Does an indemnification agreement cover after-acquired subsidiaries? Ervin v. Lowe's Explained

In Ervin v. Lowe’s, the Utah Court of Appeals addressed whether a pre-merger indemnification agreement could extend to cover liabilities arising from products sold to a company that was later acquired. The decision provides important guidance for practitioners drafting indemnification clauses in corporate agreements.

Background and Facts: Allen Ervin was injured by a defective wheelbarrow tire purchased from Eagle Hardware in 1999. After Lowe’s merged with Eagle in 2000, Lowe’s settled Ervin’s claim for $375,000. Lowe’s then sought indemnification from Collins New Jersey under a 1996 Master Standard Buying Agreement executed before the merger. The agreement required Collins New Jersey to indemnify Lowe’s for products sold pursuant to Lowe’s purchase orders, but Eagle was not a party to the 1996 agreement.

Key Legal Issues: The case presented three main issues: (1) whether the indemnification provision in the 1996 agreement covered products sold to Eagle before the merger; (2) whether newly discovered evidence about the merger timing warranted relief under Rule 60(b); and (3) whether Utah courts had personal jurisdiction over Collins Taiwan, the parent company.

Court’s Analysis and Holding: The court applied the “clear and unequivocal” test for indemnification agreements, examining the parties’ intent at the time of contracting. Although the 1996 agreement defined “Lowe’s” to include existing subsidiaries and affiliates, it contained no express language covering future acquisitions. The court distinguished between the agreement’s express permission for Lowe’s to assign orders to “present or future” subsidiaries and the indemnification clause’s silence on future entities. The court also affirmed dismissal of Collins Taiwan for lack of minimum contacts with Utah.

Practice Implications: This decision underscores the importance of precise drafting in indemnification agreements. Courts will not imply coverage for after-acquired entities absent clear contractual language. Practitioners should explicitly address whether indemnification obligations extend to future subsidiaries, affiliates, or merger partners. The case also reinforces that personal jurisdiction over foreign defendants requires more than knowledge that products will reach the forum state.