Contract Disputes Involving Third-Party Claims: Indemnification, Insurance & More

While many contract disputes arise out of disagreements between the parties involved, contract disputes can also involve third-party claims. In these cases, understanding the parties’ respective rights requires a critical assessment of the relevant contract terms—including the indemnification and insurance clauses, among others. Learn more from an experienced Miami commercial litigation attorney at Edelboim Lieberman:

Common Examples of Contract Disputes Involving Third-Party Claims

Contract disputes involving third-party claims can arise in a wide range of scenarios. In all cases, understanding the implications of the relevant contract terms starts with understanding the substantive nature of the third-party claim (or claims) at issue. Some common examples of scenarios that can lead to disputes involving third-party claims include:

• Cybersecurity Breaches – As cybersecurity threats become increasingly common, disputes over cybersecurity liability are becoming increasingly common as well. If a company faces claims from its clients, customers or employees due to a cybersecurity breach, these claims can trigger a dispute between the company and its cybersecurity vendor.
• Failure to Deliver – If a manufacturer or wholesaler fails to deliver products to (or on behalf of) a company, this can lead to third-party claims based on the company’s failure to deliver under its obligations to its customers. Delayed deliveries and deliveries of non-conforming products can lead to third-party claims as well.
• Failure to Perform – Along with failure to deliver, failure to perform is another common cause of contract disputes involving third-party claims. For example, if a subcontractor fails to perform its work on time or up to specification, this could leave a prime contractor facing litigation with its client or customer.
• Personal Injury Claims – Personal injury claims are a common source of litigation between commercial parties as well. These cases can involve claims from end-users of products or services delivered through a multi-party chain of distribution.
• Product Defect Claims – Product defect claims involving injuries or fatalities can also lead to litigation between suppliers, manufacturers, distributors, retailers and other parties. If an end user files a product defect claim against a retailer, the retailer may be able to seek indemnification or another form of protection from one of its commercial partners.

Again, these are just examples. Third-party claims can lead to contract disputes in a wide range of other scenarios as well. Any time a commercial party is not directly and solely liable for a claim it is facing, that party will want to consult with an experienced Miami commercial litigation attorney regarding the viability of using its contractual protections to shift liability to another party.

Key Terms in Contract Disputes Involving Third-Party Claims

Shifting liability for a third-party claim generally involves relying on contractual protections. While common law principles can be used to shift liability in some cases, more often than not, commercial parties will use contractual protections to provide certainty (and mitigate their risk) in the event that a third-party claim arises.

With that said, liability-shifting provisions in commercial contracts often are not as clear as they should be. Additionally, in some cases, third-party claims will involve issues that contracting parties had not anticipated (and could not have reasonably anticipated) when they entered into their contract. As a result, when a third party files a claim, a key first step is to thoroughly review the parties’ contract to identify all relevant terms and assess their implications under the specific circumstances at hand.

With this in mind, some examples of key terms in contract disputes involving third-party claims include:

Representations and Warranties

Representations and warranties will play a key role in commercial contract disputes involving third-party claims in many cases. If a third-party claim arises out of a breach of a representation or warranty, this can provide clear grounds to shift liability. However, the contract’s indemnification clause, liability limitations and other terms may come into play as well—making it essential to thoroughly review the entire contract before making any decisions about taking legal action.

Indemnification

Indemnification clauses directly shift liability for third-party claims. While retailers, contractors and other parties that are likely to face third-party claims will want to negotiate indemnification clauses that are as broad as possible, their counterparties will generally try to use indemnification clauses as tools to limit the scope of their potential liability exposure. When facing a third-party claim, the specific language of the parties’ indemnification clause is vital, and if this language is ambiguous or unclear, it can leave the parties with little choice other than to litigate their differences.

Insurance

As with most types of commercial contract disputes, insurance often plays a critical role in disputes involving third-party claims. Indemnification and insurance clauses in commercial contracts often go hand-in-hand, and having access to adequate insurance coverage can be essential for resolving third-party claims without the need for commercial litigation between the contracting parties.  

Damages Caps and Other Liability Limitations

Damages caps and other types of liability limitations can also play a key role in commercial contract disputes involving third-party claims. These clauses often go hand-in-hand with indemnification clauses and other relevant contract terms as well. For example, if a party agrees to provide indemnification for certain types of third-party claims, it may do so on the condition that its total liability exposure will be no greater than the value of the parties’ contract. This is just one of numerous possible permutations.  

Dispute Resolution

As with any type of commercial contract dispute, the dispute resolution provisions in the parties’ contract will also play a key role in disputes involving third-party claims. From mandatory alternative dispute resolution (ADR) clauses to clauses that shift liability for legal fees to the successful party, all of these clauses will require careful consideration when deciding how best to proceed.

Schedule a Call with a Miami Commercial Litigation Attorney at Edelboim Lieberman

At Edelboim Lieberman, we provide experienced and strategic legal representation for companies facing commercial contract disputes in South Florida. If you would like to speak with a Miami commercial litigation attorney at our firm in confidence, give us a call at 305-768-9909 or request a call online today.