The hold harmless gives the indemnitee a legal right to collect from the indemnitor
(to the extent included in the contract and allowed by law) for the damages paid to
the third party. The purpose of contractual liability insurance is to pay, on behalf of
the indemnitor, the damages to the third party.
Where To Find Hold Harmless and Indemnity Agreements. Businesses or
organizations enter into in a wide variety of contracts in which hold harmless or
indemnity agreements may be found. One very common contract, in which a hold
harmless or indemnity agreement is almost always found, is a real estate lease
agreement between tenant and landlord. A sample hold harmless and indemnity
clause found in a real estate lease is:
The Lessee will save the Lessor harmless and keep it exonerated from all loss,
damage, liability or expense occasioned or claimed by reasons of acts or neglects of
the Lessee or his employees or visitors or of independent contractors engaged or
paid by Lessee whether in the leased premises or elsewhere in the building or its
approaches, unless proximately caused by the negligent acts of the Lessor.
As many indemnity or hold harmless clauses may be quite lengthy and difficult to
read, it is often a challenge for risk managers to determine with any precision the
scope of liability that has been assumed. The following example may prove helpful to
explain how the above agreement might work.
An Illustration of the Workings of a Hold Harmless or Indemnity Agreement.
A tenant (Lessee) in a multi-tenanted professional office building hires an electrician
(an independent contractor) to rewire a portion of the tenant's (Lessee's) office.
About a year after the rewiring is finished, another tenant receives a severe electrical
shock when plugging in an appliance, resulting in serious injuries to the tenant.
The injured tenant brings suit against the landlord (Lessor) demanding compensation
for her injuries, alleging that the landlord breached its duty to properly wire the
building. The investigation strongly suggests that the injury of the tenant was
caused, at least in part, by the electrician's wiring job. Nonetheless, the landlord
(Lessor) is found to have responsibility for the injuries and is ordered to pay the
injured tenant $150,000 in compensatory damages.
As the tenant (the Lessee) has agreed to indemnify the landlord (Lessor) for the acts
of the tenant's (Lessee's) independent contractors, the tenant (Lessee) is obligated
by the lease's hold harmless clause to pay the $150,000, either as payment to the
landlord or directly to the injured tenant. In this situation, the tenant (Lessee) would
not normally have had any liability to the injured tenant. His liability arises solely
from the agreement, as part of the lease, to take on the liability of the landlord. The
tenant's contractual liability insurance would pay on his behalf the $150,000
damages owed.
While the electrician may ultimately have to pay $150,000 (or a lesser amount) via a
subrogation action, the landlord (Lessor) does not have to wait for the result of
further litigation or be concerned with proving fault on the electrician's behalf in
order to recover the $150,000 (the tenant assumed liability for the acts of his
independent contractors, regardless of negligence). Even if the Landlord could prove
fault on the electrician's behalf, it may only be partial fault, and may result in the
landlord collecting less than the $150,000 in damages.
In short, the landlord has transferred the financial risk of having tenants in his or her
building back to each tenant via the hold harmless and indemnity agreement
inserted in the lease.
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