Hooper Associates, Ltd. v. AGS Computers, Inc., 74 N.Y.2d 487 (1989)
An indemnification clause in a contract will not be interpreted to allow a party to recover attorney’s fees in a suit against the indemnitor unless the contract language clearly and unmistakably indicates that intention, especially when the clause is susceptible to a reading that limits indemnification to third-party claims.
Summary
Hooper Associates sued AGS Computers for breach of contract, seeking to recover attorney’s fees under an indemnity clause. The New York Court of Appeals held that the indemnity clause did not entitle Hooper to recover attorney’s fees incurred in its direct suit against AGS. The court reasoned that indemnity clauses are strictly construed and will not be interpreted to include attorney’s fees in suits between the contracting parties unless the contract language clearly indicates such an intent. Because the clause in question was typical of those covering third-party claims, Hooper could not recover its attorney’s fees from AGS.
Facts
In 1977, Hooper Associates, Ltd. (Hooper) contracted with AGS Computers, Inc. (AGS) for AGS to design, install, and supply a computer system. In 1980, Hooper sued AGS for breach of contract, breach of warranty, and fraud. Hooper also sought attorney’s fees based on Article 9(A) of their contract, which contained an indemnity clause.
Procedural History
The trial court severed the attorney’s fees claim. The jury found for Hooper but awarded no damages. The trial court awarded nominal damages and then granted summary judgment to Hooper on the attorney’s fees claim, finding the contract unambiguous. The Appellate Division affirmed, citing Breed, Abbott & Morgan v. Hulko. The Court of Appeals granted leave to appeal.
Issue(s)
Whether an indemnity clause that obligates one party to indemnify and hold harmless the other party from all claims, damages, liabilities, costs, and expenses, including reasonable counsel fees, arising out of certain events, entitles the indemnitee to recover attorney’s fees incurred in prosecuting a breach of contract action directly against the indemnitor.
Holding
No, because the indemnity clause did not contain language clearly permitting Hooper to recover attorney’s fees from AGS in a suit against AGS itself. The clause was more typical of those contemplating reimbursement when the indemnitee is required to pay damages on a third-party claim.
Court’s Reasoning
The court began by stating the general rule that attorney’s fees are incidents of litigation and are not recoverable unless authorized by agreement, statute, or court rule. The court noted that indemnity contracts are to be strictly construed, especially when a party is under no legal duty to indemnify. A promise to indemnify for attorney’s fees in litigation between the parties must be unmistakably clear from the language of the promise. The court found that the indemnity clause in this case was “typical of those which contemplate reimbursement when the indemnitee is required to pay damages on a third-party claim.” The court further reasoned that other provisions in the contract, such as the requirement for prompt notification of claims and the right to assume the defense of any claim, related to third-party claims. Extending the indemnification clause to cover attorney’s fees in a suit between the parties would render these provisions meaningless. The court distinguished its prior holding in Breed, Abbott & Morgan v. Hulko, stating that the intent of the parties in that case was manifest. Here, the indemnity clause clearly covered circumstances involving third-party claims for issues like personal injury or property damage caused by computer malfunctions. The court emphasized that “the court should not infer a party’s intention to waive the benefit of the rule [that parties are responsible for their own attorney’s fees] unless the intention to do so is unmistakably clear from the language of the promise”.