policy which requires and warrants their not being strictly enforced. (Hogeland v Sibley, Lindsay & Curr Co., 42 NY2d 153; Ciofalo v Vic Tanney Gyms, 10 NY2d 29; Phibbs v Ray’s Chevrolet Corp., 45 AD2d 897; Van Dyke Prods, v Eastman Kodak Co., 12 NY2d 301; Johnston v Fargo, 184 NY 379; Gold v Air Transp. Co., 33 AD2d 777; Straus & Co. v Canadian Pacific Ry. Co., 254 NY 407; Krivitsky & Cohen v Western Union Tel. Co., 129 Misc 431; Danna v Con Edison Co., 71 Misc 2d 1029; Goodman v Imperion Manor, 62 Misc 2d 561, 64 Misc 2d 813.)
   OPINION OF THE COURT

Gabrielli, J.

In this case, we are asked to consider whether the terms of an indemnity agreement preclude the indemnitor from maintaining a third-party action in negligence against the indemnitee. Also presented for our consideration is the question whether an indemnitor is obligated to reimburse an indemnitee for losses occasioned by the indemnitee’s own failure to act within a reasonable time in order to mitigate damages. We conclude that both questions should be answered in the negative.

In 1970, Ms. Helen Walker acquired 1,140 shares in Union Camp Corporation. Although she transferred the certificates representing these shares approximately one month after she acquired them, the transfer, for some reason, was never recorded by the corporation or its transfer agent, Morgan Guaranty Trust Company (Morgan). As a consequence, Ms. Walker continued to receive dividends from Union Camp. Her son, Alexander Walker, Jr., who knew she was receiving these dividends but was apparently unaware of the transfer, attempted to locate the corresponding stock certificates among his mother’s personal effects. When he was unable to do so, he suggested to his mother that she ask the corporation to issue duplicate certificates evidencing her ownership of the shares. The record does not make clear whether Ms. Walker remembered at this point that she had earlier transferred the shares, but, in any event, she acquiesced in her son’s suggestion.

The corporation’s transfer agent agreed to the issuance of duplicate stock certificates, but insisted that Ms. Walker execute an instrument attesting to the fact that she had not sold or transferred the original certificates and, further, that she had conducted a diligent search for the originals before applying for duplicates. The instrument also provided that Ms. Walker would indemnify Union Camp Corporation and Morgan against “any and all liabilities, loss, damage or expense in connection with, or arising out of their compliance with [her request for duplicate certificates]”. Finally, the instrument stated that Ms. Walker’s obligation to indemnify Union Camp and Morgan would be secured by a “blanket bond” issued by Federal Insurance Company (Federal), under which Federal was to “defend, indemnify and save harmless Assured [Morgan Guaranty and Union Camp] from and against any and all * * * liabilities, damages, costs * * * and other expenses of every nature * * * by reason of the Original Instrument and/or the issuance of * * * duplicates * * * whether or not caused by, based upon, or arising out of inadvertence, accident, oversight or neglect on the part of Assured”. In exchange for its agreement to assume this obligation, Federal demanded that both Ms. Walker and her son execute another agreement indemnifying it “against any and all loss, damage [and] expense * * * which it shall at any time incur by reason of its [undertaking] ”. The net result of these interlocking indemnity agreements was that Union Camp and Morgan were indemnified against loss by Federal and Ms. Walker, and Federal, in turn, was indemnified against loss by Ms. Walker and her son.

Following the execution of the various indemnity agreements, Morgan issued duplicate stock certificates to Ms. Walker. Shortly thereafter, she sold the shares represented by the duplicate certificates for the sum of $52,800. Approximately two years later, in September of 1975, an audit was conducted and it was discovered that Ms. Walker’s original stock certificates had been transferred by her in 1970. This revelation led Union Camp and Morgan to become concerned about an “overissuance” of Union Camp stock resulting from the issuance of the duplicate certificates. Morgan promptly notified Federal of the problem, and Federal then made a demand upon its indemnitors, the Walkers, to replace the overissued shares.

Ms. Walker’s son, who was at this point administering his deceased mother’s estate, asked Federal to refrain from taking any action while his attorney evaluated the situation. Settlement negotiations ensued, but by February of 1976 it became apparent that Walker was not prepared to make an offer that would be acceptable to the other parties. It was not until August of 1976, however, that Union Camp and Morgan moved to remedy the “overissuance” problem by purchasing replacement shares on the open market. By this time, the common stock of Union Camp had “split” three for two, and, as a consequence, the cost of replacement had risen to $108,515.25.

