Hold Harmless, Indemnification and Duty to Defend: There is a Difference
They’re usually lumped together. Full of legalese, often impossible to decipher and generally presented on a take it or leave it basis, these hold harmless, indemnification and duty to defend provisions are regularly found in most construction contracts. Most contractors just accept them, hoping for the best and not giving them a second thought. The problem is that each one of these provisions has serious implications.
Though often found together, they each have a very different meaning. A “hold harmless” clause is the provision which, if drafted correctly, has the effect of releasing one from liability. “Indemnification” shifts liability from one party to another. And a “duty to defend” means just that and is a separate and distinct obligation from any duty to indemnify or a duty to hold harmless. This duty to defend requires one to provide a defense and pay the legal expenses associated with such defense – no small obligation, especially when you consider this duty is triggered whatever the merits of the claim may be. The duty to hold harmless and the duty to indemnify only arise if the outcome of a claim is adverse to the indemnitee – the one receiving the benefit of the hold harmless or indemnity.
Because construction disputes so often involve multiple parties and complex issues, the potential costs associated with each of these provisions can be very significant. For example, the cost of a legal defense can quickly outpace the cost of the actual underlying claim. When confronted with any of these clauses, step back. Read them carefully to be sure what you’re getting into. It may be a lot more than you think.