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Hold Harmless Agreement: Definition – Explanation – Examples

What Is a Hold Harmless Agreement?

Hold Harmless AgreementA hold harmless agreement is a legal document or clause stating that one party will not hold the other liable for damage, injury, or loss.  As a result, this type of agreement shields individuals and companies against potential litigation.  It requires the persons with whom they do business to abstain from taking legal action under specified conditions. This type of agreement prevents business owners from being sued if someone suffers damage, personal harm, or financial loss while on the business property while providing a service.

The hold harmless agreement can simply be a clause or statement within a broader contract.  Nevertheless, it absolves one or both parties of legal liability for any injuries or damage suffered by the party signing the contract. A business may add a hold harmless clause to a contract when the service being retained involves ancillary risks.  The business does not want to be held responsible legally or financially for circumstances beyond their immediate control. This clause is also known as a hold harmless provision.

Hold Harmless Agreement – A Closer Look

A hold harmless agreement is widely used by businesses that provide high-risk activities.  For example, skydiving or scuba diving sessions. An agreement does not provide total liability protection.  However, it does imply that the buyer realizes some risks and consents to accept them. This hold harmless provision might simply be written in the form of a letter. Also, the indemnification clause might be unilateral or reciprocal. A unilateral clause states that one party to the contract undertakes not to hold the other party accountable for any injuries or losses sustained. With a reciprocal clause, both contract parties undertake to keep the other blameless. A hold harmless agreement is not absolute protection against liability or litigation.  However, it is an effective first line of defense.

Not Ironclad

Hold harmless provisions aren’t always ironclad or foolproof.  Courts have been known to ignore them if they’re deemed unreasonable, boundless, or ambiguous. In fact, some states do not recognize hold harmless provisions at all.  Therefore, people should speak with a local attorney before putting in the time and effort to draft one. Even in jurisdictions where they are allowed, parties to such an arrangement may try to contest them.  For example, they may allege that they were coerced or forced into signing the agreement in order to invalidate it.  Or, that a party who was indemnified participated in some manner in the occurrence that resulted in damages.

Hold Harmless Agreement – Types

Hold harmless agreements fall into three main categories:

  • General: A general hold harmless agreement protects the named party against legal action arising from specified behavior. As a result, legal protection is carefully defined. It may, for example, only apply to participation in a certain company-sponsored event.
  • Services: Protects against liabilities that may arise while someone is doing a certain service. A contractor on a building site, for example, usually promises to indemnify the general contractor who hired him.
  • Use of property: Property owners are protected from litigation resulting from a third party renting or utilizing their property. (Source: insureon.com)

Hold Harmless Agreement for Contractors 

In the construction and building sector, three fundamental forms of hold harmless agreements are used.  These are wide form, intermediate form, and limited form.

  • Broad: A subcontractor who is covered under this type of arrangement undertakes all connected liability.  This includes accidents, its own carelessness, general contractor negligence, and the combined negligence of the contractor and subcontractor. Many states forbid this type of keep harmless agreement due to its wide provisions. In some situations, a subcontractor may satisfy its own obligation with extra insurance coverage.
  • Intermediate: With an intermediate agreement, the subcontractor takes all liability for accidents and carelessness. As a result, he is solely responsible for his own acts.  He will not be held liable for the general contractor’s mistakes or carelessness. The intermediate form is one of the most prevalent forms of keep harmless contracts. The agreement is not based on whether or whether a subcontractor’s activity was negligent. Instead, it is based on who was accountable for the accident or who acted carelessly. If both parties were careless, a subcontractor will be held accountable for his conduct only.  The other party is liable for their own conduct or omissions.
  • Limited: In this type of agreement, a subcontractor will only be held liable for an accident or carelessness in a limited capacity. In other words, he accepts accountability for a proportionate fraction of his responsibilities. This form of agreement restricts a subcontractor’s liability strictly to his responsibilities.  It usually includes others under separate agreements for their corresponding portion of the accident or carelessness. (Source: mwl-law.com)

Example Hold Harmless Clause for Contractors

Subcontractor shall indemnify and hold harmless the Owner, Architect, General Contractor, and agents and employees of any of them from and against claims, damages, losses, and expenses, including, but not limited to, attorneys’ fees, arising out of or resulting from the performance of the Work. (Source: ibid)

Hold Harmless Agreement for Landlords

A hold harmless agreement is often included in an apartment lease.  Most often, it may state that the landlord is not liable for any damage caused by the renter. In turn, if a tenant hires a contractor, he may seek a hold harmless provision to protect himself.  For example, from a lawsuit, if the contractor falls or is injured while working on the property. A fitness club’s contract may include a hold harmless clause to prohibit its members from suing if they are hurt while participating in sporting matches. In this case, the participant may be required to accept all risks involved with the activity, including the danger of death, under the hold harmless agreement.

Sample Landlord Indemnity Clause

Tenant shall indemnify, defend and hold harmless Landlord, Management Company, and Landlord’s members, agents, contractors, employees and mortgagees, from and against (i) any and all liability, penalties, losses, damages, costs and expenses, demands, causes of action, claims or judgments arising from any injury to any person or persons (including death) or any damage to any property as a result of the Event or any activities or actions of any persons in connection with the Event, and (ii) all legal fees, expert fees or other professional fees and court charges incurred in connection with any of such matters and the defense of any action arising out of the same. Prior to the Event, Tenant shall furnish to Landlord evidence satisfactory to Landlord that Tenant’s liability insurance (in amounts and with companies satisfactory to Landlord) shall cover Landlord and Tenant with respect to the risks set forth in this paragraph. (Source: acc.com)

Frequently Asked Questions

Is a hold harmless agreement binding?

In jurisdictions that allow them, these documents are generally enforceable.  As a result, you are potentially signing away your right to sue for negligence.  However, a hold harmless agreement might not always provide an ironclad shield from legal action or liabilities. Some states dismiss hold harmless agreements because the language is ambiguous or the scope is unreasonably broad. Furthermore, signers may sometimes produce convincing evidence that they were pressured or misled into signing a hold harmless clause.  In those cases, the agreement may be ruled null and void.

What is the difference between holding harmless and indemnifying?

The term “defend, indemnify, and hold harmless” is common in contracts with liability limitations.  In fact, it appears in most contracts across multiple sectors and numerous industries. However, many parties are unsure of what these phrases actually represent. All three terms have different meanings in different states. The major distinction is that “hold harmless” may require a party to defend against both actual and potential damages, whereas indemnity solely protects against actual losses.

Up Next: What is a Dead Cat Bounce when Investing?

Dead Cat BounceA dead cat bounce is an investment phrase.  It refers to a brief increase in the price of a stock or other asset amid a lengthy period of decline. The name derives from the concept that even a dead cat will bounce if it falls far and fast enough. Another similar term is a “sucker’s rally“. The brief recovery can persuade investors to invest in a struggling firm. Technically, a bounce can only be detected after it has occurred. This is because the bounce is only a short-term price gain that is followed by a continued decrease. The second drop lowers the share price to new lows. Unfortunately, there is no way to determine if a share price gain is a dead cat bounce or the start of a sustained recovery.  This can only be determined if and when the stock’s value stabilizes, or the second downturn happens.

The purpose of attempting to identify a dead cat bounce is to evaluate if the recovery is temporary or a reversal. Will the stock or other asset’s gains continue to rise in price following a protracted downturn? If a trader has sold a stock short and sees a price gain as a dead cat bounce, he or she may elect to keep the short position. In contrast, if a trader sees a market fluctuation as a long-term rally, the trader should close the short position.

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