What's the difference between indemnify and hold harmless? Many professionals claim that "indemnify" protects against losses, while “hold harmless” protects against liabilities and losses.

Hold Harmless Clause

A hold harmless clause is a statement in a contract that states that an organization or individual will not be held liable for any injuries or damages caused to the other party. A hold harmless clause is also called a release of liability, a waiver of liability, a save harmless clause, or a hold harmless letter or release. These agreements are usually seen in leases, contracts, and easements, in an attempt to protect either one party or both.

No matter what problems arise, the party protected by the clause may not be sued. There are only two types of hold harmless clauses:

  • Reciprocal: Both parties acknowledge that they won't hold the other accountable.
  • Unilateral: One party acknowledges that it won't hold the other accountable.

What Is Indemnity?

Indemnification is the assurance that one party to a contact will make the other party whole for any liability, damage, or loss incurred by another. Simply put, indemnify means to insulate another party from loss or damages. No matter what kind of indemnification clause is created, great care should be taken in its drafting. Failure to specify the terms may lead to a clause that, in the eyes of the law, may be interpreted much differently from what the concerned parties believed they were agreeing to. The purpose of requesting indemnity is to make sure you're compensated for any loss incurred that was not your fault.

Indemnity and Hold Harmless: What's the Difference?

The distinction between hold harmless clauses and indemnity clauses will vary by state. Many professionals treat indemnity and hold harmless clauses as though they are similar, but there are differences between the two. Therefore, it's important to make contracts as specific and clear-cut as possible.

Some believe that indemnity only protects against losses while hold harmless clauses protect against both losses and liabilities. However, this explanation does not hold true across all circumstances. Many others insist that hold harmless clauses are not as specific as indemnity. For example, the term "indemnify" is used when a business hopes to protect itself against claims from a customer's error, while a hold harmless clause prevents a business from taking any responsibility for a customer's mistake. Experts recommend that both terms be included for maximum protection.

A breach of contract activates the lowest level of protection. A contract is deemed breached when two parties unilaterally decide to fulfill a task and one of the parties fails to meet the terms outlined in the agreement. The party that has breached the contract may be sued and held liable for damages. Remember, remoteness and mitigation will only supply minimal protection.

Indemnity is compensation for loss or damages. In a legal sense, it also refers to an exemption from liability for damages. Indemnity is based on a contractual agreement made between two parties, in which one party agrees to pay for potential damages or losses caused by the other party. The liability that's created is produced by the indemnified party's loss, even when a breach of contract has not occurred. When a breach of contract occurs it may trigger limitations. On the other hand, indemnity occurs when either the other party fails to indemnify or when the party has a right to be indemnified.

What Protection Is Given Under the Hold Harmless Agreement?

The highest protection available is a hold harmless clause. This is because it's not a pre-made umbrella level of protection like an indemnification, nor is it limited to a breach of contract and claiming damages. A hold harmless clause is a clear legal statement indicating that an individual or enterprise will not be held liable for the following actions that are caused to another party, such as:

  • Risk.
  • Danger.
  • Injury.
  • Damages.

Often, such a clause is signed when an individual embarks on an activity or purchase that involves some degree of unavoidable risk. Remember, if you're holding another party harmless, it essentially means you may not blame them for any loss or liability.

Despite the similarities between the three, the greatest protection comes from including a hold harmless clause. A failure to mitigate or a breached contract may be able to supply the same level of protection, but it will depend on how the contract was written.

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