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Drafting Indemnity Provisions
By:  J. Brad Hickman

Whether drafting an indemnity provision or litigating in the aftermath of a deal gone sour, we often use or read a phrase similar to “Party A agrees to indemnify and hold harmless Party B from [long list of items].”  And most of us just assume that the indemnity and hold harmless language are the belt and suspenders approach to an indemnity provision and mean the same thing. 

However, Texas courts have interpreted these provisions differently.  Some Texas courts have held that the language “hold harmless” is synonymous with a “duty to indemnify.”  See MG Bldg. Materials, Ltd. V. Moses Lopez Custom Homes, Inc., 179 S.W. 3d 51, 64 (Tex. App.—San Antonio 2005, pet. denied) (holding that the phrase “hold MG harmless” from any loss, claim, or expenses constituted an indemnity agreement and not a release).  Conversely, other courts have stated that “hold harmless” is synonymous with a release.  See Cole v. Johnson, 157 S.W.3d 856, 862 (Tex. App.—Fort Worth 2005, no pet.) (stating that that a hold-harmless agreement is synonymous with release and it relieves the released party of responsibility).  So, what does it actually mean to “indemnify and hold harmless?”

A release has been defined as a contractual arrangement where one party assumes the liability inherent in a situation by relieving the other party of responsibility or an agreement or contract in which one party agrees to hold the other without responsibility for damage or liability arising out of the transaction involved.  Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex. 1993).  An indemnity agreement is a collateral contract or assurance by which one person engages to secure another against an anticipated loss or to prevent him from being damnified by the legal consequences of an act.  Id.  Depending on whether “hold harmless” is synonymous with a “duty to indemnify” or a “release” could change the meaning of an agreement.  Also, in light of dueling opinions on what “hold harmless” means, it may be a better idea to just leave it out of indemnity provisions. It will avoid a situation where you have to ask a client to hold you harmless for imbedding ambiguity in the agreement.  For more information about “hold harmless” language, go read 7 Deadly Sins of Boilerplate: How Cut and Paste Can Get You Sued written by D. Hull Youngblood Jr. and Seth E. Meisel for the Essentials of Business Law Course 2016.

J. Brad Hickman is an attorney with Sprouse Shrader Smith PLLC in Amarillo whose practice focuses on real estate, business transactions, entity formation, and the oil and gas industry.