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Updated Nov 07, 2023

What Is a Hold Harmless Agreement?

A hold harmless clause says you're not responsible for another party's losses. Here's what you need to know to protect yourself.

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Kimberlee Leonard, Senior Analyst & Expert on Business Operations
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While 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 there are subcontractors involved. For example, say you’re a wedding planner hiring a caterer. You’d want the caterer to be responsible for their own liabilities, and you’d have them sign a hold harmless agreement releasing you of responsibility. 

Other times, a hold harmless agreement is used when a service provider offers high-risk activities. For example, a scuba diving company will have all clients 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. 

What is the difference between indemnity and hold harmless?

The terms “indemnity” and “hold harmless” are often confused. Indemnity is designed to make one whole after a loss, while hold harmless clauses aim to release loss liability. 

In other words, an indemnity clause says that if there’s a loss, you’ll be paid for the amount of the loss, thus being made whole. A hold harmless clause or agreement says you’re not responsible for another party’s losses. 

For example, if you’re a general contractor who hires subcontractors, you may have both a hold harmless clause and an indemnity clause in your contract. 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 be in place to prevent the subcontractor from seeking damages if they’re harmed or have property damaged during the course of working with you. 

Did You Know?Did you know
Contractors' business insurance needs are complex, with two types of general liability insurance: claims-made policies and occurrence policies.

Who needs a hold harmless agreement?

Many companies benefit from using a hold harmless agreement. It’s about managing risk; if you want to transfer risk to another party, you can use a hold harmless agreement. 

These 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.
  • 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. 
FYIDid you know
Many insurance companies will want to know that you use hold harmless agreements before providing your business with general liability insurance.

Types of hold harmless agreements

There are three types of hold harmless agreements:

TypeWhat it protects
Broad formIt 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 may be prohibited in some jurisdictions.
Intermediate formIt 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 formThis is a very narrow form that specifies the exact liabilities based on responsibilities. It divides the risk proportionally.
TipBottom line
Work with an attorney to develop the correct type of hold harmless agreement with the right conditions in place for protection. When it comes to risk mitigation, you want the job done right.

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. 
  • Your business becomes 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 lawsuits and legal battles. 
  • 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 reputation. You maintain a better business reputation with fewer lawsuits. The hold harmless agreement makes it clear who is responsible when something goes wrong.  

What to include in a hold harmless agreement

There are many templates online 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. 

  • 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. 
  • 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 exactly what the other party will be doing that has them assuming risk. This might be bungee jumping or electrical work. Be sure to clearly describe what’s being done.
  • Effective dates: List 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 vs. waiver of subrogation

A hold harmless agreement and a waiver of subrogation are similar, but there are distinct differences. 

Subrogation is what an insurance company does after paying a claim to recoup losses from the responsible party. For example, 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 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. 

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. 

Did You Know?Did you know
A hold harmless agreement isn't airtight. You can still be held responsible for instances of negligence, coercion and illegal activities.

Can hold harmless agreements cause insurance problems?

Not having a hold harmless agreement can undoubtedly affect whether or not your business is eligible for certain types of business insurance. Many insurance carriers don’t want to insure a company offering high-risk activities if they don’t get a signed waiver that shifts the liability to the participants. 

But having a hold harmless agreement could also create certain insurance problems. With the hold harmless agreement in place, after someone files a claim, the insurance company may reject it based on the waiver of liability. With the insurance claim denied, the harmed party could then sue the business for the losses. 

Whether or not the hold harmless agreement would hold up in court depends on how it was written and how narrowly the transfer of liability is defined. If a court doesn’t uphold it, your business could be held liable for the loss. With the insurance claim denied, you could be paying a judgment out of pocket.

author image
Kimberlee Leonard, Senior Analyst & Expert on Business Operations
Kimberlee Leonard is an insurance expert who guides business owners through the complicated world of business insurance. A former State Farm agency owner herself, Leonard started her decades-long career as a financial consultant advising on investment strategies before switching her focus to insurance and risk mitigation for businesses. Leonard has developed insurance primers on everything from small business insurance costs to specific policies, such as excess liability insurance. She has also reviewed business software tools, analyzed employee retirement plan providers and continues to share insights on financial topics as they relate to business. Leonard's work has been published in Forbes, U.S. News and World Report, Fortune, Newsweek and other respected outlets.
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