In a recent 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.
Bryn Vaaler, a corporate partner and director of professional development at Dorsey & Whitney, recently pointed out to me that Vice Chancellor Strine of the Delaware Chancery Court addresses the meaning of hold harmless and indemnify in his opinion in Majkowski v. American Imaging Management, LLC, 2006 WL 3627111 (Del. Ch. Dec. 6, 2006). (Click here for the copy of the opinion on the Delaware Corporate and Commercial Litigation Blog.) This case doesn’t affect the analysis in my blog post, but it might nevertheless be of interest to students of hold harmless.
In this case, the plaintiff argued that he had a right to advancement under certain limited liability company agreements, which stated that the company was required to “indemnify and hold harmless” its officers. The plaintiff attempted to find a right to advancement in the phrase hold harmless. As such, the plaintiff sought to attribute to hold harmless a meaning broader than the alternative meaning offered by Mellinkoff.
In his opinion, Strine notes that Delaware law has traditionally distinguished between indemnification and advancement. Indemnification is the right to be reimbursed for all out-of-pocket expenses and losses caused by an underlying claim. By contrast, advancement refers to the right of a potential indemnitee to force the company to pay his litigation expenses as they are incurred, regardless of whether the potential indemnitee is ultimately entitled to indemnification, with the potential indemnitee being required to repay all sums advanced if it is later determined that he isn’t entitled to be indemnified.
Strine goes on to note that “As a result of traditional usage, the phrase ‘indemnify and hold harmless’ just naturally rolls off the tongue (and out of the word processors) of American commercial lawyers. The two terms almost always go together.” He indicates, as I do in my original post, that Black’s Law Dictionary treats the terms as synonyms. Strine concludes that “the argument that a right to be held harmless included a right to advancement cannot stand up in light of the fact that the phrase ‘hold harmless’ is actually defined by reference to indemnification rights.”
But in a footnote, Strine adds the following:
As a final consideration, I note that if it were necessary to insist on giving some independent meaning to the term “hold harmless” without importing an advancement right into it, it would be possible to do so. The terms “indemnify” and “hold harmless,” while having similar, if not identical, meanings, are typically used in subtly different contexts. In the abstract, the word indemnify generally grants rights, and the phrase hold harmless generally limits liability.
The distinction Strine offers in this footnote is rather opaque, but I suspect that he’s aiming at the distinction suggested in Mellinkoff’s Dictionary of American Legal Usage.
How does all this affect my original blog post? It doesn’t. If you want to make sure that an indemnifying party pays any liabilities instead of waiting until the indemnified party pays those liabilities, then reimbursing the indemnified party, you should say so in the indemnfication provisions. It would be reckless to expect hold harmless to accomplish that for you.
All I would add to my original post is that in an indemnification section that describes at any length the indemnification procedures, it should be doubly clear that the indemnifying party’s obligations aren’t limited to reimbursement.