Indemnification and Hold Harmless Clauses

The contract provision under which one party agrees to cover another's losses and defend it against claims - what it usually reaches, the state laws that void some of it, and why insurance is the other half of the promise.

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What it means

An indemnification clause shifts a loss from one contracting party to the other. The indemnitor promises that if the indemnitee suffers a loss of a described kind - most often a claim by a third party arising from the indemnitor's work, products or breach - the indemnitor will pay it, including the legal costs of dealing with it. A duty to defend, where included, goes further: the indemnitor must take over and fund the defense of the claim as it is made, before anyone knows who was at fault. "Hold harmless" is usually treated as the same promise in different words, though some courts read it as a release of claims between the parties rather than a promise to pay third-party losses.

The scope is set by drafting, and the words that matter are the triggers (arising out of, caused by, to the extent of), whether the clause covers the indemnitee's own negligence, whether it reaches claims between the parties themselves or only third-party claims, and the exclusions and caps. Many states refuse to enforce a promise to indemnify someone for their own negligence unless the contract says so in express and conspicuous terms, and most have anti-indemnity statutes for construction contracts that void clauses shifting liability for the indemnitee's sole or partial fault. Those statutes differ widely, and a clause valid in one state can be void in the next.

An indemnity is only as good as the indemnitor's ability to pay, which is why commercial contracts pair it with insurance requirements: minimum coverages, naming the indemnitee as an additional insured, waivers of subrogation and certificates. The insurance is what actually funds the promise when a claim arrives.

Where this comes from

When people hire a lawyer for this

Anyone asked to sign a contract with an indemnity should have a lawyer identify what it actually shifts, whether their insurance responds to it, and whether the governing state voids any of it - the answers are frequently not what the clause appears to say. A party that has received a demand for indemnity or defense should respond through counsel and promptly, because insurance policies and many contracts condition coverage on timely notice.

Worried about the cost? A lawyer can be hired for one part of a case only (limited-scope representation), may be paid from what a claim recovers (contingency fee), or may be free through a pro bono program or legal aid; a court can also waive its own filing fees.

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Related terms

Entries on the same subject:

• Breach of ContractA failure to do what a binding agreement required - and the question a court actually asks is not whether someone broke a promise but what the loss was and whether it could have been avoided.
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• Personal GuaranteeA promise by an individual - usually a business owner - to pay a company's debt personally if the company does not, which puts the owner's own assets behind the loan or lease regardless of the entity's liability shield.

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