Pursuant to its blanket indemnity bond, Federal paid Union Camp’s and Morgan’s claim for the cost of replacement. It then commenced an action against Alexander Walker, Jr., and Ms. Walker’s estate for reimbursement. Walker, acting on his own behalf and on behalf of the estate, impleaded Union Camp and Morgan on the theory that their negligence in failing to record the original 1970 transfer was, at least in part, the proximate cause of the loss.

Prior to trial, Federal moved for summary judgment against Walker and the estate. Third-party defendants Union Camp and Morgan then moved for summary judgment dismissing the third-party negligence complaint on the ground that the various indemnity agreements insulated them from liability to the Walkers. Special Term agreed with the contentions of the third-party defendants and dismissed the third-party complaint as requested. The court, however, declined to grant summary judgment to plaintiff Federal for the full amount demanded in its complaint. Instead, the court awarded Federal $52,800, the amount realized by Ms. Walker when she sold the duplicate shares in 1973, and held that the remainder of Federal’s claim should be resolved in a plenary trial. The Appellate Division, however, modified the order of Special Term. The Appellate Division first concluded that the indemnity agreements did not present a bar to a third-party negligence action against Union Camp and Morgan. Additionally, the court held that Federal was entitled to summary judgment in the full amount demanded in its complaint. Following the entry of the order by the Appellate Division, defendant Walker appealed as of right from the modification by which he and the estate of his deceased mother were aggrieved (CPLR 5601, subd [a], par [iii]). Third-party defendant Union Camp and Morgan also appealed pursuant to leave granted by the Appellate Division, and that court also certified the following question of law: “Was the order of this Court, insofar as it denied the third-party defendants-respondents’ motion for summary judgment dismissing the third-party complaint, properly made?”

Turning first to the contentions of the third-party defendants, we conclude that there was no error in the Appellate Division’s decision to reinstate the third-party negligence complaint. The third-party defendants’ motion to dismiss this complaint was based upon the existence of the interlocking indemnity agreements, which, it was claimed, rendered the third-party defendants immune from liability in negligence to Walker and the decedent whose estate Walker represents. A careful analysis of the relationships created by the various indemnity agreements, however, belies this contention.

The decedent, Ms. Walker, agreed “to indemnify and protect [the third-party defendants] from any and all liabilities, loss, damage or expense in connection with, or arising out of [their issuance of duplicate stock certificates] ”. These words of indemnification merely established the decedent’s obligation to hold harmless the third-party defendants in the event that they were held liable to some stranger to the transaction as a result of their decision to issue duplicate stock certificates. As such, the agreement simply represented an allocation of the risk of liability among the several contracting parties (see Hogeland v Sibley, Lindsay & Curr Co., 42 NY2d 153,158). Nothing in the language of the agreement, however, indicates an intention on the part of the decedent to waive her own rights against the third-party defendants or to exonerate them from direct liability to her for pecuniary injuries resulting from their negligence (compare Gross v Sweet, 49 NY2d 102, with Hogeland v Sibley, Lindsay & Curr Co., supra, and Levine v Shell Oil Co., 28 NY2d 205). Thus, the indemnity agreement executed by Ms. Walker cannot legitimately be invoked by the third-party defendants as a defense to the negligence claim brought on behalf of her estate.

Similarly, the third-party defendants cannot rely upon any of the various indemnity agreements as a defense to the negligence claim asserted by defendant Alexander Walker, Jr., in his individual capacity. Walker was not a party to the indemnity agreement between the decedent and the third-party defendants. Instead, he agreed only to indemnify plaintiff Federal, the surety, from loss in the event that Federal was obliged to reimburse the third-party defendants for claims made against them. Inasmuch as Walker’s obligations under the lone indemnity agreement he signed ran solely to Federal, the agreement cannot be used by the third-party defendants to defeat Walker’s individual claim against them. Thus, the Appellate Division acted correctly in refusing to dismiss the third-party complaint.

We cannot approve, however, that portion of the Appellate Division decision which granted summary judgment to plaintiff surety, Federal, in the full amount demanded in its complaint ($114,842.25). The parties discovered in September of 1975 that the original stock certificates, which were previously thought to have been lost, had actually been transferred in 1970 by the decedent. Yet, no efforts were made to correct the apparent over-issuance of shares until August of 1976, when Union Camp and Morgan purchased an equivalent number of shares on the open market and then obtained reimbursement from the surety. By that time, the price of the shares had risen dramatically above the price that the corporation would have had to pay had it entered the market promptly in September of 1975.

