Is 'Indemnify' the Same as 'Hold Harmless' in Minnesota Statutes? | Attorney Aaron Hall

Is ‘Indemnify’ the Same as ‘Hold Harmless’ in Minnesota Statutes?

Is ‘Indemnify’ the Same as ‘Hold Harmless’ in Minnesota Statutes?

Yes, “indemnify” generally means the same as “hold harmless.” When considering whether “indemnify” is synonymous with “hold harmless” in a Minnesota statute, the Minnesota Court of Appeals held that “indemnify” means to “hold harmless,” even if the effect is to undo a long-standing precedence established in common law.

Legislative Intent Based on Law Dictionary

In First Class Valet Servs., LLC v. Gleason, 892 N.W.2d 848 (Minn. App. Mar. 20, 2017), the Minnesota Court of Appeals considered whether “indemnify” includes “hold harmless.” In short, the court held that this statute prevents employers from seeking reimbursement from employees because “[t]he term ‘indemnify’ means to ‘hold harmless.'” For this definition, the court cited Black’s Law Dictionary.

This was a controversial holding because the court used a definition in a law dictionary to effectively void the common law codified by this statute.

Old Approach: Employer Reimbursement Under Common Law

Under common law, employers had a duty to defend their employees under the doctrine of respondeat superior (translated to mean “the superior is responsible” for acts of its agent), Afterwards, employers could pursue reimbursement from their employees. In First Class Valet, the court acknowledged this, citing Schneider v. Buckman, 433 N.W.2d 98, 102 (Minn. 1988) (“it is . . . well settled that an employer is entitled to recover from the employee damages which the employer was compelled to pay because of the employee’s negligence.”)

The court noted that “[C]ourts presume that statutes are consistent with the common law, and ‘if a statute abrogates the common law, the abrogation must be by express wording or necessary implication'”  (citing Brekke v. THM Biomedical, Inc., 683 N.W.2d 771, 776 (Minn. 2004)).

Then the court proceeded to hold that the Minnesota Statutes intended to abrogates the common law.

New Approach: No Employer Reimbursement Under Minnesota Statutes

In First Class Valet, the court held that the Minnesota Legislature intended to prevent employers from being reimbursed by employees for the employee’s negligence because the Legislature used the word “indemnify.”

By choosing the term of art “indemnify,” we assume the legislature intends to use the accepted definition of that term of art. The term “indemnify” means to “hold harmless.” “Hold harmless,” in turn, means to “absolve (another party) from any responsibility for damage or other liability arising from the transaction.”

(citations and quotations omitted)

The court opined that to hold otherwise would create an “endless cycle of circular obligations” because the employer would need to indemnify the employee in a suit by the employer against the employee. However, I believe there is equal merit to an argument that this statute was intended to cover lawsuits by third-parties against the employee, and liability between the employer and employee should be settled as the common law established: the court decides whether the employee should reimburse the employer for damages caused by the employee’s negligence.

The legal community does not universally agree that “indemnify” is synonymous with “hold harmless.” For example, see these blog articles by Ross Guberman and Ken Adams.

However, for now, Minnesota law treats “indemnify” the same as “hold harmless,” at least for this particular statute.

Read an excerpt from First Class Valet Servs., LLC v. Gleason, 892 N.W.2d 848 (Minn. App. Mar. 20, 2017) here:

By choosing the term of art “indemnify,” we assume the legislature “intends to use the accepted definition of that term of art.” State v. Cannady, 727 N.W.2d 403, 407 (Minn. 2007). The term“indemnify” means to “hold harmless.” Black’s Law Dictionary 886 (10th ed. 2014). “Hold harmless,” in turn, means to “absolve (another party) from any responsibility for damage or other liability arising from the transaction.” Id. at 848(emphasis added).

Indemnity is a legal concept “by which a tortfeasor ‘passes through’ his or her entire liability to a third party.” 42 C.J.S. Indemnity § 1 (2007) (emphasis added). “Indemnity shifts the entire loss from one tortfeasor who has been compelled to pay it to the shoulders of another who should bear it instead.” Hanson v. Bailey, 249 Minn. 495, 505, 83 N.W.2d 252, 260 (1957) (emphasis added). By employing the term “indemnify,” the legislature created an arrangement in which the employer must pay the employee’s entire liability, not an arrangement in which the employer must pay the employee’s liability only to later impose the liability on the employee.1

Moreover, the interpretation that First Class advocates would necessarily result in an unreasonable outcome. When interpreting a statute, we avoid interpretations that create unreasonable results. See Minn. Stat. § 645.17 (2016) (providing that courts should assume legislature does not intend results that are unreasonable). Section 181.970 provides that an employer “shall defend and indemnify its employee for civil damages” without regard to the source of those damages. Because the source of damages is not limited, in a subsequent negligence action against the employee, the employer would collect damages from the employee, only to then indemnify the employee for the same liability. This kind of circular obligation defeats the operation of indemnity. Cf. Kronzer v. First Nat’l Bank of Minneapolis, 305 Minn. 415, 429, 235 N.W.2d 187, 195–96 (1975) (affirming dismissal of claim as fruitless where indemnity agreements would require plaintiff to indemnify defendant against plaintiff’s negligence action).

To escape what would otherwise be an endless cycle of circular obligations, First Class argues that the common law that existed prior to section 181.970 is revived by section 181.970, subdivision 2(4), which exempts “indemnification rights for a particular liability specifically governed by other law.” We disagree. We believe this catch-all provision excludes specific obligations independently addressed by the legislature, such as liabilities arising from the I-35W bridge collapse. See Minn. Stat. §§ 3.7391–.7395 (2016).

As the district court noted in rejecting this argument by First Class, applying this “other law” exception to a second-stage indemnification between an employer and an employee would “eviscerate the clearly articulated and broad duty to defend and indemnify created by the legislature.” In practical effect, allowing First Class to recoup amounts it paid to meet its duty to indemnify Gleason under section 181.970 would allow First Class to avoid its duty to indemnify altogether and render the statute ineffective. We decline to interpret the “other law” exception in such a manner as to allow this catch-all provision to broadly negate the indemnification duty created by section 181.970. See Minn. Stat. § 645.17 (providing that courts should presume legislature intends the entire statute to be effective).

This article was written by attorney Aaron Hall.