What is a Hold Harmless Agreement
A hold harmless agreement is a contract that is designed to transfer liability risk from one party to another. The receiving party agrees to bear the burden of legal liability that could arise as a result of an action or liability in favor of another party. Such agreements are most often used in construction jobs to transfer some of the risk to the subcontractors and away from the hiring company.
In many ways , a hold harmless contract works much the same way as a waiver of liability. A person waiving liability or signing a hold harmless agreement gives up their right to pursue a claim against another party in the event that something goes wrong:
"I will not hold you responsible if something you do causes me harm."
There is the potential for a conflict of interest between the parties when using a hold harmless agreement. That is the reason contracts must be well thought out. The agreement must not place the burden of liability on one party when it would likely fall on that person regardless of any contract – due to some existing law.
A typical hold harmless agreement will usually include the following information:
The hold harmless agreement is acknowledged by two (or more) parties signing their names and dating the document.
Essentials of a Hold Harmless Agreement
A hold harmless agreement should contain the names of the two parties entering into the agreement, the duration of the agreement, the terms and conditions of the agreement, the compensation and payment details, as well as any force majeure factors that may affect the agreement. It is important that you speak to an attorney for assistance in negotiating, drafting and executing the document properly as it is not meant to be taken lightly and contains many nuances. A generic template may exist, but you must be sure the provisions are adequate to protect you from any potential liabilities that you may have with respect to the transaction or event that you are discussing in the agreement. As with any contract, you want to be sure that all aspects are covered so that you can avoid future litigation.
Advantages of a Hold Harmless Agreement
The benefits of using a hold harmless agreement extend to both parties. The most obvious is the legal protections. In the event of a lawsuit, the at-fault party, not the hold harmless party, will be held responsible for damages. However, this level of protection also offers value in avoiding expensive litigation. If neither party is responsible for damages, you can avoid suing and being sued, preserving a business relationship while maintaining cash flow.
Risk management is another way in which hold harmless agreements can be beneficial. There are several levels of risk all parties should be aware of. For example, the performance of the work may be insufficient, in violation of a statute, or negligent. A client could be harmed by a subcontractor and then sue the general contractor, who may in turn sue the subcontractor for indemnity and losses. Or, a worksite could be damaged and a property owner sue a contractor. Instead of cycling through a lawyer, a court and weeks of stress, an agreement offers the party responsible for the above issues the opportunity to assume the risk.
Other uses of risk management are in indemnity liability and insurance. If you’re required to indemnify another party, you’re obligated to pay all legal judgements. However, the majority of hold harmless agreements don’t expressly contain indemnity language. Holding a contractor harmless can free you from being liable for damages. If a third party is responsible for your damages, you cannot sue that third party if you’re not expressly permitted to do so. For example, if a property is damaged by a third-party, the contractor cannot recover their damages from the third-party if that contractor has agreed to indemnify the property owner.
Insurance is another important consideration. Because most contracts are required to include insurance coverage, you’ll need to document all of the coverage identified in the contract.
Finally, it’s important to ensure an equitable distribution of risk. Simply transferring liability doesn’t prevent problems. Therefore, modifying the agreement or collaborating over the terms may be necessary.
How to Draft a Hold Harmless Agreement
While a template hold harmless agreement sample can give you an idea of what to put in a contract, the right way to ensure that you achieve your intended results is to draft your own agreement. The following are some steps for drafting a hold harmless contract, as well as how to customize one for your specific situation. Hold harmless contracts typically begin with the names of the parties and the date of the contract. Each party can be identified by its name, or if it is a business, by its primary owner’s name. You also should leave room for the signatures of each party to sign the agreement.
If you are using a template hold harmless agreement sample, you will need to draft the purpose clause – the reason for the contract. Generally, this sets out the purpose for which the agreement was required. For example, it might read, "This hold harmless agreement is being entered into in order to document the terms of holding [name of person] harmless from any losses incurred related to [name of activity]."
The next provision typically released one party from legal liability connected to a joint venture or other business effort. This clause should be carefully drafted to be as specific as possible. You should consult an attorney to make sure that the limitations on liability are appropriate for the particular agreement.
A waiver clause releases one party from liability for its own acts of negligence or wrongdoing, in return for the other party taking responsibility for its own wrongdoing. Though not required , it is often a good idea to include specific venue and jurisdiction clauses in your hold harmless contract. This will designate any potential applicable lawsuits to a specific locality, court or jurisdiction.
There are several exceptions to a general release of liability to consider. In most cases, parties are not able to waive litigation over intentional torts, environmental violations, fraud, or where the disclaimers of liability are not sufficiently certain.
Even though a waiver clause can be valid in many situations, there are some circumstances where the courts may not uphold it. Unfairness, such as being vastly disproportionate between the duties assumed and the indemnity granted, can render the waiver clause invalid.
Virtual or stipulation residency requirements can be used to limit the plaintiff’s choice of forum. Generally, every state allows plaintiffs to have a trial if needed, but they have to bring the case in a court of a state where the defendant is physically located. In some cases, courts have held that a plaintiff may be bound by a contract even if the contract was not signed by the plaintiff but by one representing him, but in most cases, the contract is not enforceable unless signed by the party to be charged, particularly if the other party benefits by the fact that it was not signed by the party to be charged.
Once you have the provisions in your contract set up, both of you should review the final version and sign the contract in each other’s presence in order to attest to acceptance of the terms.
