Is a 7 Brew franchisee required to indemnify the Indemnified Parties for losses resulting from a Data Security Incident?
7_Brew Franchise · 2025 FDDAnswer from 2025 FDD Document
E. Indemnification
To the fullest extent permitted by Law, you must indemnify and hold harmless us, our affiliates, and our and their respective owners, directors, officers, employees, agents, successors, and assignees (the "Indemnified Parties") against, and reimburse any one or more of the Indemnified Parties for, all Losses (defined below) incurred as a result of:
- (1) a claim threatened or asserted;
- (2) an inquiry made formally or informally; or
- (3) a legal action, investigation, or other proceeding brought
by a third party and directly or indirectly arising out of:
- (i) the Store's construction, design, or operation;
- (ii) the business you conduct under this Agreement;
- (iii) your noncompliance or alleged noncompliance with any Law, including any allegation that we or another Indemnified Party is a joint employer or otherwise responsible for your acts or omissions relating to the Store's employees;
- (iv) a Data Security Incident; or
- (v) your breach of this Agreement.
You also agree to defend the Indemnified Parties (unless an Indemnified Party chooses to defend at your expense as provided in the following paragraph) against any and all such claims, inquiries, actions, investigations, and proceedings, including those alleging the Indemnified Party's negligence, gross negligence, willful misconduct, and willful wrongful omissions. However, you have no obligation to indemnify or hold harmless an Indemnified Party for any Losses to the extent they are determined in a final, unappealable ruling issued by a court or arbitrator with competent jurisdiction to have been caused solely and directly by the Indemnified Party's negligence, willful misconduct, or willful wrongful omissions, so long as the claim to which those Losses relate is not asserted on the basis of theories of vicarious liability (including agency, apparent agency, or joint employment) or our failure to compel you to comply with this Agreement.
Source: Item 22 — CONTRACTS (FDD pages 82–83)
What This Means (2025 FDD)
According to 7 Brew's 2025 Franchise Disclosure Document, franchisees are required to indemnify the Indemnified Parties for losses resulting from a Data Security Incident. The Indemnified Parties include 7 Brew, its affiliates, and their respective owners, directors, officers, employees, agents, successors, and assignees. This means that if a third party brings a claim, inquiry, or legal action against the Indemnified Parties arising out of a Data Security Incident at the franchisee's store, the franchisee must cover the resulting losses. These losses can include legal fees, settlements, and judgments.
A "Data Security Incident" is defined as any act that compromises the security of the Franchise System, 7 Brew Stores, or their data, including unauthorized access to Consumer Data or Confidential Information. Franchisees must immediately notify 7 Brew of any actual or suspected Data Security Incident and cooperate with their instructions to address the incident and protect Consumer Data and the 7 Brew brand. 7 Brew has the right, but not the obligation, to take action or pursue litigation regarding the Data Security Incident.
However, the franchisee is not obligated to indemnify the Indemnified Parties for losses caused solely and directly by the Indemnified Party's negligence, willful misconduct, or willful wrongful omissions, provided the claim is not based on vicarious liability or 7 Brew's failure to compel the franchisee to comply with the agreement. This exception offers some protection to the franchisee, but the franchisee still bears significant responsibility for data security incidents.
This indemnification requirement highlights the importance of data security for 7 Brew franchisees. Franchisees should take proactive measures to protect Consumer Data and prevent Data Security Incidents, such as implementing strong security procedures and complying with all applicable laws. Failure to do so could result in significant financial liability for the franchisee.