Generally, indemnity is defined as an obligation of one party to pay or satisfy the loss or damage incurred by another party. A contractual indemnity provision may be drafted either to cover claims between the contracting parties themselves, or to cover claims asserted by third parties.
Indemnity agreements are construed under the same rules that govern the interpretation of other contracts. Accordingly, the contract must be interpreted to “give effect to the mutual intention of the parties….” The intention of the parties is to be ascertained from the “clear and explicit” contract language.
Generally, an indemnification provision allows one party to recover costs incurred defending actions by third parties, not attorney fees incurred in an action between the parties to the contract. Courts look to several indicators to distinguish third party indemnification provisions from provisions for the award of attorney fees incurred in litigation between the parties to the contract. The key indicator is an express reference to indemnification. A clause that contains the words “indemnify” and “hold harmless” generally obligates the indemnitor to reimburse the indemnitee for any damages the indemnitee becomes obligated to pay third persons—that is, it relates to third party claims, not attorney fees incurred in a breach of contract action between the parties to the indemnity agreement itself.
Courts also examine the context in which the language appears. Generally, if the surrounding provisions describe third party liability, the clause will be construed as a standard third party indemnification provision. The court will not infer that the parties intended an indemnification provision to cover attorney fees between the parties if the provision “ ‘does not specifically provide for attorney’s fees in an action on the contract ….’ ”
For example, language stating, “Seller … agrees to indemnify and save buyer … harmless from any and all losses … including … reasonable attorney’s fees … arising from any cause or for any reason whatsoever” does not provide for attorney fees in an action between the parties for breach of contract. In such circumstances, “there is no language … which reasonably can be interpreted as addressing the issue of an action between the parties on the contract.”
Similarly, an indemnification clause in which one party promised to “indemnify” the other from “ ‘any, all, and every claim’ which arises out of ‘the performance of the contract’ ” deals only with third party claims, and cannot support an award of attorney fees in an action for breach of contract between the parties to the agreement.
In Carr, the parties disputed whether the following provisions provided a right to attorney fees incurred in enforcing the agreement: “ ‘[Carr] shall indemnify and hold harmless [Chowchilla] … from and against all claims, damages, losses and expenses including attorney fees arising out of the performance of the work described herein….’ ” The Carr court reviewed three cases (Myers, supra, 13 Cal.App.4th 949, 17 Cal.Rptr.2d 242 ; Meininger v. Larwin–Northern California, Inc. (1976) 63 Cal.App.3d 82, 135 Cal.Rptr. 1 (Meininger ) & Campbell v. Scripps Bank (2000) 78 Cal.App.4th 1328, 93 Cal.Rptr.2d 635 (Campbell )) that considered whether an indemnification agreement requiring reimbursement of legal fees “arising out of” or “related to” the performance of certain duties extended to legal fees incurred in enforcing the agreement itself. In all three decisions, the courts concluded the agreements did not allow recovery of attorney fees incurred in enforcing the contract.
The Carr court contrasted those decisions with Baldwin Builders v. Coast Plastering Corp. (2005) 125 Cal.App.4th 1339, 24 Cal.Rptr.3d 9 and Continental Heller Corp. v. Amtech Mechanical Services, Inc. (1997) 53 Cal.App.4th 500, 61 Cal.Rptr.2d 668 (Continental ), which held such fees were recoverable where the contract included express language for “ ‘ “attorney’s fees incurred in enforcing [the] indemnity agreement.”
The Carr court concluded the language of the indemnity provision under consideration “more closely parallel[ed] the language found in Myers, Meininger, and Campbell than the language at issue in Baldwin and Continental. Unlike Baldwin, there is no express language authorizing recovery of fees in an action to enforce the contract.”
