You’re Damned if You Agree to Indemnify and Hold Harmless

Posted: May 24, 2012 in Employee Contracts, Lawsuits, Noncompetes

You may have signed many contracts with boilerplate language whereby your company agreed to indemnify and “hold harmless” the other contracting party.  Most people have some concept of what this means, but really do not think through the ramifications of such an agreement.  Whenever possible, delete these provisions from any contract provided by the other party.  If you are forced to agree to indemnity clauses, have your lawyer suggest reasonable changes and explain your company’s risk.  Also, check with your insurance agent to see what will be covered.

The word “indemnify” is usually thought to refer to claims by third parties who are not parties to the contract.  If your company agrees to indemnify ABC company, your company will pay any judgment as well as the cost of defense.  Hold harmless, in the opinion of some legal minds, is slightly different; this could mean that you will not sue ABC company if a third party sues your company for something that ABC company allegedly did wrong.  Both indemnity and hold harmless agreements are subject to judicial review for public policy and reasonableness, and certain statutes apply, both of which can temper their literal interpretations.  However, your best option is either to not sign them at all, or insist on some reasonable parameters.

Even lawyers do not completely understand all of the complexities of indemnity and hold harmless provisions.  Often, these are inserted as boilerplate provisions, with little thought by the lawyer about what they mean.  Many lawyers who draft such provisions are contractual lawyers, not trial lawyers, so they do not fully appreciate the practical implications of indemnity and hold harmless provisions.

Vague indemnity and hold harmless provisions create a lot of unanswered questions.  Do you have to indemnify ABC company if it was negligent?  If it committed an intentional act?  If it sexually harassed someone?  If one of its drivers caused a fatal auto accident?  Can ABC company hire any lawyer it wants to defend it from a third-party claim?  A law firm that charges $500 an hour?  Can the firm engage in a scorched earth defense on your dime?  Can ABC settle the claim for any amount and make you pay it?  Do you have any say in the selection of lawyers and defense of the case?  Does the indemnity provision prohibit you from suing ABC company if it harms your company? Will you have to pay ABC’s legal fees if you sue it?

If you do not know the answers to these questions, or the provisions are simply silent, you need a lawyer to write better provisions.  Plain English is preferable to archaic language that lawyers and courts interpret differently.

The same applies if the coin is flipped and you require ABC company to indemnify you and hold you harmless.  You don’t want to have to rely on vague provisions.  Get the protection you need specified in clear language.

If you have a question about any indemnity and/or hold harmless provisions, call me at 617.338.7000.

By Adam P. Whitney

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Comments
  1. This post really came in handy – I’m reading through a contract now and didn’t feel comfortable signing it for this exact clause. I did some research, and your blog came up! I am going to try to renegotiate the terms because of you! Thank you 🙂

  2. Mac says:

    I just recently lost my job of seven months because I would not sign an “indemnify and hold harmless” agreement. It was a single sentence in a two page agreement, practically hidden at the end after a lot of benign stuff that emphasized what is already the case. The “IHH” provision essentially reversed the normal employer-employee relationship in this area. The store manager had proffered a number of forms to be acknowledged as being received and read but this was the first agreement since the hiring process
    The credit manager expressed some hesitancy. He has been in the collections business for many years for banks and other institutions. But he went ahead and signed. The rest of the employees signed also. While I sat and read the sentence over several times. I said nothing until the others had signed and handed in the agreement.
    I said that this should have been brought up at hiring, and that if it had been I would not have signed it. So I clocked out and left.

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