A hold harmless agreement is a legal statement that maintains that a party is not deemed responsible for any loss, injury, or damages by another party. Upon signing a business’s hold harmless agreement before the beginning of the activity or partnership, another party repudiates its right to sue the service provider or seek indemnification.
It is a common precautionary measure in high-risk industries like construction, special events, real estate, etc.
In this article, we will discuss the hold harmless agreement, why businesses need it, and what benefits businesses have when workers sign indemnity clauses.
Is Hold Harmless the Same as Indemnity?
A hold harmless clause is also known as indemnity agreement. As far as legal circles are concerned, there’s always a debate around the accurate meaning of hold harmless and indemnity. Experts often argue that the hold harmless clause protects businesses against losses and liabilities while indemnity clause protects businesses against just losses.
All that’s to say, they are quite similar overall. In legal statements and contracts, you may find the two terms together (for example, “party shall indemnify and hold harmless”).
The PLLC must also list a specific purpose clause for the type of professional service being provided. Please have your Articles of Organization amended to a PLLC and the purpose clause amended to show your professional service.
Who Needs a Hold Harmless Agreement?
Hold harmless agreements are of great use in situations where high risk of personal or property damage is involved. A company can add a hold harmless letter or clause to its service contract when the nature of the service involves risks that it does not want to be held accountable for, either financially or legally.
Several areas and situations where hold harmless agreements are common and sometimes mandatory include:
- Real Estate: If someone rents or leases the commercial or residential property via your real estate company and suffers injuries, the renter or indemnitee may sue you on grounds of gross negligence.
- Construction: If someone experiences loss or damage to the property due to the construction work in progress in the neighborhood, the property owner, general contractor, and sub-contractors shall be held liable.
- Events: If someone suffers bodily injury or property damage due to the event that you host or organize, you shall be liable and your company may be sued.
- Extreme Sports: Several sports like skydiving sessions or skiing are high-risk activities that demand signing the hold harmless agreement. It does not provide complete protection from liability but the aim is to acknowledge customers about certain risks that may be involved in the specific sport.
The main takeaway here is that hold harmless agreements can and do help in all of these situations, protecting you and your business from dangerous risks.
What Are The Benefits and Limitations of a Hold Harmless Clause?
A hold harmless agreement will shield your business by reducing liability for any loss or damage that another party has suffered due from your products or services, either directly or indirectly.
The main benefits for having Hold Harmless Agreement are:
- Reducing Legal Risk – With a hold harmless agreement, your business is less likely to be sued by other businesses. The business owners or general contractors do not have to pay for attorney fees.
- Protecting Your Company’s Reputation – If your company is involved in a business lawsuit that the media is covering, your reputation can be at stake. Avoid legal battles and get a waiver of liability by signing the hold harmless agreement.
- Opportunity for More Business – With a hold harmless agreement, you are less liable to legal risks, so you can concentrate more on expanding your business. With a positive reputation, you get more opportunities for business.
However, it does not always protect businesses against a liability or a lawsuit. The agreement may be deemed null if the indemnitee presents strong evidence that they have been strenuously coerced or compelled to sign the hold harmless letter.
Reasons a court could nullify a hold harmless clause are:
- Illegal Activities
- Overly Broad Scope
The 2 Main Types of Hold Harmless Agreements
A hold harmless clause is useful in various situations where the risk of personal injury or property damage is involved. Real-estate and construction contracts are major examples of this. Other risk intensive businesses such as extreme sports, adventure, and gaming are just as likely to use the two main types of hold harmless agreements, which include:
- Unilateral – A type of agreement in which one party agrees not to make the other responsible for loss or damage.
- Reciprocal – A type of agreement in which both the dealing parties agree not to hold the other responsible for any kind of personal, financial, or property loss.
Hold Harmless Agreement Types, Specifically in the Construction Industry
The indemnity clause or hold harmless agreement in the construction industry is signed by subcontractors and handed over to the independent contractor or the property owner to protect its work. Such agreements limit the risks of third-party heading to the court. Moreover, it empowers the indemnitee to claim reimbursements from the indemnifier in case of injuries.
There are three major types of hold harmless agreements in construction industry:
- Broad Form – When the subcontractor assumes liability for mistakes, errors, or damages of both contractor and subcontractor; this approach is vague though and not recommended. The contractor may commit an act of negligence and the subcontractor is left with no option or right to sue the former.
- Limited Form – In this kind of agreement, the subcontractor is least responsible for the damage or loss, and is liable for the part of damage caused directly due to his fault.This form of hold harmless agreement is also termed as comparative fault indemnity agreement.
- Intermediate sentence – In this case, the subcontractor is liable for the damage and loss caused in the area of work that comes under his duties at the job site. Subcontractor is not responsible for errors that are caused due to contractor’s mistakes.
Get Covered with Contractors Liability
Hold harmless agreements are important so that you can protect your business from falling into legal liabilities and ultimately reduce the chances of lawsuits that can damage your social reputation.
Businesses with hold harmless clauses have less chances of getting sued and attract more business partners. No business wants to pay a heavy attorney fee.
A well constructed harmless agreement can save a considerable amount of time and money you would otherwise spend on legal fees, in case there is a breach of contract. Instead of seeking legal advice when it’s too late, you can just combine hold harmless clauses into your existing Business Liability insurance.
At Contractors Liability, we offer a free hold harmless agreement template that small businesses can customize based on specific business needs. Call (866) 225-1950 to chat with our hold harmless agreement experts and get a free quote.