Indemnification or Hold Harmless Agreement
Imagine for a moment that you rent a chainsaw from the local ABC rental company. Since your ability to use a chainsaw safely remains unproven to the ABC rental agent, he may ask you to sign a number of papers. One of those papers might read: “The renter of this equipment agrees to defend, indemnify and hold harmless ABC Rental Company and its staff for any third-party claims which may arise from the use of the equipment.” This is considered indemnification, an agreement between two parties not to hold one of them liable for future legal action or fines. Indemnification usually only works in one direction; you as the renter agree not to hold ABC Rental Company employees responsible if you have an accident with their chainsaw.
Indemnification may not seem like a major consideration in most circumstances — the chances are pretty good that you won’t be hit by a baseball at a game or suffer damages from faulty rental equipment. But this can be a very important consideration if you’re a director of a medical equipment company, for example. There’s always a possibility of a patient suing one of your client hospitals for damages suffered in a fall from one of your wheelchairs, so this type of agreement with your company means that the hospital agrees to take financial responsibility if a patient prevails in a lawsuit. Without indemnification, you could be held personally liable for damage payments.