“Hold Harmless” and “Indemnify”

[Update: For my more recent take on this issue, see this 2012 post.]

At a seminar I gave last week, I suggested that hold harmless and indemnify are essentially synonyms. Some participants were skeptical, so I thought I’d better research the issue.

Black’s Law Dictionary supports my view. It defines hold harmless as follows: “To absolve (another party) from any responsibility for damage or other liability arising from the transaction; INDEMNIFY.” (It defines indemnify as follows: “To reimburse (another) for a loss suffered because of a third party’s or one’s own act or default. 2. To promise to reimburse (another) for such a loss. 3. To give (another) security against such a loss.”)

But in Mellinkoff’s Dictionary of American Legal Usage, David Mellinkoff says that “hold harmless is understood to protect another against the risk of loss as well as actual loss.” He goes on to say that indemnify is sometimes used as a synonym of hold harmless, but that indemnify can also mean “reimburse for any damage,” a narrower meaning than that of hold harmless.

So it appears that the skeptical seminar participants and I were both right. But when looked at in a broader context, you should always be able to dispense with hold harmless. All it takes to ensure that indemnify is given its broader meaning is to have Acme agree to indemnify Widgetco against losses and liabilities. Black’s defines loss as “the disappearance or diminution of value, usu. in an unexpected or relatively unpredictable way,” and it defines liability as “A financial or pecuniary obligation.” If you use both these words, Acme would be indemnifying Widgetco against both the risk of loss as well as actual loss, to use Mellinkoff’s words. It would be redundant to have Acme also hold Widgetco harmless.

One of the pleasures of giving seminars is that issues crop up that I would otherwise never have thought to investigate. So my thanks go to last week’s skeptical participants.

Posted in Indemnification | 18 Comments

  • Patrick

    Please explain or give an example of what might fall within the phrase “risk of loss” as opposed to “actual loss”. Are we talking about an obligation to defend (hire an attorney) in the former versus paying the damages awarded at trial (in the latter)?

  • Ken Adams

    Patrick: If, for example, a judgment is awarded against me and I haven’t yet paid it, that judgment constitutes a liability, hence Mellinkoff’s reference to “risk of loss.” When I pay that judgment, it’s transformed from a liability into a loss. Ken

  • Michael Fleming

    I think the discussion of ‘risk of loss’ misses the real point we need to be concerned with — the obligation to defend against the claim.

    In most deals, we say that the indemnitor has an obligation “to defend” as well as to indemnify.

    I would not want to depend on the meaning of indemnity to include costs of defense, let alone be ensured that the indemnitor has to actually receive my tender of defense. As I read the quote from Black’s above, it seems justified not to count on such — To me, to indemnify is to make whole after the fact, and implies no obligation to “go take care of the problem for me now.” In most instances, that latter thing is what the indemnitee is looking for, and the indemnitor typically wants to control the defense in any event.

    To Mellinkoff’s point, I have heard the thought that “hold harmless” incorporates both aspects (indemnity plus defense), but I would also not want to rely on the judge reading that into the meaning when we all got down to fighting about it. (Following Adams’ Rule on not relying on the crutch of obscure meanings where simply saying what you want will give you a more certain result.)

    There are many details that can be negotiated around the means of tendering, obligations and rights of both parties during the pendency of the litigation, etc. But, at root, we need to settle (in the contract) whether and how the indemnitor is going to defend the claim as a separate concern from indemnity.

    That said, I’ve been tempted to drop ‘hold harmless’ for years (if only because it creates some extremely awkward sentences), and now I feel free to go do so!

  • Ken Adams

    Michael: Thank you; I missed that Patrick was raising the issue of defense. It didn’t cross my mind that “hold harmless” might incorporate an obligation to defend, and I don’t think there’s any sure basis for assuming that it does. If an indemnified party wants the indemnifying party to defend any nonparty action against the indemnified party, the indemnified party should state as much. As you indicate, usually a big part of any full-blown indemnfication section is devoted to procedures to be followed in defending any claim. Ken

  • Lee F. Haskell

    Dear Ken,

    We could save a word or two if every court believed that hold harmless and indemnify are synonymous. But 4 A.L.R.4th 798 states otherwise:

    “Thus, for example, in Martin v American Optical Co. (1950, CA5 Ga) 184 F2d 528 (apparently applying Georgia law), a lease provision whereby the tenant released the landlord from any and all damages to both person and property and agreed to hold the lessor harmless from all such damages during the term of the lease was held not to require the tenant to indemnify the landlord for damages for personal injuries suffered on the premises by a third party. The court said that it was plain that all the clause did was to provide that the tenant release the landlord from claims for damages accruing to the tenant and that it would hold the landlord harmless “from all such damages” as were dealt with in the release clause. The court added that there was a great material difference between a covenant such as the lease carried, releasing the landlord from and agreeing not to sue him on claims accruing to the tenant, and covenants such as the landlord contended the lease covenant was, agreeing to indemnify the landlord and hold him harmless from claims of others.”

