1. Indemnity and Hold Harmless – Now What?
January 20, 2015
Presented by:
Michelle Lounsbery, J.D., MBA
2. ACQUISITION COMPANY NAME • MARSH & McLENNAN AGENCY, LLCHowalt+McDowell Insurance, a Marsh & McLennan Agency
OBJECTIVES:
• What is indemnification
• Different levels of indemnification
• Scope of indemnification
• Other obligations found in indemnification provisions
• Overbroad language
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3. ACQUISITION COMPANY NAME • MARSH & McLENNAN AGENCY, LLCHowalt+McDowell Insurance, a Marsh & McLennan Agency
What is an Indemnification
Agreement?
• Indemnity is the obligation resting on one party (Indemnitor) to make good
a loss or damage incurred by another party (Indemnitee).
– Subcontractor agreeing to indemnify the Contractor for the Subs
negligence or for those who the sub is liable.
Parties – Indemnitor and Indemnitee
• General Rule: Each party is liable for its own negligent conducts
• Indemnity provisions are risk shifting mechanisms that shift liability to
another party.
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4. ACQUISITION COMPANY NAME • MARSH & McLENNAN AGENCY, LLCHowalt+McDowell Insurance, a Marsh & McLennan Agency
Different levels of indemnification
• Narrow, Intermediate, Broad
• Narrow – General Rule – I take my negligence, you take your negligence
• Intermediate – I’m going to take mine, plus yours if you are not solely
negligent
• Broad – I’m taking everything, even if you are solely negligent
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5. ACQUISITION COMPANY NAME • MARSH & McLENNAN AGENCY, LLCHowalt+McDowell Insurance, a Marsh & McLennan Agency
Scope of Indemnification
• The obligation to indemnify does not occur until the end of a case or other
resolution, when indemnitee has had a judgment entered against it for
damages, or has made payments or suffered actual loss.
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6. ACQUISITION COMPANY NAME • MARSH & McLENNAN AGENCY, LLCHowalt+McDowell Insurance, a Marsh & McLennan Agency
Other Obligations found within
Indemnification provision
• 1) Defense
• 2) Hold Harmless
• 3) Insurance Role
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7. ACQUISITION COMPANY NAME • MARSH & McLENNAN AGENCY, LLCHowalt+McDowell Insurance, a Marsh & McLennan Agency
Defense
• In most jurisdictions: Any duty to defend is independent of the duty to
indemnify
• Must immediately and actively defend or fund the defense of any claim at
the outset. The contractual duty to defund thus arises first in time before
the duty to indemnify
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8. ACQUISITION COMPANY NAME • MARSH & McLENNAN AGENCY, LLCHowalt+McDowell Insurance, a Marsh & McLennan Agency
Difference between Indemnification and
Hold Harmless
• Strictly speaking, a “hold harmless” clause is not an indemnification
provision per se, although courts have tended to use the terms
interchangeably.
• A contractual provision that only states that A will “hold B Harmless” from
claims based on A’s negligence may not indemnify B from third party
claims or provide a duty of defense under these terms. Under this
approach, the “hold harmless” language only releases B from liability to A
with respect to claims covered by the clause.
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9. ACQUISITION COMPANY NAME • MARSH & McLENNAN AGENCY, LLCHowalt+McDowell Insurance, a Marsh & McLennan Agency
Additional Insured Issue
• In a majority of states, the statutes allow for a lower tier contracting party to
purchase insurance that would cover that party from their own negligence
or partial negligence.
• This is separate from the indemnification provision.
• Subcontractor could indemnify the Contractor for their partial negligence
within the indemnification agreement, allowed under most anti-indemnity
statutes, but then under the additional insured requirement of the contact
be forced to pick up the full negligence of the Contractor.
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10. ACQUISITION COMPANY NAME • MARSH & McLENNAN AGENCY, LLCHowalt+McDowell Insurance, a Marsh & McLennan Agency
Overbroad Language – Be Aware!
• “Any Act or Omission”
• “Any Intentional Acts”
• “Any liability”
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11. ACQUISITION COMPANY NAME • MARSH & McLENNAN AGENCY, LLCHowalt+McDowell Insurance, a Marsh & McLennan Agency
• Claims or damages versus Liabilities
• Claims or damages are considered different from an indemnity for
liabilities
• In general an indemnity for damages – demands- costs – losses is not
payable by the indemnitor until the indemnitee suffers actual loss by being
compelled to pay the claim or damages.
• An indemnity for “liabilities” is considered broader and requires the
indemnitor to pay when the liability of the indemnitee has become “fixed
and established.” No payment of any claims or suffering of actual damages
is required.
“All claims, actions, suits, demands,
damages, liabilities, obligations, losses”
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12. ACQUISITION COMPANY NAME • MARSH & McLENNAN AGENCY, LLCHowalt+McDowell Insurance, a Marsh & McLennan Agency
Best Practices
• Since the terms “indemnify”, “hold harmless”, and “defend”, have distinct and
separate meanings, consider using them individually in order to incorporate all three
concepts and avoid ambiguities in other references to indemnification obligations in
the contract.
- For Example: Each party agrees to fully indemnify, hold harmless and
defend…..
• If you are an A/E firm, please note that this is not the best practice for you!
• Make sure the indemnification provision clearly articulates what you are expecting to
do. If not, provide additional language/modify the language to clearly state when
and for what you are providing that indemnification.
– For example: Nothing within this indemnification provision shall obligate the
subcontractor to indemnify, defend, or hold the contractor harmless from their
sole negligence.
• Make sure to include “liabilities” in the indemnification clause to maximize the scope
of the protection
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13. Legal/regional regulatory statement to be added here if required.
This document is not intended to be taken as advice regarding any individual situation and
should not be relied upon as such. Howalt+McDowell Insurance, a Marsh & McLennan
Agency LLC Company shall have no obligation to update this document and shall have no
liability to you or any other party arising out of this document or any matter contained herein.
Any statements concerning actuarial, tax, accounting or legal matters are based solely on our
experience as consultants and are not to be relied upon as actuarial, accounting, tax or legal
advice, for which you should consult your own professional advisors. Any modeling analytics
or projections are subject to inherent uncertainty and the analysis could be materially affected
if any underlying assumptions, conditions, information or factors are inaccurate or incomplete
or should change.
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Editor's Notes
The indemnification provision of an agreement is interpreted under the same rules governing contracts, with a view to determining the intent of the parties. The rights and duties of the indemnitor and indemnitee are generally determined from the plain meaning of the contract itself.
Each word in the clause is given meaning
In some states there must be express language within the indemnification provision to account for attorney’s fees to be included.
Generally speaking, an indemnitor has no duty to defend, unless the contract or statutes in that specific state requires such defense.