3 Different Exposures in Construction Contracts
Though often found together these three provisions have very different meanings.
A “hold harmless” clause is the provision which, if drafted correctly, has the effect of releasing one from liability. Indemnification shifts liability from one party to another. A “duty to defend” means just that and is a separate and distinct obligation from any duty to indemnify or a duty to hold harmless.
The duty to defend requires one to provide a defense and pay the legal expenses associated with such defense – no small obligation, especially when you consider this duty is triggered whatever the merits of the claim may be. The duty to hold harmless and the duty to indemnify only arise if the claim is adverse to the indemnitee – the one receiving the benefit of the hold harmless or indemnity.
Because construction disputes so often involve multiple parties and complex issues, the potential costs associated with each of these provisions can be very significant. For example, the cost of a legal defense can quickly outpace the cost of the actual underlying claim.
Most contractors just accept these provisions, hoping for the best and not giving them a second thought. That would be a mistake.