    If the intent is the broadest protection, then one should use “defend, hold harmless, and indemnify”, lest another court agree with the skeptics.

    Best regards,

    Lee F. Haskell
    Attorney at Law
    Coronado, California

  • Mary

    I don’t think the terms “Hold Harmless” or “Indemnify” are specific enough to stand on their own in a contract. I frequently deal with contracts (proposed by the other party and modified by my lawyer and me or written by my lawyer and me) that have hold harmless provisions. “Hold Harmless” is good for a section heading. However, the actual text of the section should clearly define the obligations of each party. For example, If I am to hold harmless the other party, I would include a requirement for notification of any law suits so I could defend them. If the other party is to hold me harmless, I would define the requirement for the other party to defend me against a law suit.

  • Ken Adams

    Lee: Thank you for your comment. For what it’s worth, I draw a very different conclusion from the case you cite.

    The problem for the landlord was that the court held that for semantic reasons the “hold harmless” provision applied only to damages to person and property of the tenant rather than person and property of any nonparty. In other words, the narrowness of the holding had nothing to do with the exact meaning of “hold harmless.”

    I’m unconvinced that adding “indemnify” to the mix would have changed matters, particularly as it’s commonplace for indemnification provisions to address damages suffered by the indemnified party as well as damages suffered by any nonparty.

    From the landlord’s perspective, the better fix would have been to rewrite the provision. Using “indemnify” on its own would have been entirely up to the task.

    Mary: I think you’re too deferential to “hold harmless.” I wouldn’t use it in a heading or anywhere else. And as suggested in a comment above, I don’t think that you can safely regard either “indemnify” or “hold harmless” as incorporating a duty to defend.

    Ken

  • Lee F. Haskell

    Ken,

    The concept of hold harmless includes the idea that the duty arises from the outset: “A contractual arrangement whereby on party assumes the liability inherent in the situation, thereby relieving the other party of responsibility.” It has some times been interpreted as an exculpatory clause. In contrast, indemnity means “Reimbursement.” This could make a significant difference in the remedy. If you are adverse to using hold harmless, how do you overcome the concept of reimbursement in the meaning of indemnity?

    For example, if we agree that you will hold me harmless and you live up to that agreement, then I need not do anything because you will jump to the plate and pay any obligation that is the subject of agreement. But if you only agree to indemnify me, whether it be against loss or liability, then I might have to bat first and seek reimbursement from you. I am sure we could draft around that, but hasn’t “hold harmless” done that for us already?

    Thanks,

    Lee

  • Ken Adams

    Lee: I believe that “indemnify” is flexible enough to encompass your “hold harmless” scenario. If I indemnify you for a loss, I reimburse you; if I indemnify you for a liability, then I have to take care of that liability in your stead. But I’ll reconsider if you supply me with case law holding otherwise! Ken

  • Lee F. Haskell

    Ken,

    You can find support for either position in case law.

    In U.S. v. Contract Management, Inc. 912 F.2d 1045 C.A.9 (Wash.) 1990 the court stated: “While the terms “indemnify” and “hold harmless” refer to slightly different legal remedies, we are concerned here with the condition that triggers such remedies.”

    In Kitchens of the Oceans, Inc. v. McGladrey & Pullen, LLP 832 So.2d 270 Fla.App. 4 Dist. 2002 the court said, “Although there is a difference between contracts of indemnification and hold-harmless agreements, we deem the central holding of the above cases to apply as well to a hold harmless agreement that, as here, functions much like an indemnification agreement.”

