In Part 1 of this post, we discussed the presumption under New York law that indemnification provisions only apply to third-party claims. As a result, absent careful drafting, a party suing or sued by its contractual counterparty will not benefit from an indemnity covering attorneys’ fees and expenses. In this post, we focus on some of the scenarios where a court construing the following indemnification provisions in the situations described would likely find the indemnification provision to apply solely to third-party claims.
- Where the indemnification provision contains general, expansive but nonspecific language as to the claims covered, and the provision does not directly reference claims between the contracting parties.
- Example: The indemnification provision states “Party A agrees to indemnify and hold harmless Party B from any and all claims, damages, liabilities, costs and expenses, including reasonable counsel fees, arising out of any breach of this agreement.”
- Where the indemnification provision specifies that a party is entitled to indemnification without specifying coverage of direct claims, and the party challenging the applicability of the provision to direct claims can identify examples of potential third-party claims that could have been anticipated at the time of contracting that might hypothetically invoke the indemnification agreement as drafted – even if the indemnitee can identify potential claims between the contracting parties that might be covered.
- Example: The indemnification provision provides that “Party A is entitled to indemnification for any and all losses, claims, damages, costs (including reasonable costs of counsel), and liabilities in connection with any matter in any way relating to the agreement or arising out of the matters contemplated under the agreement,” where Party B can provide examples of possible third-party claims, such as claims for contribution or negligence, that were foreseeable against Party A at the time the contract was drafted.
- Where the indemnification provision contains clauses that are inapplicable to direct suits such as those (i) requiring a notice of claim to be given to the indemnitor; (ii) allowing the indemnitor to assume the indemnitee’s defense; or (iii) allowing the indemnitor to select counsel, and there is no countervailing language in the provision to explicitly apply to direct claims.
- Example: The indemnification provision provides that “each party indemnifies and holds harmless the other against and from any claim or loss, resulting from the indemnitor’s breach of the agreement, including reasonable attorneys’ fees, court costs and litigation expenses, arising from the defense of any claim and enforcement or collection of a judgment, provided the indemnitor is given notice and an opportunity to defend the claims.”
- Example: The indemnification provision provides “Party A agrees to indemnify and hold harmless Party B from and against any and all claims, actions, causes of action, liabilities, losses, costs (including reasonable attorneys’ fees), or damages claimed or arising directly from any breach by Party A of the agreement, provided that Party A shall have the right to defend or conduct and control, through counsel of its choosing, any action or suit.
In the scenarios above, it is likely that a court in New York would find the indemnification provision to apply solely to third-party claims. In our next post, we will consider the types of provisions likely to be found to cover claims between the contracting parties.