The Harm in Hold Harmless Clauses
| Publication year | 1990 |
| Pages | 1081 |
| Citation | Vol. 19 No. 6 Pg. 1081 |
1990, June, Pg. 1081. The Harm in Hold Harmless Clauses
In the screen version of Tom Wolfe's epic on space flight, The Right Stuff, quintessential pilot Chuck Yeager responds acerbically to a reporter's comment that the role of the original astronauts in the early space flights was no more glorious than that of the monkeys that rode cargo on the first launches. He differentiates the two roles on the basis of awareness of risk as opposed to ability to control it. The difference, a vast one according to Yeager, is that the monkeys do not know that the rocket may explode. Astronauts do.
Awareness of risk also is chronic among local government attorneys, who often are called on to approve contracts which contain proposed indemnity provisions with the local governmental entity named as indemnitor. No other type of contract provision seems to generate the degree of consternation to those whose job it is to curb government liability. In view of the indeterminate state of the law in the area and the almost limitless universe of risk which these provisions pose, local government attorneys attempting to mitigate the effects of such provisions may feel helpless.
This article discusses the constitutional and legal underpinnings of a wide-spread, if somewhat hazy, reluctance on the part of local government officials to accept secondary indemnity provisions in proferred contracts. The article also suggests some approaches for handling these provisions when, because of unequal bargaining positions or political pressures, it is not possible simply to delete them from a proposed agreement.
The typical hold harmless or indemnity clause requires the subject party, the indemnitor, to reimburse or defend in court the dominant party, the indemnitee, for damages or causes of action obtaining to a third party as a result of negligence by either party. Indemnity clauses differ widely, however. Some simply require the indemnitor to insure against damages, liability and costs incurred as a result of negligence by the indemnitor. At the other end of the contractual spectrum are clauses requiring one party to indemnify the other against the other party's own negligence. The indemnity obligation may be implicitly limited in length by the nature of the contract (as in construction contracts), may explicitly apply only to certain damages or may set a maximum monetary liability. Most often, however, the contract terms limit none of these.
Given Colorado's constitutional prohibition against assuming liability for debts, contracts or liabilities,(fn1) local governments most commonly encounter indemnity clauses as secondary conditions in licenses, permits, easements or construction or service agreements. The primary focus of these contracts is on other matters; thus, the bargaining position with regard to indemnity provisions may be established by negotiations concerning the other matters. Even though they are not primary to the contract, however, indemnity provisions must be considered carefully. They can allocate onerous risks for other parties' actions to the local government, making control of risk difficult and vitiating risk management programs.
Colorado Constitution Art. XI, § 1 ("§ 1") states:
The historical basis of this section is described in a 1914 Colorado Supreme Court case dealing with efforts to fund the Moffat Tunnel.(fn2) Adopted as part of the original Colorado Constitution, theNeither the state, nor any county, city, township or school district shall lend or pledge the credit or faith thereof, ... or become responsible for any debt, contract or liability of any person, company or corporation, public or private, in or out of the state.
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