Defendant Walker does not dispute that both he and the decedent’s estate are obligated to reimburse Federal by virtue of the separate indemnity agreements that were executed in the surety’s favor. He does, however, contend that he should not be held liable for the entire amount which was ultimately paid for the shares ($108,515.25), since the third-party defendants waited nearly a year after the over-issuance was discovered before entering the market in an effort to “cover”. Asserting that this delay was unreasonable under the circumstances, defendant Walker argues that the increase in price which was attributable to the delay should be absorbed either by the third-party defendants or by the surety, which failed to challenge the amount of reimbursement demanded by Union Camp and Morgan.

We agree with defendant Walker’s contention that, under the circumstances of this case, neither he nor the decedent’s estate should be required to reimburse Federal for those expenses that are attributable to any “unreasonable” delay by the parties in correcting the overissuance problem. The surety agreed to reimburse the third-party defendants for any loss they might reasonably sustain by virtue of the issuance of the duplicate stock certificates. The surety was not, however, obliged to remunerate the third-party defendants for losses occasioned strictly by their own failure to take remedial measures within a reasonable period of time. Similarly, although defendant Walker and decedent had agreed to indemnify Federal in the event it was obliged to pay the third-party defendants, neither Walker nor the decedent’s estate should be required to reimburse the surety for any portion of its payment which represented the loss arising from the third-party defendants’ lack of diligence. Indeed, a contrary result would be particularly inequitable in this case, since Federal was fully aware of and, in fact, acquiesced in the third-party defendants’ decision to postpone corrective action. Under such circumstances, Federal should not be permitted to pass on any unnecessary loss resulting from delay to defendant Walker.

Whether any portion of the third-party defendants’ 11-month delay in “covering” was unreasonable, however, remains an open question. As the Appellate Division noted, the third-party defendants’ failure to act promptly may have been attributable, at least in part, to the settlement negotiations which had been initiated by defendant Walker. On the other hand, there may be some question as to whether it was reasonable for the third-party defendants to postpone the purchase of substitute shares on the strength of these negotiations. Moreover, the third-party defendants have not offered any explanation as to why they failed to act between February of 1976, when the settlement negotiations apparently broke down, and August of that year, when they finally entered the market to purchase substitute shares. Under these circumstances, the question of the “reasonableness” of the delay is one that can only be resolved by the trier of fact after a plenary trial on the issue. Inasmuch as defendant Walker does not dispute that he is liable to plaintiff surety for at least $52,800, the amount for which the duplicate certificates were sold in 1973, the case should be remitted for a trial on the question of the remaining damages, if any, due to Federal on its first and second causes of action as well as on the question of the third-party defendants’ liability to Walker on the negligence causes of action asserted in the third-party complaint.

Accordingly, on the appeal by the third-party defendants, the order of the Appellate Division, insofar as appealed from, should be affirmed, with costs, and the question certified answered in the affirmative. On the appeal by defendant third-party plaintiff Walker, the oder of the Appellate Division, insofar as appealed from, should be modified, with costs, and the case remitted for further proceedings in accordance with the opinion herein and, as modified, affirmed.

Jasen, J.

(dissenting in part). I agree with the majority that the third-party defendants’ motion to dismiss defendant Walker’s third-party negligence complaint was properly denied. The provisions of the decedent’s agreement do not evince an unmistakable intent to allow indemnification for the third-party defendants’ own negligence which can be “clearly implied from the language and purposes of the entire agreement, and the surrounding facts and circumstances.” (Margolin v New York Life Ins. Co., 32 NY2d 149,153; see Levine v Shell Oil Co., 28 NY2d 205.) I cannot join, however, in the majority’s disposition of defendant Walker’s appeal. In my view, based on the clear and unambiguous language of the agreements involved herein, the plaintiff surety properly was awarded summary judgment against defendant Walker and the decedent’s estate for the full amount demanded in the complaint.

In order to induce the plaintiff surety to assume liability for the replacement shares under its blanket bond, both defendant Walker and the decedent executed indemnification agreements for the benefit of the surety. The decedent’s agreement provided that she would “indemnify and protect [the plaintiff surety] * * * from any and all liabilities, loss, damage or expense in connection with, or arising out of” the surety’s assumption of liability for the replacement shares under its blanket bond with the third-party defendants. Similarly, defendant Walker executed a personal agreement which provided that he would “indemnify and save harmless [the plaintiff surety] from and against any and all loss, damage, expense and attorneys’ fees which it shall at any time incur by reason of * * * assuming liability for the issuance of [the replacement shares] under the said Blanket Lost Original Instrument Bond, or its payment of any claim or liability thereunder.” In short, the Walkers clearly agreed to indemnify the plaintiff surety for any loss it might sustain as a result of assuming liability under its blanket bond for the replacement shares.

