Unambiguous Defense and Indemnity Agreements will be Enforced

Posted on February 20th, 2015 by sutteroconnell

The Sixth Circuit’s opinion affirming summary judgment in Faeth v. Diversified Maintenance Sys., Inc. is yet another example of courts enforcing unambiguous defense and indemnification provisions as drafted.  In Faeth, Sears, Roebuck & Co. entered into a contract with Diversified Maintenance Systems, Inc. in which Diversified agreed to clean and maintain Sears’s retail stores, including the rugs in the stores.  Under the agreement, Diversified agreed to indemnify Sears from any claims arising out of Diversified’s services, acts, or omissions.  Diversified also agreed to defend Sears from all allegations, meritorious or otherwise, asserted in any and all claims related to Diversified’s services.

Plaintiff Mary Faith tripped and fell on a rug in a Sears retail store.  She sued Diversified and Sears for negligently maintaining the rug.  Sears and Diversified settled the negligence lawsuit, with Diversified paying the settlement.  Sears then sought recovery of its defense costs from Diversified.  The federal district court granted summary judgment for Sears, and the Sixth Circuit affirmed.

The Sixth Circuit rejected Diversified’s argument that under Illinois law indemnification provisions must be strictly construed.  Rather, the court concluded that Illinois law requires strict construction of indemnity clauses only when the clause protects a party from its own negligence or when the clause is ambiguous.  Neither scenario applied to Diversified’s defense obligation.   The agreement’s unambiguous defense provision required Diversified to defend Sears relating to any claim, whether true or not, involving Diversified’s services.  Furthermore, Diversified’s services included maintaining the rug, and Ms. Faeth’s claims arose out of the alleged negligence in maintaining a rug in the store.  Therefore, Diversified had to defend Sears against Ms. Faeth’s lawsuit.

As with drafting any agreement, one of the keys to the enforcement of an indemnity agreement is to ensure that it is clear and unambiguous.  A copy of the opinion can be accessed here.