What To Do While Waiting for Indemnification

You have been sued in a product liability case along with your franchisor. The plaintiff alleges that he bought a new car from you, you serviced it regularly, and a defect led to an accident.

You know about the obligation of the franchisor to indemnify you for product liability claims. You look up the process for seeking indemnification, you bundle the lawsuit with an indemnification request, and you send it off. Now what?

If your franchisor is responsible and fair, it will immediately issue an indemnification agreement that includes a timely response on behalf of the dealership. The problem is some franchisors do not act in this way. The franchisor may focus on allegations that the dealer serviced the vehicle as a reason to deny indemnification. Or it may tender an indemnification agreement with onerous provisions. Or it may just be slow in considering your request.

The problem is that as a franchisor lets the indemnification decision drag on, your clock is running. Under the rules of court, you have a specific number of days to respond. If you do not respond, you can be held in default. A default judgement can be taken against your dealership.

So how do you prevent this?
  • When you receive a product liability claim, notify the manufacturer immediately. The process should be laid out in your service manual or you may have digital instructions on your franchisor’s portal.
  • Write the date the lawsuit was served on the copy you received. This will start the clock to the deadline for your response.  Note the date by which response is required.
  • Notify your own attorney. Let your attorney know you have been served with a lawsuit, the date of service, and the date by which a response is due.
  • Review the complaint. Most plaintiffs’ lawyers know enough to allege facts supporting, or claims stating, the dealer is responsible for the loss if the lawyer expects to keep the dealership as a defendant in the case. Notify your insurance company. You have coverage under your garage policy against damages arising from the most common claim – loss resulting from negligent service operations.
  • Carefully track the response date. Your factory may drag its feet. Your insurance company may drag its feet. If the response date is fast approaching without a response by your franchisor or by your insurance company, your attorney should file a responsive pleading to protect your dealership against a default.
  • Don’t worry about a claim by the franchisor or the insurance company you somehow are improperly involved in the defense providing them an excuse to deny indemnification or insurance coverage. If you have given each sufficient time to consider their indemnification obligations and have protected the dealership by filing a timely responsive pleading, and they did not, any requirement you met to protect your dealership by filing a response is on them.