Ohio court rules that indemnity agreement does not provide for first-party attorney’s fees.

An Ohio court has ruled that under the indemnity provision before it, the contractor was not liable to the owner for attorney’s fees in the owner’s breach of contract lawsuit.  In Menard, Inc. v. DiPaolo Industrial Development, LLC, 2023-Ohio-1188 (11^th Dist. 2023), the Menards home improvement retail chain sued a contractor it had hired to, among other things, perform asphalt work.

On appeal, the contractor challenged Menards’ claim for attorney’s fees.  Menards had sought attorney’s fees under an indemnification provision that stated:

INDEMNIFICATION.  Contractor shall indemnify and hold harmless Owner, its agents and its employees from any and all liability, damages, expenses, claims, demands, actions or causes of action, including attorney fees, arising out of the performance of the Contract Documents, Agreement and/or Work hereunder, whether such liability, damages, expenses, claims, demands, actions or causes of action are caused by Contractor, its subcontractors, or lower tiered contractors, or their agents or employees, Owner, its agents and its employees, or any persons acting on behalf of Owner and/or Contractor.  In the event of failure by Contractor to defend Owner against any such claim upon ten (10) days written notification of Owner requesting that Contractor do so, Owner shall be entitled to directly settle any such claim.  Contractor waives any right to dispute the amount of any settlements made by Owner under this provision and acknowledges that Owner is entitled to deduct the full amount of any such settlements from the Contract Sum as defined below.  If Final Payment, as defined herein, has already been made by Owner to Contractor, Contractor agrees to reimburse Owner the full amount of any settlement within ten (10) days after receipt of invoice from Owner.

The court considered whether the provision allowed for attorney fee shifting and, if so, under what circumstances.

The court found that indemnity is the right of a person who has been compelled to pay what another should have paid to require complete reimbursement.  Though the true nature of an indemnity relationship is determined by the intent of the parties expressed within the language of the agreement.

Looking at the specific provision before it, the court found that the indemnification provision provided for third-party indemnification only; it did not provide for first-party indemnification like Menards had sought for attorney’s fees incurred in enforcing the contract between the two contracting parties.

The court noted that the first sentence called for indemnity even if Menard itself was the cause of the event.  But the court went on to address that the first sentence had to be read in context with the rest of the indemnity provision.  The second sentence said that if the contractor failed to defend Menards, then Menards could settle the claim.  That referred to third-party litigation.  Then the third sentence said the contractor waived the right to contest the amount of the settlement, again referring to third-party litigation.  And the fourth sentence allowed for claw-back of payment from the contractor for a settlement paid to a third party.  This again was describing third-party litigation.

The court found that the use of the term “defend” was also critical.  That term could not apply in a direct action between Menards and the contractor.  In a direct action between owner and contractor, the owner would obviously not be tendering its defense to the contractor.

Further, and more generally, construing the indemnification clause as only pertaining to third-party suits afforded fair meaning to all the language used by the parties in the indemnity provision and left no provision without force and effect.

Therefore, the court determined that the indemnification only applied to third-party suits.  The indemnity provision did not provide for attorney’s fees in litigation between the owner and contractor.