MIAMI BUSINESS LITIGATION: CONTRACT INDEMNITY AND “HOLD HARMLESS” COVENANTS

Indemnity and hold harmless agreements are powerful tools that require the other party to the agreement to cover losses and expenses of the indemnitee. A hold harmless agreement is a type of indemnification agreement. “The term ‘hold harmless’ means to fully compensate the indemnitee for all loss or expense, and an agreement to hold harmless is a contract of indemnity that requires the indemnitor to prevent loss to the indemnitee or to reimburse the indemnitee for all losses suffered from the designated peril.” Law v. Law, 299 So. 3d 505 (Fla. 3d DCA 2020). The losses covered by a hold harmless agreement could include legal expenses, including attorney’s fees and costs. Law v. Law, 299 So. 3d 505 (Fla. 3d DCA 2020), shows the utility of having indemnity and hold harmless provisions in contracts. The Miami business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

In Law, a formerly married couple executed two mortgage notes in favor of the mortgagees. The notes were secured by a mortgage on the couple’s home, as well as an 8% of the husband’s interest in a limited liability company. Thereafter, the couple commenced divorce proceedings. During the proceedings, they sold their home and used the proceeds from the sale to satisfy the mortgage. The couple later settled the divorce proceeding. According to the settlement agreement, the wife received alimony of 50% of the former husband’s ownership interest in the company and the capital distributions from that ownership interest. This was incorporated in the final judgment. The final judgment also included an injunction prohibiting the former husband and the company from transferring his shares in the company. Importantly, the settlement agreement also included a hold harmless provision, which provided “[e]xcept as set forth herein the parties shall be solely liable for any debts and obligations in his or her sole name, holding the other harmless.”

The mortgagees later filed a foreclosure action against the former husband to obtain 8% of his ownership interest in the company. Their complaint for foreclosure omitted key details, such as satisfaction of the mortgage, and the existence of the injunction against the transfer of the former husband’s interest in the company. The former husband signed a consent final judgment that enabled the mortgagees to obtain the former husband’s 8% ownership interest at a sheriff’s sale. After the company learned of this sale, it informed the former wife. The former wife then filed a motion to vacate the consent final judgment and sheriff’s sale, which the court granted. The mortgagees then amended their complaint in the foreclosure action to include the wife as a defendant and sought a ruling that the wife’s interest in the former husband’s ownership shares was inferior to the mortgagees. However, the court issued summary judgment to the wife. After obtaining summary judgment, the former wife filed a post-judgment motion for indemnification against the husband in the divorce proceeding. She sought legal fees and expenses that she incurred in the mortgagees’ foreclosure litigation. She argued that the former husband was required to indemnify her pursuant to the hold harmless provision in the divorce settlement agreement. The trial court denied her motion, stating that the hold harmless provision in the divorce settlement agreement did not support an award of fees and costs to the former wife as the prevailing party in the mortgagee litigation.

Florida’s Third District Court of Appeal reversed and held the trial court misinterpreted the “hold harmless” provision as a prevailing party attorneys’ fees provision. The appellate court explained that hold harmless provisions are broader than that. The hold harmless provision required the former husband to indemnify the former wife for all attorney’s fees and litigation expenses for defending her alimony award in the mortgagee litigation.

The Miami business litigation lawyers of the Mavrick Law Firm also represent clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.