Sixth Circuit Narrowly Interprets Indemnity Provision In Auto Part Supply Contract

• Published date: 25 March 2024
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Personal Injury
• Law Firm: Taft Stettinius & Hollister
• Author: Michael Pomeranz and Benjamin S. Morrell

Last month, the Sixth Circuit excused an auto parts supplier from indemnifying an automotive original equipment manufacturer (OEM) for litigation costs arising out of a products liability suit. Nissan N. America, Inc. v. Continental Automotive Sys., 92 F.4th 585 (6th Cir. 2024). The supplier had agreed to indemnify the OEM, but the Sixth Circuit read that indemnity provision narrowly, resorting to an infrequently used canon of construction. The opinion not only provides useful guidance to companies drafting indemnity provisions but also reminds businesses about the importance of clear contract drafting.

Background

Nissan bought certain parts from Continental and then used those parts in braking systems. A Nissan vehicle using Continental parts was involved in a road accident. Following that accident, several plaintiffs filed a products-liability suit against Nissan in California, alleging that defects in the vehicle's braking system caused their injuries. A jury found that the braking system was defectively designed and awarded over $24 million to the plaintiffs.

Following the products-liability judgment against it, Nissan filed a separate lawsuit against Continental. Nissan sought indemnification for both the jury's award and also its own attorney's fees and costs. The claim for indemnity stemmed from a provision in the purchase agreement between Nissan and Continental for the relevant brake parts. The agreement provided that...