Under what circumstances will Bhc indemnify a 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 will indemnify a franchisee under specific circumstances related to third-party proceedings. Bhc agrees to protect, defend, and indemnify the franchisee, including its operators, owners, affiliates, officers, directors, employees, and attorneys, from losses incurred due to a third-party proceeding. This indemnification applies when the proceeding arises from Bhc's intentional misfeasance, gross negligence, or material breach of its obligations under the Franchise Agreement. However, this protection does not extend to situations where the losses are caused by the franchisee's own intentional misfeasance, gross negligence, or material breach of the agreement. This means that if a franchisee's actions lead to a judgment, Bhc is not obligated to cover the losses.
For the indemnification to be effective, the franchisee must provide Bhc with reasonable notice of any claim or loss for which they seek indemnity and defense. Failure to provide timely notice may impact Bhc's obligations, but only to the extent that Bhc is materially prejudiced by the delay. Bhc will assume the defense of the proceeding at its own cost, using legal counsel reasonably acceptable to the franchisee. However, the franchisee has the option to select and be represented by separate counsel at their own expense.
Bhc retains control over the proceeding, including the right to settle. However, Bhc cannot consent to any judgment or settlement that involves an admission of liability on the part of the franchisee, affects the franchisee's rights under the agreement, or does not release the franchisee from all proceedings and losses, without the franchisee's written consent. This provision ensures that the franchisee's interests are protected during any legal proceedings and that Bhc cannot make decisions that would negatively impact the franchisee without their agreement. This type of indemnification clause is relatively common in franchise agreements, as it aims to allocate risk and protect both parties from liabilities arising from the other's actions.