Did You Mean to Pay for That?

Did You Mean to Pay for That?


Many commercial contracts include pages of legal boilerplate that the contracting parties gloss over or completely ignore. But a recent decision from the North Carolina Court of Appeals provides another example of the danger of overlooking these “standard” provisions.

The contract language at issue in that case – Malone v. Barnette, decided on June 2 – was an indemnification provision. Indemnification refers to the contract language requiring one party to pay for damages and costs suffered by the other under certain circumstances. It is very common for a contracting party to agree to indemnify and “hold harmless” the other party in the event of costs or losses caused by the indemnifying party’s negligence or breach of promises. Less common, though potentially no less enforceable, is the contract where the indemnifying party agrees to cover the costs and losses suffered by the other party, even if those costs and losses were caused by something the other party did wrong. That was the language at issue in Malone.

That case arose out of a car accident involving a rental truck. Among other claims made by the injured parties was the assertion that the rental company had been negligent in failing to inspect and maintain the truck’s braking system prior to the rental. The dispute before the Court was between two of the defendants – the company that was operating the truck at the time of the accident and the rental company from which the truck had been leased. In assessing responsibility for the damages entirely against the company operating the vehicle, the Court relied on the plain language of the rental agreement, which stated that the leasing party had to indemnify the rental company for any damages or litigation costs it might be obligated to pay, even if the accident was the result of the rental company’s own negligence. The party that leased the truck argued that it was not appropriate for it to be required to protect another party from the consequences of its own negligent acts that occurred before the agreement was even signed, but the Court rejected that argument, citing “the fundamental principle of freedom of contract that exists in North Carolina.”

This case provides a good cautionary tale for parties to commercial contracts in North Carolina about the importance of carefully reviewing all the provisions of agreements before signing them. Among other traps that could be lurking in that “boilerplate” is an indemnification provision that allocates responsibility for losses in a way the prospective indemnifying party never intended. There certainly may be situations where it makes sense to agree to protect the other party from the consequences of its own prior negligence, but it is far better to make that decision consciously on the front end, rather than being unpleasantly surprised when a dispute later arises.

At Parry & Tyndall, we represent individuals and small businesses in all types of contract disputes, including suits involving the interpretation of indemnification provisions. We also advise parties on their rights and obligations under existing or proposed contracts before disputes arise. If you or your business have questions about a contract or are involved in a contract dispute, please give us a call at 919.967.0504 for a free initial consultation.

Alan Parry
Parry & Tyndall, PLLC
Attorneys at Law