No franchisor likes being added to a franchisee’s customer’s lawsuit under a vicarious liability theory. When the franchisee’s insurance carrier ultimately agrees to appoint defense counsel and cover any judgment or settlement, franchisors may breathe a sigh of relief. But a recent case illustrates the dangers of not monitoring carrier-appointed counsel. In Curtis v. Hilton Garden Inn, the bathroom door at a franchised hotel fell on a guest causing serious injury and resulting in a lawsuit against the franchisee and franchisor. A jury awarded the guest $2.1 million in compensatory damages and $30 million in punitive damages (later reduced to $10 million) against the franchisee and the franchisor jointly. The franchisor hired more sophisticated franchise counsel to challenge the verdict by arguing that the plaintiff failed to establish that the franchisor sufficiently controlled the hotel’s day-to-day operations. Unfortunately for the franchisor, the carrier-appointed lawyer had waived those arguments by never making them, and on the contrary, had affirmatively told the trial judge that the franchisor did not deny liability based on lack of control. Even worse news: New York law forbids insurance companies from covering punitive damages.

Although an extreme example, Curtis reminds franchisors that just because their appointed counsel may be experienced in personal injury law does not mean they understand franchising. Franchisors must monitor and, where appropriate, educate appointed counsel to ensure that even basic defenses are raised and preserved.

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Curtis, et al. v. Hilton Garden Inn New York/Central Park, et al., 18 Civ. 3068, 2024 WL 4664255 (S.D.N.Y. Nov. 1, 2024). A copy of the opinion is available HERE.