The Massachusetts Lawyers Weekly recently covered an Appeals Court case involving some behind-the-scenes legal maneuvering by companies to cover the costs of litigation. The publication's reporters turned to David Katz, a business and contract attorney with nearly 40 years of experience in the field, to explain the fallout of the case.
Victory at Trial Leads to Further Disputes
The situation started out as a personal injury case: A grocery store shopper got seriously hurt by the store's automatic doors. She sued the door manufacturer and installer under products liability law, as well as the store for negligence in maintaining the doors.
The case went to trial, but the jury's verdict went against the shopper.
Victorious, the store and the door company then disagreed over who was to pay the legal fees. In the contract for the installation of the doors had been an indemnification provision in which the door installer agreed to pay for the defense of all claims “which arise out of or in connection with” the doors. In seeking to enforce this provision, the store sued the door installer for the complete costs of the defense under the indemnity agreement, including the costs of:
- Defending the door company against the products liability claim
- Defending the store against the negligence claim, even though the door company was not responsible for it
- Enforcing the contract's indemnification clause
The trial court judge applied the “in for one, in for all” rule from insurance law, which requires insurance companies to defend their policyholders for all claims made against their liability coverage, even if only one of those claims is covered by the policy.
The door company appealed, arguing that it should not be made to pay for the defense of the store for the store's own negligence.
Appeals Court Rules on Indemnification Case
The Appeals Court, in Gorelick v. Star Markets Co., Inc., overruled the trial court's decision, deeming this to be an inappropriate extension of the rule outside of the insurance context. It gave three reasons for this:
- Unlike for liability insurance policies, the risks contemplated by the indemnity provision were already in existence,
- It was feasible to separate the claims that were covered from those that were not covered by the agreement, and
- The language in this particular indemnification agreement was not broad enough to cover the negligence claims that were unassociated with the warranties provided by the door company
Massachusetts Lawyers Weekly Seeks David Katz's Input
When tasked with summing up the case, reporters for the Massachusetts Lawyers Weekly turned to the attorneys who represented the store and the door company for their sides of the story. Then they turned to David Katz for his unbiased opinion of the case. Mr. Katz pointed out three important takeaways.
First, the decision reined in the weaponization of boilerplate indemnification provisions. This would keep companies from using them to recover costs that were only tangentially related to the services that they offered.
Second, he pointed out the need for lawyers to elaborate more on the reach of those provisions in their contracts when crafting them, in order to prevent uncertainty that required a court's interpretation.
Finally, he predicted an increase in litigation as companies argued over the precise reach of any existing indemnification agreements.