Under what circumstances will Bhc Franchisor indemnify the Franchisee against judgments?
Bhc Franchise · 2025 FDDAnswer from 2025 FDD Document
(b) Franchisor hereby agrees to protect, defend and indemnify 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, Franchisee (or any of its Principal Equity Operators, or other owners, affiliates, officers, directors, employees or attorneys of Franchisee) of any terms of, or 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.
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 Franchisee, its Principal Equity Operators, other owners, affiliates, officers, directors, employees, and attorneys from any losses they may incur. This protection applies when a third-party proceeding arises from Bhc's intentional misfeasance, gross negligence, or material breach of its obligations under the Franchise Agreement. However, this indemnification does not apply if the issue is caused by the intentional misfeasance, gross negligence, or material breach by the Franchisee of any terms or obligations under the agreement. This clause essentially means Bhc will cover the Franchisee's losses in legal matters stemming from Bhc's own serious misconduct or breaches of contract, but not if the Franchisee is at fault. This applies to both Franchisees and Master Franchisees.
For the indemnification to be effective, the Indemnified Party must give the Indemnifying Party reasonable notice of each claim or loss for which indemnity and defense are demanded. Failure to provide such notice will not release the Indemnifying Party from any obligations unless the Indemnifying Party is materially prejudiced by such failure. The Indemnifying Party will assume the defense of the proceeding at its sole cost and expense, using legal counsel reasonably acceptable to the Indemnified Party. However, the Indemnified Party has the option to select and be represented by separate counsel at its own expense.
The Indemnifying Party has control over the legal proceeding, including the right to settle. However, the Indemnifying Party cannot consent to any judgment or settlement that involves an admission of liability on the part of the Indemnified Party, provides relief other than monetary damages for which the Indemnifying Party is solely liable, adversely affects the rights of the Indemnified Party under the agreement, or does not release the Indemnified Party from all proceedings and losses. The Indemnified Party will not be liable for any losses that are compromised or settled in violation of these terms. This section outlines the procedures and limitations surrounding the indemnification, ensuring both parties' interests are considered during any legal proceedings.
This type of indemnification clause is relatively standard in franchise agreements. It aims to allocate risk and responsibility between the franchisor and franchisee. Prospective Bhc franchisees should carefully review this section with legal counsel to fully understand their rights and obligations, particularly regarding what constitutes 'intentional misfeasance,' 'gross negligence,' or a 'material breach,' as these terms can be subject to interpretation and could significantly impact the scope of indemnification.