The blanket bond specifically obligated the plaintiff surety to: “defend, indemnify and save harmless [the third-party defendants] from and against any all liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character by reason of the Original Instrument and/or the issuance of a duplicate or duplicates in lieu thereof * * * whether or not caused by, based upon, or arising out of inadvertence, accident, oversight or neglect on the part of [the third-party defendants] or any of them, or their respective officers, agents, clerks, or employees”. The blanket bond further provided that the plaintiff surety’s obligation to the third-party defendants would accrue “on demand” and that this liability was “absolute and unconditional.”

Notwithstanding the clear and all-embrasive language of these agreements, the majority concludes that the plaintiff surety is not entitled to recover from the Walkers the full amount it has paid to the third-party defendants as a result of the loss occasioned by the issuance of the replacement shares. In the face of a provision which imposes liability on the plaintiff surety for “any and all” losses, the majority concludes that the surety only was obligated to reimburse the third-party defendants for losses they might “reasonably sustain” due to the issuance of the duplicate stock. Moreover, according to the majority, the plaintiff surety was not “obliged to remunerate the third-party defendants for losses occasioned strictly by their own failure to take remedial measures within a reasonable period of time.” Yet, the blanket bond expressly required the surety to indemnify the third-party defendants even for losses occasioned by their own “inadvertence, accident, oversight or neglect” in issuing the duplicate certificates. I simply cannot join in such creative judicial interpretation which engrafts language onto the clear provisions of the agreements and imposes conditions where the contracting parties have seen fit not to do so.

The indemnification agreements executed by the Walkers require that they reimburse the plaintiff surety for any and all loss which it might suffer in connection with assuming liability for the replacement shares under its bond of indemnity issued.in favor of the third-party defendants. This assumption of liability by the plaintiff surety under its blanket bond, which was specifically requested by the Walkers, obligated the surety to reimburse the third-party defendants “on demand”. Furthermore, this obligation on the surety’s part was without qualification and, contrary to the majority’s view, without regard to any “lack of diligence” by the third-party defendants.

By virtue of its undertaking, the plaintiff surety was required and did make payment to the third-party defendants for the loss arising out of the issuance of the duplicate stock certificates. In paying this claim, the surety performed its contractual obligation in accordance with the express terms of its bond. That being the case, the plaintiff surety is entitled to reimbursement from defendant Walker and the decedent’s estate for the full amount demanded in the complaint.

For these reasons, I would affirm the order of the Appellate Division, insofar as appealed from, in all respects.

Chief Judge Cooke and Judges Jones, Wachtler and Fuchsberg concur with Judge Gabrielli; Judge Jasen dissents in part and votes to affirm in all respects in a separate opinion; Judge Meyer taking no part.

On appeal by third-party defendants: Order, insofar as appealed from, affirmed, with costs. Question certified answered in the affirmative.

On appeal by defendant and third-party plaintiff Walker : Order, insofar as appealed from, modified, with costs, and case remitted to Supreme Court, New York County, for further proceedings in accordance with the opinion herein and, as so modified, affirmed. 
      
      . Federal also paid $6,327 to Morgan as reimbursement for overpaid dividends resulting from the issuance of the duplicate stock certificates.
     
      
      . We recognize that our decision permitting the third-party complaint to stand will create a theoretical “daisy chain” of sorts, since if defendant Walker is permitted to recover in negligence from the third-party defendants, the latter would presumably have a second claim for indemnification against plaintiff surety, Federal. And, if such a claim were asserted, Federal, in turn, could theoretically assert a claim for indemnification against defendant Walker on the basis of his agreement to hold it harmless against loss. That the potential for this type of circular litigation exists, however, does not provide a basis for dismissing the third-party complaint.
      The only issue before this court on the third-party defendants’ appeal is whether any of the various indemnity agreements signed by the parties constitute a complete defense to the third-party negligence claim. Thus, the possibility that the parties may assert rights in the future which would have the effect of depriving defendant Walker of the fruits of his victory (assuming he is ultimately successful) need not concern us. While the parties may find some unwanted irony in their present situation, it must be recognized that it was they and not the courts who created the danger of “round-robin” recoveries through their interlocking indemnity agreements.
     
      
      . The dissenter’s suggestion to the contrary would lead to an implausible and unacceptable result. Under the dissenter’s view, the indemnitee would be in a position to unilaterally increase the indemnitor’s liability by simply sitting back and refusing to take reasonable steps to cover its loss. As time passed, the cost of “covering” could escalate and, as a consequence, the indemnitor’s obligation would spiral. Indeed, unless some durational limit is placed upon the indemnitee’s freedom to act, there is nothing to prevent the indemnitee from willfully multiplying the indemnitor’s loss, since there would be no incentive for the indemnitee to act in an economically reasonable manner. The economic waste which would result in situations such as this is alone sufficient reason to reject the approach urged by the dissent.
     