Guide to our Hold Harmless Indemnity template

Posted by David Cammack on 6th July 2015

This is an abbreviated guide to our Hold Harmless Indemnity template, which should be used where two businesses have agreed that the first party will indemnify the second party for problems arising out of the proper fulfilment of another contract between them by the second party.

This Hold Harmless Indemnity is supplemental to such other contract.

A hold harmless indemnity may also be known as:

1. a hold harmless agreement; or

2. an indemnity.

Such an indemnity is often used where goods are being supplied to a merchant in another country for distribution in that country, and the supplier, who is based outside the country of eventual sale, does not want to bear the risk of litigation in that overseas country, with the associated risks of huge compensation demands and legal fees.

It may also be that the supplier has been required to obtain such an indemnity by their UK insurance company.

Our template hold harmless agreement is suitable for use in such situations. You receive a copy of the full guide when you buy the template.

Below is a summary of the guide which explains the key clauses to give you a feel for the agreement and what it covers

Clauses in the Hold Harmless Indemnity

Date – Insert just the year at this stage. Handwrite the rest of the date in the agreement once all the parties have signed it.

Party clauses – In this template the person receiving the benefit of the indemnity is called the “Indemnitee” and the person giving the indemnity is called the “Indemnifier”. You will need to insert the names and addresses of party 1 (the assignor) and party 2 (the assignee).

If they are companies, in each case fill in the country in which it is registered and its registered number. If either or both are individuals, then replace the wording with their name and home address using the format “[NAME] of [ADDRESS]”.

Background

(A) This sets out the reasons for the parties using this indemnity.

Numbered clauses

1. Interpretation – This clause defines the main terms used in the agreement.
• Activity – Here please insert a clear description of the other contract or arrangement between the indemnifier and indemnitee that is being covered by this indemnity, e.g. “the supply of goods by the indemnitee to the indemnifier under a contract dated [DATE]”. Make this definition as wide as it needs to be to cover the activity, contract or series of contracts.
• Business Days – This means a working day.
• Claim – This is a claim from a third party against the indemnitee arising out of the activity.
• Expenses – These are the costs of defending a claim.
• Indemnity Demand – This is the notice the indemnitee needs to give to the indemnifier to advise it of a claim.
• parties – This means the parties to this agreement.
• Third Party – This means anyone else.

2. Indemnity – This clause is the main provision in this agreement, providing the basis for the indemnity in clause 2.1. In clause 2.2 it states that there is no cap on the scope of the indemnity under clause 2.1.

3. Exceptions – Clause 3 imposes some fair limits on the indemnity – for example it requires the indemnitee to act reasonably and excludes cover for criminal liabilities of the indemnitee (that would void as being be against public policy).

4. Claim notice – This clause requires the indemnitee to notify the indemnifier of any likely or actual claims and supply other relevant information.

5. Authorisation of indemnification – The duty is on the indemnifier to consider if the indemnity applies or if it comes within one of the exceptions under clause 3, and, if the latter, then to prove it.

6. Defence – This clause means that the indemnifier may take over defending a claim brought by a third party against the indemnitee.

7. Settlement and consent – Neither party should settle a claim without the consent of the other, whichever of them is conducting the defence of a claim.

8. Expenses – Clause 6 provides that the expenses of defending a claim from a third party are to be reimbursed by the indemnifier, but clause 8 means that the indemnitee must notify the indemnifier of such costs first and request permission to incur them – the indemnifier cannot unreasonably refuse this.

9. Advances of expenses – Under clause 9, the indemnitee can claim an advance payment towards such expenses if appropriate.

10. Payment and interest – This clause provides the timescale for the indemnifier paying the indemnitee and if payment is made late, then interest is incurred. The rate of interest stated in the template the equivalent of the rate due under the Late Payment of Commercial Debts Regulations 2002 in the UK.

11. Insurance – This provides that the indemnifier should take out insurance against its liabilities under this indemnity. While the indemnity might well have been requested by the indemnitee due to restrictions imposed on the indemnitee by its UK insurers, if the indemnifier is based in the US, it should not suffer the equivalent problem in arranging such insurance cover.

In clause 11.1, fill in the minimum amount of cover you require, e.g. £5 million. Remember liabilities from US-based claims might be a lot higher than the equivalent in the UK. If in doubt, ask your commercial insurance broker for guidance on setting this amount.

12. Duration and termination – It is not intended that this is the sort of agreement that can be terminated by either party on notice. If there is a risk of a claim being made, the indemnity stays in place.

13. Further action – A claim for indemnity may be made more than once under this indemnity, e.g. if more than one claim is made against the indemnitee arising out of the activity.

14. Subrogation – This technical term means that once the indemnifier has paid out, it has the right to sue any third party who has caused the problem in the first place if relevant, e.g. the supplier to the indemnitee who has supplied defective goods to the indemnitee.

(This is like what happens with insurance policies: once the insurer has paid out on the policy for a problem, it gets to sue the third party who has caused the problem, if there is one.)