Municipal contracts typically provide that the private contractor must indemnify
the municipality in the event of a claim arising from the contractor’s
work. In Psychemedics Corp. v. City of Boston, issued on January 29, the
Supreme Judicial Court determined that, where a City contractor had agreed in
its contract to assume the defense of the City for claims arising from the
contractor’s negligent acts, mere notice of such claims was sufficient to require
the contractor to assume the defense. An explicit demand from the City to
assume the defense was unnecessary.
Psychemedics, a city contractor that provided hair follicle drug tests, had failed
to assume the defense of the City after a group of police officers, who were
terminated based on positive drug tests, filed claims against the City. The
undisputed facts showed that the City had orally and in writing communicated
with Psychemedics regarding the subject of indemnification and requested that
Psychemedics contribute financially to the defense. Psychemedics and the
City reached an oral understanding that Psychemedics would provide support
by making its scientific and legal staff available to the City free of
charge. Psychemedics eventually sought relief in the Superior Court for a
declaration that it had no obligation to indemnify the City. The Superior Court
granted Psychemedics’s motion for summary judgment, but the SJC vacated
that judgment and remanded the case for further proceedings.
The central issue in the case was whether the City had afforded Psychemedics
a sufficient opportunity to defend. Psychemedics argued that it had not,
because the City asked only for financial support and did not explicitly demand
that Psychemedics assume the defense. The Court disagreed, finding that,
where the contract itself did not provide any specific process for notifying
Psychemedics and requesting that it assume the defense, any notice of the
claim—including oral notice—was sufficient to provide notice and the
opportunity to defend. Since the contract required that Psychemedics assume
the defense of any claims arising from its negligent acts, it would be in breach
for failing to do so once it had notice of a claim. Here, Psychemedics never
assumed the defense, though the City never took any steps to prevent it from
doing so. The Court noted that the burden on the City to provide notice and an
opportunity to defend was so low because the parties had specifically
contracted for indemnification, while indemnification obligations arising from
non-contractual circumstances might require something more.
