Written by attorney Erik Anderson

Does Indemnity Clause Shift Defense Costs if No Liability Is Found? New Jersey Supreme Court to Decide.

On November 8, 2010, the New Jersey Supreme Court heard oral argument on whether a Hold Harmless Clause that places liability on a “front line" subcontractor should allow the allocation of defense costs when no defendant is found liable for the happening of an accident. In Kieffer v. Best Buy, et al., on June 19, 2004, plaintiff slipped and fell inside a Best Buy store. Plaintiff contended that the aisle where she fell was very slippery. Accordingly, plaintiff sued Best Buy, who in turn sued AIC, its cleaning contractor. Best Buy also made a demand that AIC defend, indemnify and provide insurance coverage to Best Buy pursuant to their contract. This demand was made under the Hold Harmless Clause of the contract which provided that AIC agreed to:

Indemnify, defend and hold harmless, Best Buy…from and against any and all losses, costs, obligations, liabilities, damages, actions, suits, causes of action, claims, demands, settlements, judgments, and other expenses, (including but not limited to cost of defense, settlement and reasonable attorney’s fees) of whatever type or nature, including, but not limited to, damage or destruction to property, injury to any person or persons, which are asserted against, incurred, imposed upon or suffered by Best Buy by reason of, or arising from ….the acts or omissions of Contractor (its officers, directors, employees or agents).

Additionally, the contract provided that Best Buy was to be named as an insured under the AIC policy.

AIC, had hired All Cleaning to perform the cleaning services at the Best Buy store in question, brought All Cleaning into the lawsuit. AIC also made a demand for contractual indemnification against All Cleaning. Pursuant to the agreement entered into by AIC and All Cleaning, All Cleaning agreed to:

hold harmless and indemnify [AIC], [their] officers, shareholders, directors, agents, attorneys, employees[,] and each of [their] customers from any connection with any act of negligence, omission, or conduct arising out of the operation of [their] performance or non-performances of the Services.

In the trial court, Best Buy moved for summary judgment against the plaintiff on liability and against AIC on its contractual indemnification claim. AIC opposed Best Buy’s motion seeking contractual indemnification, but also cross-moved for summary judgment against plaintiff on the issue of liability and All Cleaning as to its contractual indemnification claim. The court granted summary judgment in favor of all three defendants with regard to liability. Further, the court granted summary judgment in favor of Best Buy and AIC regarding their respective contractual indemnification claims. The court awarded Best Buy $25,790.09 in counsel fees and costs. Likewise, the court awarded AIC $11,763.75 in counsel fees from All Cleaning. Ultimately, All Cleaning was found responsible for paying all attorney’s fees.

In reviewing this case, the Appellate Division found that under the terms of All Cleaning’s indemnity agreement, it was obligated “among other conditions to indemnify them for all claims, demands, or assertions, arising out of or arising from the performance of its cleaning services at the Best Buy stores on AIC’s behalf and on behalf of AIC’s customers, which would include Best Buy." The court further noted that “the language contained in both indemnity agreements does not require a finding of negligence on the part of All Cleaning as a condition precedent to trigger the indemnity provisions…rather all that is required is the plaintiff’s claim relate to the subject matter of the service agreement." Accordingly, the Appellate Division upheld the trial court’s decision.

All Cleaning sought a review of this decision by the Supreme Court which was subsequently granted. During oral argument, the main issue addressed was whether or not All Cleaning could be responsible for attorney’s fees when no liability was found against any of the defendants. Counsel for All Cleaning argued that as the indemnity agreements did not provide for this scenario. As such, the agreement is ambiguous and All Cleaning cannot be found responsible for costs and fees pursuant to the indemnity agreement. Counsel for Best Buy and AIC argued that the indemnity agreements clearly indicated that not only are judgments to be indemnified by so are claims.

It is expected that the Supreme Court’s decision will be rendered in the next few months. Once that decision is issued, an update will be provided.

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