Court Finds Action For Indemnification Premature Where Agreement Lacked An Advancement Clause And No Covered Payment Had Yet Been Made

On March 11, 2024, Justice Joel M. Cohen granted a motion to dismiss Plaintiff’s claim for breach of a contractual duty to indemnify litigation expenses the Plaintiff had paid in connection with ongoing litigation in Oklahoma and the bankruptcy of its subsidiary. In SBN FCCG, LLC v. Fog Cutter Capital Group, Inc., Index No. 650197/2023, Plaintiff contended the Defendant was obligated to pay Plaintiff’s litigation expenses based on a contractual indemnification clause. The Court rejected the claim as premature, however, finding that the contract contained no advancement clause that might mandate coverage of ongoing litigation expenses before the ultimate resolution of the case. The Court also concluded that a settlement in the subsidiary’s bankruptcy had explicitly disclaimed existence of the criteria needed to trigger indemnification of litigation expenses. As to the ongoing Oklahoma litigation expenses, the Court explained:

Here, the indemnification clause does not contain any similar provision about advancement payments or refunds. Rather, . . . the right to indemnification is contingent upon a determination of when the environmental contamination occurred, and thus whether [Defendant] breached its representations regarding the Oklahoma Premises. These issues will be addressed in the Oklahoma Litigation.

Advancement clauses in contractual indemnification provisions can be critical to a party’s ability to pursue litigation, and disputes over them often result in parallel litigation itself. The attorneys at Schlam Stone & Dolan frequently litigate cases involving advancement of indemnification payments. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.