Officially released July 3, 2018.
Short version: be very specific in drafting indemnity provisions, whether you are indemnifying liability or loss, and what harms are to be indemnified.
The parties’ marriage was previously dissolved pursuant to a separation agreement. Plaintiff Wife appealed the denial of a post-judgment motion for contempt. Wife argued that the trial court had improperly concluded that Husband had not violated an indemnification obligation.
The relevant provision mandated that Husband be solely responsible for a debt as a support obligation and “indemnify and hold the [Wife] harmless from any loss, injury, debt, charge, legal fees, or liability whatsoever with respect thereto.” Husband was ordered to secure the indemnification obligation with two financial accounts for which he would provide Wife semiannual statements. Husband was ordered to notify Wife of any developments or discussions between him and the creditor and notify Wife if he becomes aware that the creditor intended to commence an action or seek a lien on Wife’s property. The debt was in default status prior to the date of Judgment.
Wife alleged in the contempt motion that Husband had not made payments on the debt for a year and failed to notify her that he had intentionally defaulted on the loan, resulting in an immediate debt of $434,958. Wife alleged further that she was entitled to indemnification as soon as Husband caused her to be liable for the entire balance due. Wife claimed as injury the drop of her credit score, inability to comply with orders that she remove Husband from a different liability. Wife requested enforcement of a provision of the agreement that provided for counsel fees in the event of breach or contempt of any provision of the agreement.
Husband argued that he was not in breach because no action had been triggered by the creditor, he had maintained his obligation with regard to security and that he was not obligated to make payments at particular times.
The trial court concluded that Wife failed to prove, by clear and convincing evidence, that Husband willfully violated the agreement. The trial court noted that Wife had not yet “suffered any loss, injury, debt, charge, legal fee or liability” as the creditor had not taken any formal collection action. The trial court concluded that the negative reporting on Wife’s credit was “collateral damage” and not covered by the indemnification clause. The trial court noted that there was no language in the Judgment that required timely payments each month and that under Wife’s interpretation “[Husband’s] indemnification obligation arguably was triggered immediately upon the dissolution court’s approval and entry of the decree.”
The standard of review for whether the underlying order was sufficiently clear and unambiguous as to support a finding of contempt is de novo. The standard of review as to the willfulness component of contempt is abuse of discretion. Judgment’s entered through incorporation of stipulation of the parties are governed by contract principles. Mettler v. Mettler, 165 Conn. App. 829, 835-36, 140 A.3d 370 (2016). In reviewing a contract, where the language is clear and unambiguous it must be effectuated according to its terms. Where it is unclear or ambiguous, determination of the parties’ intent is a question of fact. Dejana v. Dejana, 176 Conn. App. 104, 114, 168 A.3d 595, cert. denied, 327 Conn. 977, 174 A.3d 195 (2017).
Wife’s appeal claimed two bases. First, that the Court improperly considered Husband’s testimony regarding his understanding of the agreement, and, in so doing, went beyond the four corners of an unambiguous agreement. Second, that the agreement should be treated as an indemnity against liability, and she was not obligated to wait for a loss to proceed on her motion for contempt.
As to the first claim, there was no disagreement between the parties and the Court that the agreement was unambiguous. The Appellate Court determined that evidence as to Defendant’s understanding was admitted for the purpose of determining willfulness.
As to the second claim, the Appellate Court noted that indemnity agreements fall into two categories: “those where the contract is to indemnify against liability and those where it is to indemnify against loss. In the first, the cause of action arises as soon as liability is incurred, but in the second it does not arise until the indemnitee as actually incurred the loss.” 24 Leggett Street Ltd. Partnership v. Beacon Industries, Inc., 239 Conn. 284, 306, 685 A.2d 305 (1996). The Appellate Court concluded that, based on provisions that would otherwise have been rendered meaningless, this indemnity provision fit into the category of loss, not liability (notwithstanding the fact that it literally indemnified against “liability” among others).
The Judgment was affirmed.