HOLD HARMLESS AGREEMENT SAMPLE

If you regularly negotiate contracts, whether you focus on sales deals or procurement arrangements, one of the most important concepts to understand is the hold harmless clause (this clause is often also called the "indemnification" provision or an "indemnity"). The purpose of this article is to explain the hold harmless or indemnification clause and how to negotiate it from the vendor and customer perspectives.

Indemnification envisions a certain kind of dispute happening in the future, often well after the parties sign the contract. This is the possibility that one party will engage in some activity that will cause the other party to be sued by a third party. For example, in a software license agreement for use of a particular program, if the vendor stole the software code for that program from a competitor, the competitor could turn around and sue all of the vendor's customers for copyright infringement every time they run the program. Obviously, the competitor would likely also sue the vendor, but if settlement discussions aren't going well, suing the vendor's customers can definitely ratchet up the pressure.

Usually, customers want a hold harmless clause to appear in a contract, and vendors resist it being included. That's because the customer is much more likely to invoke this section than the vendor because in most agreements, the vendor has most of the obligations so it is more likely to cause a third party lawsuit. There are exceptions, such as when the customer makes substantial contributions to a particular project. Sometimes customers contribute software code themselves, formulate designs, and offer up blueprints. In each of these situations, the customer could possibly have taken the code, designs, or blueprints unfairly from a third party, who might then sue the vendor. As a result, vendors in these kinds of unique circumstances actually do want to include a hold harmless section. Vendors who operate in high risk environments, such as a customer's manufacturing operations, undersea drilling operations, or energy plants, might also insist on indemnification.

What does a hold harmless provision look like? Typically, parties insist on indemnification for three common concerns:

1. Intellectual Property Infringement. If one party violates a third party's intellectual property, and in doing so causes, the other party to be sued by that third party, then this kind of indemnity will apply. Normally this provision would state that the vendor will indemnify the customer against any settlement amounts or damages owed to a third party caused by the vendor's performance under the contract.

2. Bodily Injury, Death, Tangible Property Damage and Theft. In this situation, during the performance of the agreement one party suffers some kind of harm. Whether an employee is injured or killed, or property is destroyed or stolen, the customer often expects the vendor to take care of any third party lawsuits triggered by the vendor's negligence.

3. Violating the Deal. Sometimes a third party lawsuit can be caused by the vendor or the customer not following the requirements of the agreement. For instance, if the customer demanded that the vendor follow certain safety protocols while in the customer's plant, then failed to do so and caused an employee injury, the customer would expect the vendor to take care of any lawsuit launched against the customer by the employee's family.

In the end, a hold harmless requirement forces the indemnifying party to step up and hire lawyers to defend the lawsuit, negotiate a settlement, or litigate the matter in court, and ultimately pay any amounts due the plaintiff. Usually the indemnified party must provide prompt notice of any third party lawsuits, offer reasonable assistance, and might hire their own lawyers to participate in the defense, but at the indemnified party's cost.

These are the most common issues that arise in negotiations over a hold harmless agreement.