Why a Contracting Party Should Not Agree to a Hold Harmless Provision
The hold harmless provision is usually found in contracts under the section on indemnity. This is a scenario where the one contracting party is required to hold the other party ( “recipient”) harmless and free from any liabilities arising from any actions, losses or damages appurtenant and in connection with the contract. This means that the liability of the contracting party that grants the hold harmless clause to the recipient is boundless and will certainly include all liabilities, whether potential or actual damages. Most of the time, the party that is providing the services is the one being asked to vouch to a hold harmless provision in their contracts with their clients/customers.
Considering the immeasurable liabilities that a contracting party may incur, the inclusion of the hold harmless provision is highly disfavored. However, a contract should likewise have an indemnity clause and it is not likewise practicable not to have a concrete terms on indemnification. Indemnification is very important in a contract to ensure that a party is fully covered and protected from possible damages or losses.
To arrive on amicable arrangements that are agreeable to both parties, the contracting party should negotiate with the recipient to agree to an indemnity clause. Unlike the hold harmless provision, the indemnity clause will protect the contracting party from boundless liabilities. This clause imposes a limit on the liabilities of the contracting party to the recipient. In most jurisdictions an indemnity clause is basically a reimbursement of actual damages suffered by the recipient as opposed to hold harmless provision which holds the contracting party liable to both potential and actual damages. An indemnity clause simply states that the contracting party indemnifies the recipient against any actions, losses or damages arising from the implementation of any provision of the contract.
Given the possible legal implication of the hold harmless provision, a party entering into a contract should as much as possible avoid the foregoing. Although the inclusion of indemnity clause is the preferred option, a party should always exert its best effort to negotiate for a mutual indemnification.
