What is the Budget licensee's obligation if a final judgment is entered against them?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
Licensee will indemnify and hold harmless Budget and the Related Entities and their respective officers, directors, employees, affiliates, agents, successors and assigns (collectively, "Budget Indemnified Parties") against any and all liabilities, claims, demands, causes of action, damages, costs, expenses and amounts of any type whatsoever, including environmental claims, whether expended in settlement, in attorneys' fees, or however expended or disbursed, which arise directly or indirectly from, as a result of, or in connection with Licensee's
operation of the Rental Business, or in Licensee's dealings with third parties concerning said Rental Business, this Agreement, the System, or the Marks. In addition, Licensee will, at Budget's request, defend, at Licensee's expense, Budget and the other Budget Indemnified Parties against such claims, demands and causes of action; provided, however, that Licensee will relinquish such defense to Budget immediately upon Budget's request, although Licensee will remain obligated to pay Budget's and the other Budget Indemnified Parties' defense costs (but Licensee shall not be liable for the expenses of more than one law firm representing such Budget Indemnified Parties unless there is a conflict of interest.) and any settlements entered into by Budget and the other Budget Indemnified Parties at their discretion. In no event may Licensee enter into any settlement of any such claim on behalf of an Budget Indemnified Party without Budget's prior written approval.
If Budget withholds its consent to a settlement offer received by Licensee with respect to such a claim, and Licensee advises Budget that it desires to accept such offer, Budget will take over the defense of such legal action at such time as it withholds its consent (if Budget has not done so previously), and Licensee will be responsible for and will indemnify the Budget Indemnified Parties for all costs and expenses relating to the defense of such legal action incurred by the Budget Indemnified Parties up to such time as Budget withholds its consent, and subject to the following paragraph, Budget will be responsible for and will indemnify Licensee for all costs and expenses relating to such legal action incurred by Licensee after such time as Budget withholds its consent. Furthermore, if Budget withholds its consent to a settlement offer received by Licensee with respect to such a claim, and Licensee advises Budget that it desires to accept such offer, and the actual settlement or judgment amount (or combination thereof) is greater than such rejected settlement offer, Licensee will be responsible for and will indemnify the Budget Indemnified Parties for up to and including the amount of such rejected settlement offer, and Budget will be responsible for and will indemnify Licensee for the amount by which the actual settlement or judgment amount (or combination thereof) exceeds such rejected settlement amount.
If Budget withholds its consent to a settlement offer received by Licensee and Licensee has advised Budget that it desires to accept such offer as contemplated above, and the actual settlement or judgment amount (or combination thereof) is less than such rejected settlement offer, then Licensee, in addition to its indemnification obligations set forth in the immediately preceding paragraph (i.e., paying costs and expenses of defense accrued prior to the time Budget withheld its consent and paying the actual settlement or judgment amount or combination thereof), will indemnify the Budget Indemnified Parties for the additional costs and expenses incurred by the Budget Indemnified Parties relating to such legal action not to exceed the amount by which the rejected settlement amount exceeds the actual judgment settlement amount (or combination thereof).
Source: Item 23 — RECEIPTS (FDD pages 80–426)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, the licensee has specific indemnification obligations if a judgment is entered against them. The licensee must indemnify and hold harmless Budget and its related entities against any liabilities, claims, demands, causes of action, damages, costs, expenses, and amounts that arise directly or indirectly from the licensee's operation of the rental business. This includes costs expended in settlements and attorney's fees. The licensee is also responsible for defending Budget against such claims at Budget's request and at the licensee's expense. However, the licensee can relinquish the defense to Budget, but remains obligated to cover defense costs and settlements. The licensee cannot enter into any settlement on behalf of Budget without Budget's prior written approval.
If Budget withholds consent to a settlement offer that the licensee desires to accept, Budget will take over the defense of the legal action. In this scenario, the licensee is responsible for all costs and expenses related to the defense up to the point Budget withholds consent. If the final judgment amount is greater than the rejected settlement offer, the licensee is responsible for indemnifying Budget up to the amount of the rejected settlement offer, while Budget is responsible for the amount exceeding that offer. Conversely, if the final judgment is less than the rejected settlement offer, the licensee will indemnify Budget for the actual judgment amount, plus additional costs and expenses, not exceeding the difference between the rejected settlement and the actual judgment.
These indemnification requirements mean that a Budget franchisee could face significant financial exposure if their business operations lead to legal claims or judgments. It is crucial for prospective franchisees to understand the scope of these obligations and to ensure they have adequate insurance coverage and risk management strategies in place. The franchisee should also seek legal counsel to fully understand their responsibilities and potential liabilities under the franchise agreement.