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What Is a Hold Harmless Agreement?
A hold harmless agreement releases a party from the consequences of another’s actions. Learn how and when to use a hold harmless agreement in business.
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Although every business faces risks that can lead to business insurance claims or lawsuits, there are ways to protect yourself by making sure another party assumes the risk. Hold harmless agreements are a way to prevent you or your company from being held liable for property damage, financial loss or bodily injury that occurs during a working relationship.
Here’s what you need to know about hold harmless clauses and how they can minimize your chances of becoming part of litigation.
What is a hold harmless agreement?
A hold harmless agreement protects a business from claims or lawsuits. These insurance clauses are often used in businesses where the main company providing a service wants a secondary party to assume the risk of property damage, financial loss or bodily injury.
A hold harmless agreement is often used in service industries where subcontractors are involved. For example, let’s say you’re a wedding planner and you need to hire a caterer. If you want the caterer to be responsible for liabilities that result from their involvement in a wedding, you’d require them to sign a hold harmless agreement absolving you of any responsibility.
Other times, a hold harmless agreement is used when a service provider offers high-risk activities. For example, a scuba diving company will require all clients to sign a hold harmless agreement stating that they understand the activity’s risks and won’t hold the company responsible for losses or injury.
A hold harmless agreement is also called a “release of liability” or a “waiver of liability.” It can be reciprocal or unilateral. A reciprocal hold harmless agreement says neither party will hold the other party responsible for losses. A unilateral hold harmless agreement protects only one party.
Indemnity vs. hold harmless
The terms “indemnity” and “hold harmless” are often confused. Whereas a hold harmless clause aims to release loss liability, an indemnity clause is designed to make one whole after a loss. “An indemnity agreement is similar to a hold harmless, but instead is an arrangement where one party agrees to pay the other party for any damages regardless of who is at fault — essentially, ‘I’ll cover your costs if something goes wrong,’” said Nicholas Spetsas, managing attorney at Spetsas Buist, PLLC.
In other words, a hold harmless clause or agreement says you’re not responsible for another party’s losses. An indemnity clause says that if there’s a loss, you’ll be paid for the amount of the loss, thus being made whole.
“When I’m drafting documents, I virtually always either include both or strike both,” said Ryan Reiffert, a business attorney at Law Offices of Ryan Reiffert, PLLC. “Very rarely will you see one but not the other. There is some case law that sees them as different, however. If you really want to take a deep dive on this, the case you want to read is Queen Villas Homeowners Association vs. TCB Property Management. The court goes into a discussion about what damages are covered and the ‘right not to be bothered.’”
For example, if you’re a general contractor, you may have both a hold harmless clause and an indemnity clause in your agreements with your subcontractors. The indemnity clause will come into play if the subcontractor causes property or financial loss to you or the client. The hold harmless agreement would prevent the subcontractor from seeking damages if they’re harmed or their property is damaged while they’re working with you.
Hold harmless agreement vs. waiver of subrogation
A hold harmless agreement and a waiver of subrogation are similar, but there are key differences.
Subrogation is what the insurance company does after paying a claim to recoup losses from the responsible party. For example, let’s say you were in an auto accident that isn’t your fault but the other party refuses to take responsibility. Your insurance carrier will pay the claim so you don’t have to pay for damages. Then, the insurance carrier will subrogate, meaning it will sue either the responsible party or their insurance carrier to recoup the money.
When there’s a waiver of subrogation, the party waiving its right to subrogation says its insurance company won’t go after the responsible party to recoup losses. Waivers of subrogation in insurance are common in construction contracts, where subcontractors are hired and the general contractor doesn’t want another insurance company to try to recoup losses from a claim.
“The key difference is that a hold harmless protects against direct liability, while a waiver of subrogation protects against third-party insurance claims after damages are paid,” Spetsas said. “In a well-structured agreement, you might use both to cover all bases.”
A hold harmless agreement differs in that it shifts liability. While a waiver of subrogation is protection from liability, it doesn’t shift the liability as a hold harmless agreement does.
Who needs a hold harmless agreement?
Many companies benefit from hold-harmless agreements. It’s about managing risk, and if you want to transfer risk to another party, you can use a hold harmless agreement. Here are some situations where a hold harmless agreement could come into play:
- Renting or leasing your property: Someone could host a party on your property, and you don’t want to be liable if someone gets hurt.
