To Indemnify & Defend or Hold Harmless…IS That the Question?

March 19, 2018

To Indemnify & Defend or Hold Harmless…IS That the Question?

When drafting legal documents, a junior attorney does well to look over exemplars of such documents in the firm’s or senior attorney’s files to get a better sense of the subject matter and ways of approaching it.  As part of that process, the associate will update the law and the language in the exemplar(s) to better ensure enforceability of the document and the protections afforded to the client.  Elimination of duplicative, and therefore surplus, language is one of the goals of such a review.  However, an uninformed revision can do violence to the intent of the parties, decrease enforceability, and actually reduce the protection sought by the client.

Take, as an example, two common legal terms found in contracts of all kinds:  “Defend and Indemnify” and “Hold Harmless.”  Time and again we receive what we presume are well-meaning but ill-advised revision requests that seek to eliminate the term “hold harmless,” with the explanation that it is surplusage where the agreement already calls for defense and indemnity.  However, while both phrases apply to the liability-shifting exercise that is at the heart of any indemnity provision, the terms are not identical and omission of one or the other could be costly for the client.

Lay persons might – and do – use these two terms interchangeably but, from a legal standpoint, to do so is error.  “Defend and Indemnify” carries the specific legal intent that the indemnitor (the person who owes indemnity) will defend the indemnitee (the person to whom indemnity is owed) against certain claims, including paying the cost of that defense, and will pay for any losses incurred by the indemnitee as a result of those claims.  To hold harmless, on the other hand, is more than just paying for defense and indemnity, it is affirmatively taking steps to prevent the indemnitee from being forced to defend or respond to the claim, at all.  The following example should help clarify the difference between the terms.

In the familiar construction defect context, the owner and/or general contractor will usually require the subcontractor doing the actual work of construction to, in typical language, “to the greatest extent permitted by law, indemnify, defend, and hold harmless [the owner or GC] from and against any and all claims, losses, obligations, liabilities, demands, debts, [etc…] arising out of the work under the subcontract.”  Presiding Justice Sills (California Court of Appeals, Fourth District, Division 3), writing for the majority in the 2007 case Queen Villas HOA v. TCB Property Management, makes the distinction between the terms clear:

“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.”

[Queen Villas Homeowners Ass'n v. TCB Property Mgmt. (2007) 149 Cal.App.4th 1, 9]

Clearly the phrases have different meanings and both should remain in the agreement where the client seeks to not only shift the burden of defense and indemnity for specified future claims to the indemnitor, but also to avoid the inconvenience and potential exposure from having to actively defend against an action based on such claims, by others or, where the agreement also includes a waiver of future claims not now known to exist (typically achieved by a waiver of the indemnitor’s rights under Civil Code § 1542 – the subject of a future article) by the indemnitor.

In Summary:

The astute practitioner will counsel the client regarding the impact of each material term and provision of a proposed agreement, no matter who drafted it.  The client will benefit not only by now understanding what the terms mean, but also by creating an opportunity to better understand the client’s goals and discuss ways to negotiate the language so as to maximize achievement of those goals while minimizing adverse impact to the client.  In the context of this example, where the client is being asked to indemnify and hold another harmless from claims, the client must understand the full impact of such an agreement, and may wish to negotiate that term to minimize exposure to later claims and costs.  This is especially important where, as in many construction contracts, the acts or omissions of the client – or persons for whose acts or omissions the client can be vicariously liable – are not the sole determining factor in triggering application of an indemnity / hold-harmless obligation.