What is the exception to the Bhc Franchisor's indemnification obligation to the Master Franchisee?
Bhc Franchise · 2025 FDDAnswer from 2025 FDD Document
(b) Franchisor hereby agrees to protect, defend and indemnify Master Franchisee, its Principal Equity Operators, other owners, affiliates, officers, directors, employees and attorneys and each of them, from any Losses any of them may incur as a result of any third party Proceeding arising out of Franchisor's intentional misfeasance, gross negligence or material breach of Franchisor's obligations under this Agreement, except if caused by the intentional misfeasance of, gross negligence of, or material breach by, Master Franchisee (or any of its Principal Equity Operators, or other owners, affiliates, officers, directors, employees or attorneys of Master Franchisee) of any terms of, or Master Franchisee's obligations arising under, this Agreement.
(c) For the indemnification to be effective, each indemnified party ("Indemnified Party") will give the indemnifying party ("Indemnifying Party") reasonable notice of each claim or loss for which the Indemnified Party demands indemnity and defense, except that failure to provide such notice will not release the Indemnifying Party from any obligations hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure.
The Indemnifying Party will assume, at its sole cost and expense, the defense of such Proceeding through legal counsel reasonably acceptable to the Indemnified Party, except that the Indemnified Party may at its option and expense select and be represented by separate counsel.
The Indemnifying Party will have control over the Proceeding, including the right to settle; provided, however, the Indemnifying Party will not, absent the written consent of the Indemnified Party, consent to the entry of any judgment or enter into any settlement that: (i) provides for any admission of liability on the part of the Indemnified Party or relief other than the payment of monetary damages for which the Indemnifying Party will be solely liable; or (ii) adversely affects the rights of the Indemnified Party under this Agreement, or (iii) does not release the Indemnified Party from all Proceedings and "Losses" (as defined in section 16.2(d) below) in respect thereof.
In no event will the Indemnified Party be liable for any Losses that are compromised or settled in violation of this section 16.2.
Source: Item 23 — Receipts (FDD pages 52–230)
What This Means (2025 FDD)
According to Bhc's 2025 Franchise Disclosure Document, Bhc, as the Franchisor, agrees to protect, defend, and indemnify the Master Franchisee from losses resulting from third-party proceedings. This protection applies when these proceedings arise from Bhc's intentional misconduct, gross negligence, or a significant breach of their obligations under the Franchise Agreement.
However, this indemnification does not apply if the cause of the losses is the intentional misconduct, gross negligence, or a significant breach of the Franchise Agreement by the Master Franchisee, their Principal Equity Operators, or their other owners, affiliates, officers, directors, employees, or attorneys. In essence, if the Master Franchisee's own actions or those of their team lead to the losses, Bhc is not obligated to provide indemnification.
For the indemnification to be effective, the Master Franchisee must provide Bhc with reasonable notice of any claim or loss for which they are seeking indemnity and defense. Failure to provide this notice may impact Bhc's obligations to indemnify the Master Franchisee, but only to the extent that Bhc is materially prejudiced by the lack of notice. Bhc will assume the defense of the proceeding with legal counsel reasonably acceptable to the Master Franchisee, although the Master Franchisee can choose to be represented by separate counsel at their own expense. Bhc will control the proceeding, including settlement rights, but cannot enter into any judgment or settlement that admits liability on the part of the Master Franchisee or adversely affects their rights without the Master Franchisee's written consent.