Glossary of Business Insurance Terms
What kind of work do you do?
Business owner looking at certificate of liability
Choose from the nation's best insurance providers
Logos of Insureon's business insurance carrier partners

Hold harmless agreement

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.

What is a hold harmless agreement?

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.

What types of businesses use hold harmless agreements?

Hold harmless agreements are a staple of the construction, real estate, and service industries, especially in firms that engage in high-risk activities.

Even if you’re not in these industries, you might benefit from including hold-harmless clauses in contracts to minimize your liability exposures.

When should a business use a hold harmless agreement?

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:

  • Renting or leasing your property and don’t want to be legally liable if someone gets hurt or suffers property damage while visiting the renter or lessee
  • Hiring a contractor or other service provider to work on your property and you don’t wish to be held liable for that person (or their employees) getting injured while working on your project
  • Sponsoring an event that involves high physical risks, such as skydiving, and you don’t want to be held responsible if someone gets hurt
  • Planning a business venture with another party and don’t want to assume the legal risk
  • Proposing changes to a covenant (a written promise between two parties) and wish to insulate yourself from potential legal disputes
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.

Benefits of using hold harmless agreements

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:

  • Lowering your lawsuit risk: Businesses with hold harmless agreements get sued less often
  • Reducing your legal expenses: Since firms with hold harmless agreements are sued less frequently, they don’t need to hire attorneys as often. Given the typical attorney’s fees these days, this can save you a lot of money
  • Decreasing your stress and anxiety: Doing business is challenging enough without also having to worry about your vendors and customers suing you. With the indemnification granted by a hold harmless agreement, you can focus on your work instead of worrying about your risks of being sued
  • Minimizing your reputational risk: If the media covers a business lawsuit in which you’re involved, your reputation can take a serious hit. With a hold harmless agreement, you can avoid public legal battles
Compare small business insurance quotes from top U.S. providers

Types of hold harmless agreements

Hold harmless agreements fall into three main categories:

  • General: A general hold harmless agreement insulates the protected party against legal action related to a specific activity. The legal protection is framed narrowly. For example, it might only apply for participation at a specific company-sponsored event
  • Services: Protects against liabilities that occur while someone performs a defined service. For example, a contractor on a construction job agrees to hold harmless the general contractor who hired him
  • Use of property: Protects property owners, such as small businesses and homeowners, against lawsuits arising from a third party that’s renting or using their property

The three main forms of hold harmless agreements we see in the construction industry are:

  • Limited: The subcontractor is held responsible for liabilities on a limited form; that is, for only their proportional part of the negligence or accident
  • Intermediate: The subcontractor is held responsible for all liabilities, but is not responsible for the general contractor's accidents or negligence. This is the most common form of hold harmless agreements in the construction industry
  • Broad: The subcontractor is held responsible for all liabilities, including the general contractor's negligence and accidents

What are the insurance implications of hold harmless agreements?

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:

  • General liability policies often exclude coverage for “contractual obligations,” meaning the agreements you strike with third parties. Since a hold harmless agreement creates a contractual liability, your insurer might not cover any losses that result from you signing it
  • General liability policies also have other exclusions for things such as worker’s compensation claims or architectural design errors. If signing a hold harmless agreement results in you being sued for either of those reasons (among others), your general liability policy might not cover your loss
  • Your general liability coverage has policy limits, which means the insurance company will pay for your covered claims up to, but not exceeding, those amounts. If signing a hold harmless agreement creates a legal judgment that exceeds your general liability policy limit, you would have to pay the difference on your own

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.

You may also like
A hand looking through produce at a market.
8 top tips: how to compare small business insurance quotes
These 8 steps can help you compare business insurance quotes and find the right coverage for your business.

Do you need an attorney to draft a hold harmless agreement?

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.

What our customers are saying

Updated: October 5, 2022

Compare insurance quotes for your business

Save money by comparing insurance quotes from multiple carriers.
Professional negligence vs. ordinary negligence: Is your small business at risk?The top risk management threats for real estate agentsThe top construction risk management threatsDoes business insurance cover breach of contract?How to protect your tech company from 6 common startup business risks