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Hold Harmless Agreement

Arjun Kulkarni Mar 1, 2020
The hold harmless agreement is a clause incorporated in several types of contracts. Since, every contract is framed differently, the hold harmless clause may have varying consequences and distribution of liabilities. Thus, it is always wiser to get such contracts approved by an attorney before accepting the terms of a hold harmless agreement on your own.
To hold harmless, is a promise given by one party to the other, to not be blamed for the claims and damages brought forth by a third party who is not a part of the contract. Thus making the safeguarded party 'free from harm, liabilities, fines' imposed by a third-party.
Such an agreement, transfers the liability from the promisee (to whom a contractual promise in given) to the promiser (the one who makes the contractual promise), when a third unrelated party accuses the promisee of default.
In such an agreement, promiser takes upon the responsibility of indemnifying the losses, damages or liabilities that arise as a result of the contractual transaction.
To hold harmless, is often used interchangeably with indemnity and thus correlates with the inclusion of third-party action, in order to invoke the privilege of being exempted from any legal liability. Let's analyze some definitions of 'hold harmless' and 'indemnity', so as to understand the synonymy.

Black's Law Dictionary - Definition of Hold Harmless:

"To absolve (another party) from any responsibility for damage or other liability arising from the transaction; Indemnify."

Black's Law Dictionary - Definition of Indemnify:

  1. To promise to reimburse for such a loss.
  2. To reimburse for a loss suffered because of a third party's or one's own act or default.
  3. To give security against such a loss.

However, indemnification does not mean to be held harmless, unless explicitly mentioned in the contract, since indemnification refers to the act of 'reimbursement' as well.

Mellinkoff's Dictionary of American Legal Usage:

Indemnify is to, "reimburse for any damage," whereas "hold harmless is understood to protect another against the risk of loss as well as actual loss."
In the California case of Queen Villas Homeowners Association v. TCB Property Management, 2007 Cal. App. Lexis 470 (Cal. Ct. App. Feb. 28, 2007) it was stated that:

"The court found that the terms "indemnify" and "hold harmless" can both apply to third-party situations without violating the canon against surplusage."  

Usage of Hold Harmless Clause

In case where a third party initiated a lawsuit against the promiser for damages, the promisee shall be held harmless and cannot be made to reimburse the promiser. The only exception being in cases where the damage was caused by the utter negligence of the promisee. Here the onus of proving the drastic negligence of the promisee falls upon the promiser.
The hold harmless clause is applicable only against a third party action, and does not protect the immediate parties of a contract from legal repercussions in case of default or non-compliance of the terms of the contract.
The hold harmless provision does not provide protection and exemption for losses that have resulted from negligence, willful misconduct, fraud, and criminal activities of either parties. This clause is unenforceable in situations wherein the contract or its stipulations are detrimental to public interest.

Example 1:

An event management company is hired for organizing a conference for a college. The event company can ask to be exempted from paying for any and all liabilities that may arise against a third party, through a hold harmless clause being added to the contract.
Therefore, if one of the audience members injures himself during the concert and decides to sue the event company, the college will have to safeguard the interest of the company.
However, if the event company was grossly negligent in handling the conference, the college may go ahead and sue the company even with the hold harmless clause in place.

Example 2:

Subcontractor X agrees to hold Y harmless in the construction contract against a third party. Y was hired to fix the pipes in the building, however the pipes were faulty. Z being a client, sued X for faulty pipes.
In this case, X will have to pay for the damages and mend the crisis without holding Y accountable. X will have to prove in court, that Y intentionally used substandard pipes or was negligent, in order to be reimbursed for the loss incurred.

Indemnification & Hold Harmless

It is very common to find contracts that use the terms indemnify and hold harmless together. Indemnification does not release the other party of their responsibility or liabilities. It merely gives the indemnified party the power to seek reimbursement from the indemnifier, and make good the damages they were forced to pay to the third party.
Such an indemnification cannot be availed on grounds such as, avoiding lawsuits, for reducing or avoiding a liability, or used as a defense in an ongoing lawsuit.

One-Sided Indemnity

The hold harmless clause is used for excluding and relieving the promisee (indemnified) from any and all, actual and alleged demands, claims, liabilities, losses, or damage to property.
The aforementioned circumstances may have arisen either by an individual act, by a third party, or imposed by an administrative body, court of law, or government agency, or arising as a result of negligence, misconduct, or omission of the promisee party's agents, volunteers, contractors, or persons.
Such an agreement would include the payment and reimbursement (if any) of all fines, attorney fees, judgments, awards, and related expenses for any legal proceedings that may take place because of the actions of the promisee and as a result of the contractual transaction.
NOTE: Such one-sided contracts are often rejected by courts on grounds of being inequitable and for unduly shifting responsibility to one party.

Equal-Sided Indemnity

Both parties agree to indemnify and hold one another harmless against any liability for all claims and to the extent such claims are caused by the party's negligent acts. In the event, claims are caused by both the parties, they shall be borne by either parties and in accordance and proportion to their individual acts of negligence.
The hold harmless clause is unfavorable for those who seek protection and exemption from liabilities directed by the immediate party in the contract. Which is why, it would be wise to consult an attorney so that the contract can be scrutinized before it is approved by either parties.