Corporate & Securities Law

Revisiting “Indemnify and Hold Harmless”

By Ken Adams

In MSCD 12.134 and in these blog posts, I recommend that you rid your contracts of the phrase indemnify and hold harmless. Most lawyers unthinkingly use indemnify and hold harmless as synonyms. And I’ve found that lawyers who instead think those concepts can be distinguished don’t agree on what they actually mean. So using both indemnify and hold harmless is not only wordy, it’s pernicious, in that an unhappy contract party might be tempted to take advantage of uncertainty over meaning by claiming that indemnify or hold harmless, or both, convey some unlikely meaning that bolsters that party’s case.

Here’s a clearer approach: Instead say indemnify against any losses and liabilities and address in separate provisions the procedures for defending nonparty claims. That would ensure that you’ve addressed whatever meaning might rationally, or not-so-rationally, be attributed to indemnify or hold harmless.

But what about Stewart Title Guarantee Company v. Zeppieri, [2009] O.J. No. 322 (S.C.J.)? That’s a January 27, 2009 opinion of the Ontario Superior Court of Justice. Here’s what the court had to say about the ostensible distinction between indemnify and hold harmless:

This language imposes two obligations on Stewart Title with respect to a member of the LSUC-to “indemnify” that member, and to “save harmless” that member from claims arising under a title insurance policy. The contractual obligation to save harmless, in my view, is broader than that of indemnification. I accept the respondents’ submission that the obligation to “save harmless” means that a LSUC member should never have to put his hand in his pocket in respect of a claim covered by the terms of the 2005 Indemnity Agreement. Accordingly, the 2005 Indemnity Agreement requires Stewart Title to pay for the member’s on-going costs of defending a claim that falls within the coverage of agreement. This interpretation not only is consistent with the plain meaning of the phrase “indemnify and save harmless”, it also is consistent with the case law, the business sense underpinning the 2005 Indemnity Agreement, and the reasonable expectations of the parties.

The distinction offered in this case doesn’t change my position on indemnify and hold harmless. Here’s why:

Indemnify and hold harmless is jargon-hence the confusion as to meaning. Courts attempt to remedy the confusion caused by jargon, but often it isn’t pretty. (A sign that a judge is winging it is phrases such as in my view.) And it results in courts in different jurisdictions reaching very different conclusions over the meaning of a given usage. That’s certainly the case with indemnify and hold harmless-compare Stewart Title to the U.S. cases I discuss in MSCD and in my previous blog posts. So relying on such caselaw to breathe meaning into your drafting is a risky proposition. Instead, use standard English.

As regards the contract at issue in Stewart Title, the provisions stating procedures for defending nonparty claims would be the logical place to address reimbursement of expenses.

The bottom line: Say what you mean to say without relying on jargon and without relying on caselaw that attempts to make sense of that jargon.

Full post as published by AdamsDrafting on May 11, 2009 (boomark / email).