A hold harmless agreement protects business owners from being sued when someone suffers damage, bodily injury, or financial loss on business property or while a service is being provided.
A hold harmless agreement, also known as an indemnity agreement, protects your business against lawsuits by requiring the parties with whom you are doing business to refrain from suing you under certain circumstances.
It’s a waiver of liability that will prevent, or indemnify, someone you do business with from suing you over a personal injury. For example, a general contractor might include this in all construction contracts for subcontractors who work on a construction project.
Any time a third party uses your property, attends an event you’re sponsoring, or performs work for you, consider having them sign a hold harmless agreement. You may want to include one when you are:
A hold harmless agreement is a type of risk management that insulates you from the negative impact of business litigation. It could benefit your business to invest in one as it may help with:
Hold harmless agreements fall into three main categories:
The three main forms of hold harmless agreements we see in the construction industry are:
When you’re the signer of a hold harmless agreement, as a vendor to – or customer of – another company, you’re essentially agreeing to accept the legal liability that otherwise might fall on that firm.
This has three implications for your existing general liability insurance policy:
For these reasons, it’s important to check with your insurance broker before signing a hold harmless agreement, to see how it impacts your insurance coverage.
Information about hold harmless agreements abounds online, including templates for building your own agreement. However, it’s best to get help from an attorney to avoid any unexpected risks.
Never ask a business partner or provider to sign such a release of liability agreement without first consulting with your attorney.
If you’re the customer, the property renter, or lessee, read the agreement carefully and get your attorney’s advice before signing it. Signing an agreement might shift the other party’s legal liability onto you.
Generally, hold harmless agreements are a mainstream legal tool that judges accept as valid. However, they do need to use specific language. A broad form waiver could be overturned by a judge, if it’s improperly written.
A limited form hold harmless letter or agreement must state the indemnitee (the name of the person receiving the indemnification) and the indemnitor (the one who agrees not to sue the indemnitor).
Keep in mind that your state may have an anti-indemnity law that limits how much risk can be transferred from one party to another. Even if your small business has a 100 percent indemnity agreement with an independent contractor, it might not work out that way if you wind up in court.