Can an Indemnified Party defend themselves in a proceeding related to the Body20 franchise agreement, even if the franchisee is required to defend them?
Body20 Franchise · 2025 FDDAnswer from 2025 FDD Document
defense and response costs and other Losses you are solely responsible, subject to Section 11.3 (Willful Misconduct or Gross Negligence). An Indemnified Party need not seek recovery from any insurer or other third party, or otherwise mitigate its Losses, in order to maintain and recover fully a claim against you, and you agree that a failure to pursue a recovery or mitigate a Loss will not reduce or alter the amounts that an Indemnified Party may recover from you under this Section 11. Your obligations in this Section 11 will survive the expiration or termination of this Agreement.
11.3 Willful Misconduct or Gross Negligence. Despite Section 11.1, you have no obligation to indemnify or hold harmless an Indemnified Party for, and we will reimburse you for, any Losses (including costs of defending any Proceeding under Section 11.2) to the extent they are determined in a final, unappealable ruling issued by a court or arbitrator with competent jurisdiction to have been caused solely and directly by the Indemnified Party's willful misconduct or gross negligence, so long as the claim to which those Losses relate is not asserted on the basis of theories of vicarious liability (including agency, apparent agency, or employment) or our failure to compel you to comply with this Agreement. However, nothing in this Section 11.3 limits your obligation to defend us and the other Indemnified Parties under Section 11.2.
Source: Item 23 — RECEIPT (FDD pages 74–251)
What This Means (2025 FDD)
According to Body20's 2025 Franchise Disclosure Document, Section 11.2 outlines the indemnification procedure, stating that franchisees are responsible for defense and response costs and other losses. However, an Indemnified Party does not need to seek recovery from any insurer or third party, or otherwise mitigate its losses, in order to maintain and fully recover a claim against the franchisee. The franchisee agrees that a failure to pursue a recovery or mitigate a loss will not reduce or alter the amounts that an Indemnified Party may recover. These obligations survive the expiration or termination of the agreement.
Despite the franchisee's obligation to indemnify, Section 11.3 clarifies that the franchisee is not obligated to indemnify or hold harmless an Indemnified Party for losses caused solely and directly by the Indemnified Party's willful misconduct or gross negligence, as determined by a court or arbitrator. In such cases, Body20 will reimburse the franchisee for any losses, including the costs of defending any proceeding. However, this reimbursement is contingent on the claim not being based on vicarious liability theories or the franchisor's failure to compel the franchisee to comply with the agreement.
It is important to note that Section 11.3 explicitly states that nothing in this section limits the franchisee's obligation to defend Body20 and other Indemnified Parties under Section 11.2. This means that even if the Indemnified Party's actions contributed to the losses, the franchisee may still be required to defend them in legal proceedings. This could potentially create a situation where the franchisee is defending a party whose actions led to the dispute, highlighting a potential financial risk for the franchisee.