Under what circumstances are Bhc Master Franchisee and its Principal Equity Operators required to indemnify the Franchisor?
Bhc Franchise · 2025 FDDAnswer from 2025 FDD Document
16.2 Indemnity.
(a) Master Franchisee and its Principal Equity Operators, jointly and severally, hereby agree to protect, defend and indemnify Franchisor, and all of Franchisor's past, present and future owners, affiliates, officers, directors, employees, attorneys and designees, and each of them, and hold them harmless from and against any and all Losses arising out of or in connection with any "Proceeding" (as defined in section 16.2(f) below) concerning Master Franchisee's intentional tort or negligence, or the intentional tort or negligence of Master Franchisee's agents, servants or representatives, relating to Master Franchisee's development, maintenance or operation of the BHC Restaurant and the Franchised Business, except if caused by Franchisor's intentional misfeasance, gross negligence or material breach of any terms of, or Franchisor's obligations arising under, this Agreement.
(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, the Master Franchisee and its Principal Equity Operators must protect, defend, and indemnify Bhc (the franchisor) and its associated parties from losses connected to legal proceedings. This obligation arises from the Master Franchisee's intentional tort or negligence, or that of their agents, relating to the development, maintenance, or operation of the Bhc restaurant and franchised business.
However, this indemnification is not required if the losses are caused by Bhc's intentional misfeasance, gross negligence, or material breach of the franchise agreement. This means that if Bhc is at fault due to their own actions or failures, the Master Franchisee is not responsible for indemnifying them.
This section outlines a reciprocal arrangement where Bhc also agrees to protect, defend, and indemnify the Master Franchisee and its associated parties from losses resulting from third-party proceedings. This protection applies if the proceedings arise from Bhc's intentional misfeasance, gross negligence, or material breach of its obligations under the agreement, unless the cause is the Master Franchisee's own intentional misfeasance, gross negligence, or material breach of the agreement. This creates a balanced framework of responsibility and protection for both parties.
For the indemnification to be effective, the party seeking indemnity must provide reasonable notice to the other party regarding the claim or loss. Failure to provide timely notice may impact the indemnifying party's obligations only if they are materially prejudiced by the delay. The indemnifying party has the right to assume the defense of the proceeding with legal counsel acceptable to the indemnified party, although the indemnified party can choose to be represented by separate counsel at their own expense. The indemnifying party also controls the proceeding, including settlement rights, but cannot enter into any judgment or settlement that admits liability on the part of the indemnified party or adversely affects their rights without written consent.