Interpreting Indemnification Agreements

Keiffer v. Best Buy, 205 N.J. 213 (2011).  This opinion deals with the interpretation of an indemnification agreement.  It seems an unusual case for the Court to have taken, since most of Justice Albin’s opinion, for a unanimous Court, relates to the unique facts and procedural history of this particular case.  

Justice Albin did, however, lay out some of the standards for interpreting indemnification agreements.  “The interpretation of a contract is subject to de novo review by an appellate court,” assuming that there are no factual disputes.  Where there are such disputes, a deferential standard of review applies to the trial court’s decision on those factual issues.  The objective in construing an indemnity provision is “to determine the intent of the parties,” as is true of other contract construction decisions.  A court may not rewrite an indemnification clause and must give the terms used “their plain and ordinary meaning.”

If an indemnity clause is ambiguous, it must be construed against the indemnitee, the party to be indemnified.  Justice Albin cited two reasons for this rule.  First, “a party ordinarily is responsible for its own negligence, and shifting liability to an indemnitor must be accomplished only through express and unequivocal language.”  Second, “under the American Rule, absent statutory or judicial authority or express contractual language to the contrary, each party is responsible for its own attorneys’ fees.”  Moreover, the principle of construction against the drafter applies to indemnification provisions.

In this case, the indemnitee argued that certain words in the provision that it drafted were “proxies” for other language that it preferred for the Court to use.  Justice Albin declined to insert language that had not been agreed to.  For that and other case-specific reasons, and applying the principle of construction against the drafter, the Court ruled for the indemnitor.