When is it Appropriate to use a sample Hold Harmless Agreement PDF
When assessing the need for a Hold Harmless Agreement for your business or organization, it is important to know when using a sample PDF template makes sense. For example, it generally makes sense to download a sample Hold Harmless Agreement document PDF to fill out and use in the following situations:
- You are hiring a subcontractor to work on a job you’ve been awarded.
- You are renting a property and want to ensure that the property owner cannot hold you accountable if an accident occurs on the premises or if someone is injured on the property during your lease.
- You are delegating project duties to another employee within the same organization or business.
- You are working at an event and need to hire someone to help run the event.
- You are hiring a consultant or temporary employee to come in and help with a short-term project.
- You are hiring a service provider or vendor to come and work on a specific task.
When using a sample PDF to fill out a Hold Harmless Agreement for any of these purposes, be sure to review it carefully and customize it as necessary. Be certain to include all the relevant details and responses to make the agreement specific to your particular circumstance.
Legal Limitation and Restrictions
The general enforceability of hold harmless agreements largely depends on relevant state laws. For example, the courts in many states will strictly enforce a well-drafted, conspicuous, and unambiguous hold harmless agreement in which an individual agrees to exculpate another party for liability arising out of future negligence. Yet, some states have limited maximum amounts of liability to be covered under hold harmless clauses, avoided the indemnification of gross negligence or intentional torts, and have not enforced such agreements that are deemed to contravene public policy.
Hold harmless provisions have gained a significant amount of momentum within the past decade, with many courts enforcing hold harmless clauses and, in some cases, covenants not to sue in order to expand the scope of consents and waivers. Although there is no uniform approach to interpreting and enforcing hold harmless agreements, states most tend to uphold them based on their general tenor and the parties’ intentions at the times of contracting.
While meeting certain requirements, a "general" hold harmless agreement protects not only the indemnified party but also creates a right of indemnification of that party’s agents under all circumstances. States do not uniformly enforce "general" indemnity clauses and the interpretation of these clauses largely depends on the intent of the parties as inferred from the contractual language, which is normally determined during contract or tort litigation. For contractors, corporations, and large organizations, "general" hold harmless provisions are often overly broad, making them unenforceable in some state courts. Stated differently, the broader the scope of the indemnified parties’ protection, the less likely it is that the clause will be upheld.
While many states adhere to the general rule that the parties may provide otherwise, a well-drafted hold harmless clause should at a minimum allow an indemnified party to be indemnified by the indemnifying party for damages incurred due to the indemnified party’s negligent conduct. Unless otherwise provided, many courts take the approach that an indemnified party may not be indemnified for its own negligence. Because hold harmless agreements are based on the parties’ intentions, unless specifically stated, the absence of a negligent act as a condition for indemnification will likely defeat coverage.
If a hold harmless agreement is intended to cover the liabilities of one party without limitation, the hold harmless agreement should contain specific language that the parties intend to release in its favor any claims that arise out of that party’s conduct, including its negligence, fault, or willful actions.
Daily reports, periodic inspections and evaluations, proper safety measures and safety procedures, and safety publications are certain common contributions companies can make to minimize the risk of claims against them . In addition, contractual expectations of parties directly dealing with the property can potentially narrow the scope of a proposed hold harmless provision to confirm that the parties intended to exclude indemnification for the indemnified party’s own negligence or fault.
Some courts have found that hold harmless agreements in favor of an indemnified party who was a joint tortfeasor would contravene public policy and be void as against public policy. The reason for this rationale is that the intent of the hold harmless agreement is often independent of any contractual expectations of the parties, which rely upon a negotiated risk allocation between them and an anticipated apportionment of liability; while this is justified between the contracting parties, it has the effect of indirectly modifying the public policy provision embodied in the state’s contributory negligence statute. These agreements, however, are often construed as general and overbroad; thus, they are not necessarily void but, rather, can be reformed to protect the parties’ reasonable expectations.
As typically defined, a wrongful death action only allows family members to recover noneconomic damages for the wrongful death of their loved one. In contrast, a survival action can encompass both economic and noneconomic damages. With this distinction in mind, some courts have adopted the rationale that a release of a wrongful death action only insulates a tortfeasor from the family’s noneconomic damages claim while a release that specifically includes the survival action insulates a tortfeasor from claims for all other damages.
An exclusion of a release for negligent conduct is often enforced when it expressly excludes the release of rights in an action brought by an injured party, a member of his family, or others who may assert such a claim. In interpreting these clauses, courts regularly consider whether the contracting parties contemplated that the release would be used by others as a defense to a lawsuit or as a shield against liability.
Section 40-2-1 of the Georgia Code Annotated, for example, states that employers are not allowed to contract for a release of its liability for its own negligence. In Paley v. Eye & Ear Specialists of Ga., P.C., the Georgia Supreme Court held that an agreement contractually limiting the liability of a medical practice is prohibited by Section 40-2-1 and is void as against public policy because the legislature did not intend for a party to reduce its potential liability for malpractice suits.
Overall, states interpret hold harmless and indemnification clauses in a somewhat analogous fashion. However, because indemnity provisions represent an extraordinary situation, their interpretation is largely based on matters of state public policy, as well as the parties’ intent at the time the contracts were made. As a general rule, courts are more likely to uphold well-drafted, conspicuous, and unambiguous hold harmless agreements that are well drafted and specific, and the provisions are subject to a general presumption that they do not cover the negligent acts of an indemnitee without specific language to the contrary.