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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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CCLD Explains Indemnification For Assumed Contractual Liabilities
This is an important decision because it explains the specificity with which provisions indemnifying a party for liabilities under a separate contract must be stated. In this case, Glencore, which had sold an aluminum plant to an Alcoa subsidiary pursuant to an agreement in 1995 (the “1995 Agreement”), claimed that Alcoa had agreed in the 1995 Agreement to indemnify Glencore for any liabilities arising out of an earlier sale agreement pursuant to which Glencore had purchased the plant from Lockheed in 1989 (the “1989 Agreement”). In a separate litigation, Lockheed was claiming that Glencore had to indemnify Lockheed for certain environmental liabilities pursuant to the 1989 Agreement.
The Court found the 1995 Agreement to be unambiguous and that it did not indemnify Glencore for liabilities under the 1989 Agreement. Delaware will, of course, enforce an indemnification agreement. However, as the Court stated, “Delaware courts construe indemnification agreements strictly against the indemnitee, and do not permit enforcement of broad or ambiguous indemnity provisions.” The indemnification provisions of the 1995 Agreement did not expressly indemnify for “contractual liability” generally or the 1989 Agreement specifically. An indemnification agreement must have an “unequivocal undertaking” before there is an obligation to indemnify for a contractual liability the indemnitee has assumed. Just stating an obligation to hold the indemnitee harmless for any and all claims is insufficient to meet this test.