Business Owners: Think Before you Sign. Recent Court Case Shows Why the Language in Your Contracts Matter.

Here’s to warmer weather!

I’ve previously written about the importance of understanding the contracts you sign.

I just read a recent Court of Appeals decision that provides a great illustration for business owners to give pause before signing a contract on the dotted line.

Check out the case of Solis v Kroger and The Greener Side.

It’s only a few pages – easy read.

Facts:

• Solis slipped on some ice in a Kroger’s parking lot.
• Solis sued Kroger.
• Kroger’s response – “its the fault of our ice removal company!”
• Kroger sued its ice removal company – Progressive and Progressive’s sub-contractor – The Greener Side.
• The Greener Side’s response – “Yes, we had a sub-contract agreement, and YES, it had an indemnity agreement, but we didn’t have an obligation to indemnify Kroger in that instance.

So What’s going on here?

Before Kroger engaged Progressive and the Greener Side, it made them sign a subcontractor agreement.

This agreement had an indemnity clause. It intended to allocate the risk of some unknown event (e.g. – someone slipping and falling and suing Kroger) to the subcontractor, and away from Kroger.

According to the Court of Appeals:

“The threshold question in any indemnification action is whether the indemnity clause applies to the underlying claim at issue. Citing Miller-Davis Co v Ahrens Const, Inc, 495 Mich 161,174 (2014).

The Greener Side argued for a narrow interpretation of the indemnity clause. It’s argument – “the indemnity provision does not apply because it had no obligation to perform snow and ice removal services on the day of Solis’ fall.”

Unfortunately for the Greener Side, the Court of Appeals held that the indemnity clause language was broad. 

“The Greener Side agreed to take “the entire risk of any and all personal injuries or property damage arising out of or in any way connected” with its performance under the contract.”

That’s broad language. If the Greener Side did not want to assume that much risk, it should have attempted to narrowly tailor the indemnity language.

Important Lesson:

Understand Your Contracts Before Signing. 

Contracts are about risk allocation. In a business relationship you need to decide what risk you are willing to bear, and what risk you will allocate away and then make sure the contract clearly states your agreement.

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e-mail: Jeshua@dwlawpc.com

Twitter: @JeshuaTLauka