Indemnification Agreements Add Interesting Twist

In a great many product liability cases, the plaintiff has sued more than one defendant. Although often only one or two of these defendants have any real exposure, months, if not years, of discovery will ensue before that picture emerges clearly to the satisfaction of the parties. Defendants who know right from the start of litigation that they played no role in causing plaintiff’s injuries will look for mechanisms to escape the cost of defending the law suit.

One such mechanism comes in the form of a contractual provision referred to as an indemnification clause, which is often but not necessarily linked with a duty to defend clause.

When a prior relationship exist between two of the defendants, they may have some written agreement which contains a clause addressing which entity must respond in case of a law suit.

For example, a product manufacturer may rely upon another company to supply a component part that will be used in the manufacturer’s final product. That part may contribute to the injuries suffered by plaintiff while using the manufacturer’s product. When suit is filed against both, the product manufacturer will recognize that it should not ultimately be the party paying any damages to the plaintiff. The product manufacturer is well advised to review any written contracts it has with the parts supplier. It may contain a clause stating that the parts supplier will indemnify the manufacturer for any claims for injuries arising from the part it supplied.

With such indemnity clauses, the party providing the protection (here, the component part supplier) is called the indemnitor, and the party receiving the protection (here, the manufacturer) is called the indemnitee.

Attorneys in multiple defendant products cases need to examine any written agreements between any of the defendants for indemnification clauses. Depending on the circumstances, this need may be equally great in a single defendant case. If such an indemnification clause exists, the attorney should first question whether the plaintiff’s injuries were really caused by the work of the indemnitor. Indemnification may not be appropriate if the plaintiff’s injuries were actually caused by some part of the manufacturer’s product which had nothing to do with the part supplied by the indemnitor, pursuant to the language of the clause.

An indemnitor generally is not obligated to indemnify an indemnitee for the indemnitee’s own negligence. In those rare circumstances where one party would agree to be responsible for the negligence of another party, that agreement must be spelled out clearly and unequivocally in the contract. Public policy considerations may nonetheless intervene.

Assuming the offending part of the overall product was provided by the parts supplier, the attorney should question whether the indemnification clause is valid and binding. The attorney should also examine the contract for a duty to defend as such clauses are often joined with indemnification clauses.

If after attorney review the clauses appear valid, the Indemnitee will tender its defense of the matter to the indemnitor. In so doing, the manufacturer in our case would not have to pay significant defense costs and would instead rely upon the parts supplier to accept the lion’s share of the work and expense of defending plaintiff’s claims. Any verdict rendered against either the manufacturer or the parts supplier would be paid by the parts supplier, pursuant to the indemnity provision in the contract.

Being the indemnitor is obviously a risky and expensive role and therefore some companies do not easily accept that responsibility without a fight. Disputes over the true meaning of the clause are common. An indemnitor can refuse the tender of the indemnitee’s defense, but if it does so it had best be sure of its position. Consider that after a refusal of indemnity, both defendants would continue to amass significant defense costs (expenses for experts as well as attorneys) while defending the same claim. At the end of the case, the indemnitee could seek judicial review of the contract between the parties. If the judge holds the indemnity provision valid, the indemnitor is responsible for reimbursing all of the indemnitee’s defense costs. In effect, the indemnitor would have to pay for two sets of lawyers and experts on the same case.

The attorneys for the parties need to straighten out the issues of defense and indemnification at the very start of the case.

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