    Rooz v. Kimmel 55 Cal.App.4th 573, 64 Cal.Rptr.2d 177 Cal.App. 1 Dist., 1997 the court wrote: “Both parties cite to cases that construe contractual indemnification provisions. We note that, strictly speaking, this case does not involve interpretation of an indemnification provision. Indemnity involves “the obligation resting on one party to make good a loss or damage another party has incurred.” (Maryland Casualty Co. v. Bailey & Sons, Inc. (1995) 35 Cal.App.4th 856, 864, 41 Cal.Rptr.2d 519, italics added (Maryland Casualty).) Here, North American is not seeking indemnification. Instead, North American relies on the general “hold harmless” provision in the indemnity and hold harmless agreement to prevent Rooz from directly recovering against North American for damage he incurred as a result of North American’s own negligence.FN4 Thus, in this case, the pertinent agreement is best viewed as a “release of liability” as opposed to an indemnity agreement… Although we note this distinction, the cases have held that the general rules for construing indemnity provisions apply to exculpatory clauses as well. (See Ferrell v. Southern Nevada Off-Road Enthusiasts, Ltd., supra, 147 Cal.App.3d at pp. 318-319, 195 Cal.Rptr. 90 [applying cases interpreting indemnification agreements to a release of liability contract]“.

    In Crawford v. Weather Shield Mfg., Inc. 38 Cal.Rptr.3d 787 Cal.App. 4 Dist., 2006 the court wrote: “As one can see, Vinnell wasn’t a typical “indemnity” case in the strict sense of paying liability to a third party. While the hold harmless agreement in Vinnell used the verb “indemnify” and was even characterized as an “indemnity clause” by the court (see Vinnell, supra, 52 Cal.2d at p. 414, 340 P.2d 604), it functioned essentially as a two-way exculpatory contract. A and B had agreed that A would release B for any injuries B caused A.”

    In Zetek v. U.S. 516 F.Supp. 1260 D.C. Pa., 1981 the court noted: “Although Cuisine suggests that little, if any, significance be attached to either the absence or presence of a “hold harmless ” clause, such an interpretation of the Court’s language is unwarranted. While neither the absence nor presence of such language is conclusive, the presence of such language certainly warrants considerable weight in construing the parties’ intent.”

    There is also support for your position. In Complaint of Sun Schiffahrts G.m.b.H. & Co., K.G. 608 F.Supp. 51 D.C.Pa.,1984 wrote: “This Paragraph is obviously directed to indemnification rather than exemption from liability but Oxy contends that the use of the conjunction “and/or” preceding “hold harmless” makes it more than an alternative or synonym and adds exemption from liability to the indemnification provisions of the paragraph. Sun argues that “hold harmless” has never had any meaning other than as a synonym for “indemnify;” the cases support its contention that “and/or hold harmless” results from the excess caution of a scrivener of the document. When construed against the proferens, as the law requires in the case of ambiguity, there is no justification for interpreting “and/or hold harmless” as anything other than a synonym for “indemnify.””

    In Wilson Leasing Co. v. Gadberry 437 N.E.2d 500 Ind.App., 1982 the court wrote: “It has been held that a hold harmless clause, a form of indemnification, covers the cost of defending a claim and is intended to fully compensate an indemnitee for all loss and expense of defending a claim or litigation.”

    So I agree with your initial comment that both are sides are right. That makes it all the more important to clearly draft one’s intentions.

    Best regards,

    Lee

  • Ken Adams

    Lee: Thank you for your industry! But after having issued you the challenge, I’ll now suggest that case law is of limited use.

    For one thing, the significance of a court’s holding in these cases would likely depend on nuances of contract language, making it difficult to apply a given holding to slightly different contract langage.

    And I’ve found that as you shift to the microscale of contract language, what any given court thinks is going to be less useful, an there will be greater inconsistency from court to court and jurisdiction to jurisdiction.

    So I’m inclined to stick with the recommendation I made in my post.

    Ken

  • Chris Lemens

    I avoid using the word “indemnify” and the phrase “hold harmless” altogether. They are just too imprecise. A better approach is set out below. They key, to me, is to define a defense obligation and define a separate payment obligation. The details all depend on the bargaining power of the parties. (Please note that this is appropriate for protecting one contractual party against third party claims due to something that the other contracting party did. It really is not appropriate for merger or acquisition deals, where it really is not an indemnity in the same sense — it is just a description of what the damages for breach will be.

    16. Indemnification
    16.1 Client Defense Obligation
    Client agrees to defend Vendor and its Affiliates and their Personnel against any claim brought by any third party that:
    a. is brought by or on behalf of any customer of Client and is based on Vendor acting in accordance with Client’s written instructions or directions on how to interact with that customer; or
    b. the services that Client provides to its customers or anything that Client provides to Vendor under this Agreement, as delivered by Client, infringes or misappropriates any patent, copyright, trade secret, trademark, or other proprietary or contractual interest of the third party.

