Hold Harmless and Indemnity Clauses in Releases

At the conclusion of every personal injury case that is settled, the insurer or other third party will insist that the injured party sign a release of all claims.

This release will, in return for payment of the negotiated sum, forever bar the injured party from moving forward against insured party for any  damages arising from an injury on a specified date.

Releases are universal in all settled cases. If not signed, the insurer or other company will not pay.

( Note, however that a release is not required when a jury reaches a verdict for damages. In that case, after the jury verdict amount is paid, a  satisfaction of judgment must be filed.)

One clause often inserted into releases by insurers, known as a “hold harmless and indemnity clause” should be carefully considered before any release is signed.

This clause means, in plain language, that the person signing the release agrees to defend the insurer for any claim arising from the events  specified in the release if  another lawsuit happens (Hold harmless) , and then pay the insurer back if such lawsuit is successful (indemnity).

Insurers will state this is standard and must be signed, but such clause should be carefully examined or else the party signing the release could  later be responsible for  almost unlimited damages.

Here’s why.

Let’s say you sue someone from injuries in a crash, come to an agreement on damages and then settle your case after signing a release with a hold  harmless and indemnity clause.

Later, a bystander to the accident you were in sues the same person you released in the accident. Their claim is they witnessed your accident and  as a result suffered extreme emotional distress and they sue the insured party for negligent infliction of emotional distress.

The insurance company will come in and defend this new lawsuit, but guess what..they will bill you for the cost of the defense as you signed a  release with a hold harmless clause and that clause obligates you to pay for the defense since it arose from the same accident.

Even if the lawsuit is frivolous and goes nowhere, you will need to reimburse them for the costs of defense.

If the lawsuit was actually won by the party bringing it , you will need to pay the damages since you agreed to indemnify.

Talk about a trap for the unwary!

True enough this does not happen very much, but do you really want to take the chance of unlimited liability if this unusual event or one like it  occurs.

Far better practice is to only agree to indemnify the insurance if there’s some lawsuit brought against their insured because, perhaps, a medical  lien on the settlement is not paid.

That way, the person signing the release has no obligation until the medical lienholder actually recovers money from the insurer. There is no  duty to defend ( as a hold harmless clause was not signed).

A fair wording that protects everyone  instead of “hold harmless and indemnify’ would read something like,  “Releasor agrees to indemnify releasee for any and all lawsuits over medical bills and liens”.

I’m Ed Smith, a personal injury attorney in Sacramento. See my firm’s reviews on Yelp and Avvo, which is an attorney rating site.

Feel free to call me anytime for free, friendly advice in Sacramento at 916-921-6400 or  800-404-5400 elsewhere in California.


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