Published in The Franchise Lawyer, Volume 26, Number 4, Fall 2023. © 2024 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied
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Abby L. Risner
UB Greensfelder LLP
By Abby L. Risner, UB Greensfelder LLP
Recent Decisions Provide
Guidance on Drafting and
Enforcing Indemnity Provisions
in Franchise Contracts
The obligation to indemnify generally means
an obligation to pay for another party’s legal
liabilities, damages, or losses. In the franchis-
ing world, it most often arises as a contract term.
Contractual indemnity provisions are frequently
overlooked until one party is threatened with
unexpected liability. Then, suddenly, the provision
becomes a crucial element of the bargain struck
between the contracting parties.
In franchising, indemnication obligations are
typically found in the franchise agreement itself
and are frequently invoked by both franchisors
and franchisees. See, e.g., Burgers Bar Five Towns, LLC
v. Burger Holdings Corp., 987 N.Y.S.2d 410, 412–13
(N.Y. App. Div. 2014) (holding the franchisor
must indemnify the franchisee in connection
with a trademark action led by a third party).
Additionally, both franchisors and franchisees
often seek insurance coverage that turns on the
applicability of an indemnity provision.
Transactional counsel drafting and negotiating
indemnity provisions need to evaluate which
risks can and should be allocated and must use
precise language to ensure enforceability. Likewise,
litigation counsel must understand the potential
limitations on the enforcement of a right to
indemnity.
This article highlights recent court decisions
resolving disputes over indemnity provisions
between franchisors, franchisees, and their
insurers. For a more detailed background and
discussion of considerations in drafting and
evaluating indemnity provisions, see the paper
from the 2022 Annual Forum on Franchising’s
Preparing For and Dealing With Third Party Claims (W-24)
by Sally Dahlstom, Brittany Johnson, and Tony
Marks.
Limitations on Indemnication
Enforcement of an indemnity provision depends
on the specic language in the provision within
the context of the contract as a whole and under
the interpretive principles set forth by applica-
ble state law. Although the contract’s language
and context are of prime importance, parties
and counsel must be aware that the treatment
of indemnity provisions—including when and
how they are enforced—often varies by state. For
example, courts disagree on the meaning of the
phrase “hold harmless.” Many courts have found
this duty redundant of the general duty to indem-
nify. See, e.g., 1800 Ocotillo, LLC v. WLB Grp., Inc., 196
P.3d 222, 225 (Ariz. 2008). Other courts, how-
ever, differentiate “hold harmless” as a defensive
right, protecting a party from having indemnity
sought from it. See, e.g., Queen Villas Homeowners Assn. v.
TCB Prop. Mgmt., 56 Cal. Rptr. 3d 528, 534 (Cal. Ct.
App. 2007).
Franchise lawyers should ask themselves
the following questions when evaluating the
enforceability and scope of indemnity provisions:
Does the obligation to indemnify include
the indemnitee’s own negligent conduct? In
some cases, courts will reject the application of
indemnity where it frustrates a public policy.
This most often arises when courts refuse to
enforce indemnity provisions that are silent on the
enforcing parties’ own negligence or intentional
misconduct. See, e.g., Dewitt v. London Rd. Rental Ctr.,
Inc., 910 N.W.2d 412, 417 (Minn. 2018). But
indemnication for a party’s own negligence may
be enforced if the language is sufciently specic
by its express terms, so long as those terms do not
conict with applicable law.
For example, in Mode v. S-L Distribution Co., Case
No. 18-CV-00150, 2021 WL 3921344 (W.D.N.C.
Sept. 1, 2021), a federal court in North Carolina
considered misclassication claims brought by
distributors against their manufacturer and the
manufacturer’s counterclaims for indemnication
under the parties’ distribution agreements. The
distributors disputed that indemnication could
apply to the manufacturer’s own violation of the