    16.2 Vendor Defense Obligation
    Vendor agrees to defend Client and its Affiliates and their Personnel against any claim brought by any third party that:
    a. is brought by or on behalf of any customer of Client and is based on Vendor failing to act in accordance with Client’s written instructions or directions on how to interact with that customer;
    b. is brought by any Personnel or Contractor of Vendor; or
    c. the Services, anything that Vendor provides to Client under this Agreement as delivered by Vendor, or anything that Vendor uses to perform the Services (other than anything described in Section 16.1(b)) infringes or misappropriates any patent, copyright, trade secret, trademark, or other proprietary or contractual interest of the third party.

    16.3 Defense Procedures
    Each party entitled to a defense under Section 16.1 or Section 16.2 (the “Indemnified Party”) agrees to notify the other party (the “Indemnifying Party”) within a reasonable time after receiving notice of a claim. If the Indemnifying Party defends any such claim, the Indemnified Party:
    a. must allow the Indemnifying Party to control the defense and settlement thereof;
    b. must consent to joint representation with each other Indemnified Party, if requested by the lawyers that the Indemnifying Party retains, but need not consent to joint representation with the Indemnifying Party;
    c. must cooperate with the defense and settlement as the Indemnifying Party may reasonably request (e.g., by way of furnishing records, information and testimony); and
    d. may employ lawyers separate from the lawyers employed by the Indemnifying Party in order to monitor and advise the Indemnified Party about the matter, but the Indemnified Party will bear all of the cost of those lawyers.

    16.4 Restrictions on Defense and Settlement
    Except with the Indemnified Party’s prior written consent, the Indemnifying Party may not:
    a. admit wrongdoing, fault, or liability of the Indemnified Party;
    b. consent to any injunction or similar relief binding the Indemnified Party;
    c. enter any settlement that fails to contain reasonable confidentiality obligations protecting the confidentiality of the settlement;
    d. enter any settlement that provides any relief other than monetary damages that the Indemnifying Party pays in full; or
    e. enter any settlement that fails to unconditionally release the Indemnified Parties in full.

    16.5 Indemnity
    The Indemnifying Party will pay or otherwise satisfy any monetary obligation that both:
    a. arises from a claim that the Indemnifying Party had a duty to defend (even if the Indemnifying Party failed to undertake the defense); and
    b. is imposed on any Indemnified Parties as part of (1) a settlement approved by the Indemnifying Party; (2) a settlement not approved by the Indemnifying Party, but only to the extent that such settlement was reasonable under the circumstances; or (3) a final judgment from which no further appeal is taken or possible.

  • James R. Krausz

    Dear Sir:

    AMAZING resource! Thank you. I encountered the very question about the distinctions between and precise meaning of “indemnity” versus “hold harmless.” Through the wonders of GOOGLE and a little luck, I found not just your series on this topic, but your BLOG as a future resource.

    You attracted some well-researched, well-reasoned and erudite commentary, and displayed it all very nicely. It is instructive for me to see how real pros go about this business. Thanks again for your work and your site.

  • http://stevenslee.com David R. Richie, II

    Coming late to the party, it seems that what nobody has addressed squarely (including the courts) is this: If I agree to “hold you harmless,” does that just mean I won’t seek to recover from you if I incur a loss or claim? Or does it mean I have to go further, and make you whole you if YOU suffer a loss or claim.

    The difference is crucial when it’s a third party claim. The lack of clarity on this point in the citations you provided may just mean this wasn’t the issue before the courts.

    However, I think the moral is NEVER use the term “hold harmless” wihout further explanation unless you are actively seeking to create some ambiguity in order to avoid something even worse.

    Thanks

    David Richie

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  • http://www.cogecodata.com Catherine Uffen

    “hold harmless” means that, while the proceeding is ongoing, the other party must pay the indemnified’s costs

    “indemnify” means that, when a party has had to pay for certain costs or has accrued losses, the indemnifying party must compensate or pay them back for their out of pocket.

    There is Ontario law to this effect

  • Ken Adams

    Catherine: Check out this blog post: http://www.adamsdrafting.com/2009/05/10/revisiting-indemnify-and-hold-harmless/. Best regards, Ken

  • Florencia Espinosa

    I am a translator and I don`t quite understand what idemnify means. Is is to hold harmless ("mantener undemne") or to reimburse costs/pays losses incurred by a law/suit claim ("indemnizar"). There is quite a discussion in Argentina as to how this should be translated. Thank you!