Sixth Circuit Narrowly Interprets Indemnity Provision In Auto Part Supply Contract

Published date25 March 2024
Subject MatterCorporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Personal Injury
Law FirmTaft Stettinius & Hollister
AuthorMichael 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 Continental would indemnify Nissan for "damages or cost arising from claims of personal injury or property damages caused directly or indirectly by defective parts supplied by" Continental.

The parties disagreed over whether the phrase "caused directly or indirectly by defective parts" modified "claims." Continental argued that the phrase "caused . . . by defective parts" only modified the phrase "personal injury or property damages." If so, Continental had agreed to indemnify Nissan following proof that a defect in a part supplied by Continental actually caused the injury serving as the basis for a claim. On this ground, Continental moved for summary judgment of Nissan's suit. Nissan argued that the phrase "caused . . . by defective parts" also modified the word "claims," so that Continental indemnified Nissan when Nissan could show it had costs arising from a claim of personal injury.

The district court agreed with Continental and granted summary judgment in its favor. It found that for the indemnity provision to apply, Nissan had...

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