Yet More on “Indemnify” and “Hold Harmless”

[Update: For my 2012 take on this topic, see this post.]

In an October 2006 post I discussed the terms hold harmless and indemnify. I noted that Black’s Law Dictionary states that the two terms have the same meaning whereas Mellinkoff’s Dictionary of American Legal Usage says that one can also distinguish the two terms—that “hold harmless is understood to protect another against the risk of loss as well as actual loss” whereas indemnify can also mean “reimburse for any damage,” a narrower meaning than that of hold harmless. In my post, I sidestepped the issue by suggesting that if one words an indemnification provision carefully one can dispense with hold harmless.

In a January 2007 post, I discussed a case in which Vice Chancellor Strine of the Delaware Chancery Court endorsed the notion that indemnify and hold harmless are essentially synonyms. In that case, the plaintiff had attempted to find a right to advancement of expenses in the phrase hold harmless.

I’d now like to revisit this topic, as a reader was kind enough to pass on to me a recent California case dealing with indemnify and hold harmless, namely Queen Villas Homeowners Association v. TCB Property Management, 2007 Cal. App. Lexis 470 (Cal. Ct. App. Feb. 28, 2007). It’s worth considering. (Click here for a copy of this case.)

This case involved a claim by a homeowners association that its property management company had a duty to prevent self-dealing by a member of the association’s board of directors. The trial court granted summary judgment for the management company on the grounds that in its agreement with the management company, the association had agreed to indemnify the management company.

The agreement addressed indemnification in two separate provision using very similar language. Here’s one of the provisions:

Association agrees to indemnify, defend and hold agent and its employees, Agents, officers, and directors harmless against any and all claims, costs, suits, and damages, including attorneys fees arising out of the performance of this agreement or in connection with the management and operation of the Association, including claims, damages, and liabilities for injuries suffered, or occurrences of death or property damage relating to the property, excluding any claims or liabilities arising out of the sole negligence or willful misconduct of Agent or its employees.

The Court of Appeal reversed the judgment, explaining that indemnification agreements ordinarily relate to third-party claims rather than situations where one party asserts that a contract purportedly releases it of all liability to the other.

This stands to reason: If Acme indemnifies Widgetco against any losses and liabilities that arise in connection with their agreement, Acme’s indemnification obligation would apply to any claims brought against Widgetco by any non-party and would also apply to any claims that Widgetco brings against Acme. It manifestly would not serve to insulate Widgetco against any claims that Acme brings against it.

One argument that the management company advanced in favor of its preposterous argument was that even if being indemnified doesn’t release one from liabilities to the indemnifying party, the words hold harmless accomplish that release.

The simplest response to this notion would have been to hold that most authorities accept that indemnify and hold harmless are synonyms, and that even if some authorities attempt to distinguish the two terms, no one has ever accepted the argument advanced by the management company.

Instead, the court noted that “When two words are used in a contract, the rule of construction is that the words have different meanings.” And it went on to construct a convoluted argument that distinguished indemnify from hold harmless, but not in the manner suggested by the management company:

Are the words “indemnify” and “hold harmless” synonymous? No. One is offensive and the other is defensive—even though both contemplate third-party liability situations. “Indemnify” is an offensive right—a sword—allowing an indemnitee to seek indemnification. “Hold harmless” is defensive: The right not to be bothered by the other party itself seeking indemnification.

Let us illustrate: As every veteran of construction defect litigation and every judge who ever picked up a hefty construction defect file knows, in third-party situations there is usually a blizzard of cross-complaints seeking indemnity for the cross-complainant’s possible liability for indemnity. Consider this hypothetical: Homeowner sues general contractor. General contractor sues Subs 1 and 2 for indemnity, that is, to make both subcontractors cover the general’s prospective liability to the homeowner. Now suppose Sub 1 has an agreement with Sub 2 which requires Sub 2 to “indemnify and hold harmless” Sub 1. Sub 1 can use the word “indemnify” in the agreement as a basis to sue Sub 2 for indemnity for the possible liability Sub 1 may incur to the general. And Sub 1 can use the phrase “hold harmless” as a basis to prevent Sub 2 from suing it for the liability that Sub 2 might incur to the general. In other words, “indemnify and hold harmless” can both apply to third-party situations without violating the canon against surplusage.

It’s not surprising that the court failed to cite a single authority for this proposition. I think it’s pure invention and can be ignored. As for the rule of construction that prompted the court to look for a distinction between indemnify and hold harmless, it and other such rules of construction represent abdication of a court’s responsibility to attempt to determine the intent of the parties. (I plan to write about rules of construction.)

Here’s what I conclude from this case: If you use both indemnify and hold harmless, you’re simply asking for trouble. You’re giving the other side a chance to argue to a court that hold harmless has some unanticipate meaning. And if the provision comes before a zombie court that mindlessly follows rules of construction instead of attempting to discern the intent of the parties, the court may well bend over backwards to needlessly distinguish hold harmless from indemnify.

So if my previous posts on the subject haven’t convinced you, let me say it again: use just indemnify, not both indemnify and hold harmless! And more generally, pick your words carefully instead of indulging haphazardly in redundant synonyms.