CLARIFYING THE CONFUSING WORLD OF INDEMNIFICATION, HOLD HARMLESS, AND

DEFENSE CLAUSES
January 2013
By: Sarah E. Swank
American Health Lawyers Association

We often get the all too familiar question from our clients, What is the hold up on that contract?
When the answer is the indemnification, defense, or hold harmless provision, the authors have
found a lack of resources for clients who often struggle to understand the significance and
distinction among these complex concepts. This article aims to arm attorneys and their clients
with an easy-to-understand guide of these seemingly standard clauses. Attorneys are
encouraged to share this article with their clients. It is also suggested that you check with your
attorney when reviewing these clauses, as factors including the type of agreement and
insurance requirements can change the analysis of these arrangements. To help illustrate these
concepts, the authors placed them in the context of an academic medical center (AMC)
contracting with an industry research sponsor (Sponsor) to perform a clinical trial at AMC with
AMCs patients (Subject). This Executive Summary provides a summary of what the term
means, its importance to the client, and some pointers in the scope and use of the provision.
For purposes of this article, the authors examine the following sample contract provision in the
clinical trial agreement between AMC and Sponsor:

Sponsor agrees to indemnify, defend, and hold harmless AMC and its trustees, officers,
directors, employees and agents, including Principal Investigator (Indemnitees) from and
against any loss, expense, liability, damage, claim (including reasonable attorneys fees)
(Claim) made or brought on behalf of a Subject for personal injury, including death, that arises
out of the study drug, a protocol required procedure, or Sponsors negligence or willful
misconduct and omission.

Indemnification

Meaning- An indemnification clause obligates a party (or both parties) to compensate the other
party for losses or damages set out in the provision. This compensation is separate and apart
from other contractual obligations and damages. For example, indemnification occurs when a
third party, such as the Subject of the clinical trial, sues AMC, and AMC seeks indemnification
from the Sponsor to pay for the loss incurred by AMC defending the lawsuit. Another way to
think about indemnification is that, in the example above, Sponsor is reimbursing AMC for
AMCs loss. Indemnification typically occurs after an adjudicator determines whether the AMC is
liable for a Claim. For example, if the study drug harms a Subject and the Subject sues AMC,
AMC may seek reimbursement for court costs and attorneys fees to prepare for and defend the
lawsuit only after a court determines that the harm to the Subject was due to the Sponsors
negligence.

Importance- Case law in certain states may permit a party to seek a court order for
indemnification. Generally, the courts look to the contract between the parties to determine
indemnification obligations. Certain insurance policies require indemnification clauses be
included in agreements and, depending on the level of risk of the agreement, may be a key term
of the agreement. For example, state-funded AMCs may choose to limit indemnification to the
extent of insurance limitations.

Drafting Points- Areas of concern when reviewing or drafting an indemnification clause are the
specific persons being indemnified, as well as the conditions under which indemnification will
arise and scope of the indemnification. Indemnification can be written narrowly so that Sponsor
only pays for AMCs losses in very specific circumstances; but it can also be written broadly so
that Sponsor indemnifies AMC for anything resulting out of an event or even resulting from the
agreement. In this case, the Sponsor must indemnify (or pay) for the loss, expense, liability,
damage, or claim. Additional items to include are governmental or regulatory fines and court
cost as well as reasonable attorneys fees. Depending on the type of claim, attorneys fees can
be the most expensive part of the indemnification obligations of a party.

The example above includes a broad scope of institutions and people required to be
indemnified. The persons that will be indemnified are not only the AMC but also its trustees,
officers, directors, employees and agents, including Principal Investigator. In certain
circumstances, the Principal Investigator may not be an employee and instead could be a
separate party to the agreement that could provide indemnification to AMC. Often, AMCs and
institutions will request that a party indemnify not only AMC and AMCs employees, but also
AMCs affiliates and the affiliates employees.

The scope of who will be indemnifying and indemnified should be set out in the provision along
with what will be indemnified. Often both intentional and negligent acts as well as omission are
included in indemnification provisions. The failure to act can create liability just a readily as an
act itself. Clauses may also include the higher standard of gross negligence rather than
negligence. Consider whether you are concerned about the indemnifying partys potential for
causing you liability before taking on this higher level of negligence. In addition, consider if the
same standard applies to your party as the other party. The indemnification is set by how the
agreement is drafted. For example, it can arise out of the performance of the agreement, a
breach of the agreement, or a specific event depending on how the clause is drafted.

Hold Harmless
Meaning- A hold harmless provision means that an organization is not liable for certain damages
under an Agreement. This clause effectively bars the party responsible for indemnification from
bringing suit against the party being indemnified.

Importance- Certain courts and scholars find that hold harmless is not distinct and is the same
as indemnification. While others find the duty to hold harmless also requires protection against
liability. It is important to check state law based on the type of agreement entered into by the
parties.

Drafting Points- Generally, it is advisable to include both indemnification and hold harmless
language because of the variety of definitions of hold harmless. Ensure that if you include only
hold harmless language, to have the correct party held harmless for the correct scope. In the
sample clause, Sponsor is required to hold harmless the AMC for its negligence or intentional
acts and omissions. In certain circumstances, parties include a responsibility clause rather
than indemnification or hold harmless clause. Responsibility clauses may be less protective
than indemnification clauses so consult state law and your attorney for information on the risks
and benefits of this language. For example, state-funded AMCs may want to agree to
responsibility clauses given potential restrictions related to state immunity laws.

Defense
Meaning- A defense clause creates or requires the duty to defend the other party to an
agreement in certain circumstances including preparing for and defending a lawsuit. The party
with a duty to defend will control the defense. This obligation is triggered as soon as there is a
claim rather than after a judgment is entered or loss has been proven, like an indemnification
clause. The duty to indemnify is independent from the duty to defend.

Importance- The duty to defend should be carefully considered because of the significant
amount of time, effort, and resources that can go into preparing for trial. Defense generally
means that the defending party, Sponsor, will actually hire its own attorneys to go to court for the
party defendedin this case, AMC. Some entities, especially those that are self-insured, prefer
to control their own defense and should try to negotiate defense language out of the provision.
Drafting Points- If your client wants to engage his or her own counsel for the litigation and
control its defense, then consider avoiding defense language. At the same time, separately
consider the use of indemnification and hold harmless language. Details related to the selection
of counsel and control over settlement discussions could also be included in defense clauses.

Good Drafting Upfront, Avoids Downstream Risk

Indemnification, hold harmless, and defense clauses dictate the degree of liability of each party
and the extent that you take on or shift risk. Certain organizations may not be in a position or
want to take on these responsibilitiesexamples include nonprofit organizations, those with
deep pockets, or risky duties under the agreement. When reviewing this language, consider
the worse possible scenario under the agreement and determine the level of risk. It is best to
engage counsel early in the negotiation to ensure the contract is drafted to meet your needs.