Does the indemnification obligation of the Aw franchisee include consequential damages?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
You agree to indemnify, defend and hold us, our shareholders, directors, officers, employees, agents and assignees, harmless against and to reimburse us for all such obligations, damages, and taxes for which we are held liable and for all costs we reasonably incur in the defense of any such claim brought against us or in any such action in which we are named as a party, arising out of your operation of the Papa Ray's Pizza Restaurant, and/or arising out of your breach of this Agreement, including without limitation actual and consequential damages, reasonable attorneys', accountants', and expert witness fees, costs of investigation and proof of facts, court costs, other litigation expenses and travel and living expenses.
We have the right to defend any such claim against us.
Source: Item 22 — CONTRACTS (FDD pages 39–40)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, the franchisee's indemnification obligations do include consequential damages. Specifically, the franchisee agrees to indemnify, defend, and hold Aw harmless against obligations, damages, and taxes for which Aw is held liable, arising out of the franchisee's operation of the Papa Ray's Pizza Restaurant or breach of the agreement. This indemnification extends to actual and consequential damages, reasonable attorneys', accountants', and expert witness fees, costs of investigation and proof of facts, court costs, other litigation expenses, and travel and living expenses.
This means that if the franchisee's actions or breach of contract lead to a lawsuit or claim against Aw, the franchisee is responsible for covering not only the direct costs (actual damages) but also any indirect losses (consequential damages) Aw incurs. Consequential damages can include lost profits, lost business opportunities, or damage to reputation, which can be substantial. The franchisee is also responsible for all legal and related costs Aw incurs in defending against such claims.
However, it is important to note that Aw also provides some indemnification to the franchisee. Aw agrees to indemnify the franchisee against damages for which the franchisee is held liable in proceedings brought by a third party arising out of the franchisee's use of any Mark, excluding any consequential damages, including, but not limited to, loss of revenue and/or profits. This indemnification is contingent upon the franchisee's use of the Mark being pursuant to and in compliance with the agreement, and the franchisee having timely notified Aw of the claim and otherwise complied with the agreement. This creates a situation where the franchisee's indemnification obligation to Aw is broader, including consequential damages, while Aw's indemnification obligation to the franchisee is limited to actual damages only.
Furthermore, the FDD states that for any claim concerning performance or non-performance by either party, any party's sole liability, if any, shall be limited by actual damages. However, this limitation does not apply to claims against the franchisee by Aw relating to third-party claims or suits brought against Aw as a result of the franchisee's operation of the Papa Ray's Pizza Restaurant business. This means that the franchisee's liability for third-party claims resulting from their business operations is not limited to actual damages and can include consequential damages, as per the indemnification clause.