- Hiring subcontractors: You don’t want to be liable for their injuries or work accidents that lead to claims. “They’re common in real estate, where you don’t want to have endless bickering among subcontractors (all of whom have different insurance companies) about who caused exactly what and everybody suing everybody and just endlessly bogging the project down in litigation,” Reiffert said.
- Sponsoring an event: Events that involve risk, such as sporting events, should make sure participants assume the risk of participating in those events.
- Starting a business venture: When partnering with another person or company, you may want to limit any risk exposure resulting from their activities.
- Providing high-risk activities: Whether you’re a bounce house rental company or a skydiving company, you’ll want participants to assume the risk of the activities you provide.
Spetsas told business.com these situations should use hold harmless agreements because “it helps prevent being dragged into litigation over issues that may arise from someone else’s actions or accidents that occur despite your best efforts to provide a safe environment.”
Types of hold harmless agreements
There are three types of hold harmless agreements:
Type | What it protects |
|---|---|
Broad form | It transfers all risk to the subcontractor being insured. The subcontractor assumes responsibility for accidents, their own negligence, general contractor negligence and any combined negligence. Broad form hold harmless agreements are lawful only in Alabama, Florida, Maine, Minnesota, Nevada, North Dakota, Pennsylvania, Texas, Vermont, Wisconsin and Wyoming. |
Intermediate or moderate form | It puts all subcontractor or participant activities and risks on the subcontractor or participant. It does not transfer general contractor risk or a service provider’s negligence or accidents. |
Limited form | This is a very narrow form that specifies the exact liabilities based on responsibilities. It divides the risk proportionally. |
Benefits of hold harmless agreements
Using a hold harmless agreement in business has several benefits:
- It releases liability: The primary benefit is to reduce the liability of the party requesting the hold harmless agreement. “It’s not just legal jargon,” Spetsas said. “It’s a smart way to clearly state who’s responsible if something goes wrong. These agreements help cut down on risk, settle potential disputes before they even start, and can prevent future lawsuits or claims from the incident or activity as stated in the agreement.”
- It makes your business insurable: Some insurance companies won’t insure you for specific activities or events if you don’t have a hold harmless agreement in place.
- It reduces legal problems: When hold harmless agreements are used, there are fewer business lawsuits and legal battles. “Hold harmless agreements offer proactive legal protection,” Spetsas said. “They clarify responsibilities upfront and limit exposure to costly lawsuits. When well-written, they provide peace of mind and can strengthen trust between parties.” [Related article: Why You Should Develop a Relationship With a Business Lawyer ]
- You could earn more business: In the construction industry, hold harmless agreements help win more business because hiring companies will appreciate that the risk is transferred away from them.
- It protects your business’s reputation: You maintain a better brand reputation with fewer lawsuits. “It reduces your legal exposure and cuts down what you can be sued for,” Reiffert said. The hold harmless agreement makes it clear who is responsible when something goes wrong.
To see the value of hold harmless agreements, Reiffert recommended going to court in person to watch a jury trial. “They’re generally public proceedings and any member of the public is entitled to watch,” he said. “If that doesn’t scare you into putting [hold harmless] and waivers and indemnities all over everything you do, I don’t know what will.”
What to include in a hold harmless agreement
There are many online templates that can help you draft a hold harmless agreement. Keep in mind that drafting it incorrectly could leave you with liability, so you should confirm with an attorney that the hold harmless agreement does what you intend it to do.
A hold harmless agreement includes the following elements:
- The protected party: This is the person or company that wants liability shifted away from them. Be sure to include their legal name and contact information.
- The other party: This is the party that assumes the risk. Include their name and contact information.
- Type of agreement: Spetsas explained that in addition to who’s involved, “it should also specify whether the agreement is unilateral or mutual. Including this detail helps avoid ambiguity and ensures the document holds up if tested in court. Ultimately, clarity is your best defense.”
- Agreement date: This may be before or at the onset of the activity listed.
- Location details: This is where the event or activity will be conducted.
- Activity details: List the exact activity that has them assuming risk — for example, bungee jumping or electrical work. Be sure to clearly describe what’s being done.
- What’s being waived: If both parties decide to waive certain activities, that should be in the agreement. “A strong hold harmless agreement should clearly define … the types of liabilities being waived (bodily injury, property damage, legal fees, etc.),” Spetsas said.
- Effective dates: Specify when the hold harmless agreement starts and for how long it will be effective.
- Signatures: All parties should sign and date the agreement.
Hold harmless agreement FAQs
Amanda Hoffman and Mark Fairlie contributed to the reporting and writing in this article.
