Opinion ID: 2395434
Heading Depth: 1
Heading Rank: 3

Heading: Ambiguity in the Indemnification Provision

Text: The key phrase in controversy is the language providing that indemnification is limited to damages arising from such suits... or other proceedings, the alleged basis for which arose or occurred on or prior to the Closing Date. What does this phrase mean? Does it mean that Eagle is responsible for claims arising from products manufactured or purchased before the Closing Date? Or is Eagle responsible only for claims based on injuries occurring before the Closing Date? We disagree with the Court of Chancery that the indemnification provision is unambiguous. Both parties now claim that the provision unambiguously supports their respective interpretations, but DHC stated in its initial complaint that the language in Article 10.1(b)(i) is reasonably susceptible to at least two possible meanings. We are not bound, and the trial court was not bound, by the parties' present claim that the provision is unambiguous. We determine that question de novo. In our view, the indemnification provision can be read as creating an obligation on Eagle's part to cover damages arising from product defect claims when the allegedly defective product was manufactured or purchased before the Closing Date. Alternatively, an equally reasonable interpretation of the indemnification provision would obligate Eagle only as to claims based on personal or property injury that occurred prior to the Closing Date. The Court of Chancery held that Eagle's interpretation did not give proper effect to other portions of the provision. Specifically, the Court of Chancery determined that Eagle's argument that indemnification obligations occur with reference to the date of the alleged injury ignored the portion of Article 10.1(b)(i) stating that such obligations may be triggered without regard to when such product is sold, as well as the portion stating that Eagle shall indemnify Buyer with respect to any damages resulting from any action relating to any product manufactured, purchased or sold by Eagle prior to the Closing. [3] Because it found that an interpretation calling for a product manufacture or purchase date trigger made better use of each portion of Article 10.1(b)(i), the Court of Chancery held that the indemnification provision was unambiguous. The Court of Chancery also rejected Eagle's interpretation because it found no clear language in the Agreement that would provide for DHC's assumption of liability for claims arising from alleged injuries occurring after the Closing Date. [4] Contract terms themselves will be controlling when they establish the parties' common meaning so that a reasonable person in the position of either party would have no expectations inconsistent with the contract language. [5] When the provisions in controversy are fairly susceptible of different interpretations or may have two or more different meanings, there is ambiguity. Then the interpreting court must look beyond the language of the contract to ascertain the parties' intentions. [6] We find in this case that a reasonable third person reading the indemnification provision in Article 10.1(b)(i) would be uncertain whether Eagle's obligations should be determined by reference to the date on which the product caused injury or by reference to the date on which the product was manufactured or purchased. Since the indemnification language in the Agreement is ambiguous, consideration of the relevant evidence is required.