If a Contract Includes an Indemnification Clause, Will a Claim for Breach of that Contract Require the Loser to Pay Attorneys’ Fees?
Indemnification clauses are quite common in commercial contracts. In essence, the clause requires one party to protect the other by defending against claims and covering any liability arising from those claims. Not all clauses are alike, however, so it is important to carefully review the language to understand the scope.
One critical issue is whether the provision applies only to claims brought by third-parties, or instead also applies to claims between the contracting parties for breach of the contract itself. If the indemnification clause covers claims between the parties themselves, it effectively shifts legal fees in any dispute between the parties to the prevailing party. A recent Massachusetts decision from the Business Litigation Session (Gordon v. Imaging Advantage LLC) confirmed that in order for indemnity to apply to claims between the parties, the indemnification language must be unambiguous. It is definitely not safe to assume that a standard indemnification clause will cover disputes between the parties. The message of this case is the opposite.
Many contracts include separate provisions that address issues relating to disputes between the parties, such as arbitration, venue of any court proceeding, governing law, and shifting of legal fees. It is important not to gloss over these other provisions, as they may have a bearing on the scope of the indemnification clause.
- By David Mack