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A Hold Harmless Agreement is used to protect one party from liability due to the actions of another party.

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What Is a Hold Harmless Agreement? 

A Hold Harmless Agreement (HHA) is used to protect one party from liability from the actions of another party. It is typically used in situation where services are being provided, a party is using the property of another, or when a party is participating in an activity hosted by another. When an HHA is completed, the party agrees not to hold the hosting party responsible for injuries, damages, and other losses and liabilities. HHAs are also referred to as indemnity clauses (or waivers), a waiver of liability, hold harmless release, hold harmless letter, and liability releases.

A printable Hold Harmless Agreement may not always be valid. It may be invalid because one of the parties engaged in negligent behavior, illegal activities, or committed fraud.

In addition to information about both parties, the terms of an indemnity agreement must be clearly defined. Both parties should sign the agreement after negotiating their contractual obligations and reviewing the terms carefully. These contracts typically do not require a witness or notary, but these can be used for an extensive HHA if desired.

In today’s litigation-heavy business environment, more and more companies use these agreements and clauses to protect themselves from lengthy and often financially devastating litigation. This document or clause within a document that releases one or both parties from any potential legal claims for bodily injury or property damage. This includes any injury, damage or other claim that might arise during or after the transaction or activity between Party A and Party B. Party A is the company using the HHA (which can be easily drafted using a sample hold harmless agreement). Party B is the person or business signing and agreeing to waive liability in some way.

The agreement may be used alone or as part of a more involved liability waiver. This document is a form of legal contract.

It is important to note, however, that the agreement does not make a business invincible, nor does it free them from standard, reasonable legal responsibilities. These responsibilities include following local governing law to ensure an environment that is as safe as possible. If they do not follow these procedural and safety requirements, an HHA will likely offer little or no protection to Party A as the creator of the form.

For instance, sports clubs and gyms often include hold harmless clauses in their membership contracts. These clauses help protect them from litigation and personal injury claims that arise from the action or actions of a member, such as a runner who trips and falls off of a treadmill. Individuals have, and will likely continue to, sue businesses for injuries that weren’t the fault of the business; and, sometimes, they win a settlement that can cripple or destroy the business. This is why a hold harmless template is so important for a business to use. It provides some measure of protection from malicious litigation.

Again, though, it’s important to note that it does not free businesses from basic, common sense responsibilities. If the business has knowledge of a faulty piece of machinery or faulty equipment and does not use a sign to notify others about it not properly working or fix it in a timely manner, they may be liable for any injury resulting from its use. The same can be said for poor maintenance habits. If the previously mentioned runner falls off the treadmill and breaks their leg because of a faulty mechanism that the business knew about or should have known about,  it is possible that no authorization of indemnification would mitigate their liability.

HHAs are simple to draft. Once a hold harmless template is written for a business, it generally only requires the participant’s signature to become legally binding. The participant would be Party B.

HHAs vs Insurance Policies

As you learned above, HHAs protect a party from legal claims or damages by another person. HHAs, in other words, transfer all legal risk from the party identified in the HHA to the person who signed the documented.  

Many states have implemented anti-indemnity laws that limit the scope of HHAs.

Not all HHAs are the same even if they share some of the same general provisions. There are different types of them that have various forms of indemnity. They vary in legal scope and application.

  1. Broad form indemnity: Here, the signer of the document assumes an unqualified obligation to hold harmless and document provider or all liability related to the contract, regardless of fault.
    • In other words, the signer of the contract (referred to as the indemnitor) has an obligation to indemnify even if a loss or claim is the fault of the document provider (referred to as the indemnitee). For example: if the indemnitee works at a construction site as a sub-contractor and injures a pedestrian, the indemnitor, often the general contractor) is liable for all damages
  2. Intermediate indemnity: In the case of intermediate indemnity, the indemnitor assumes obligation to hold harmless the indemnitee as long as the indemnitor is partially at fault, even if it’s a minimal amount of fault.
  3. Limited form indemnity: Here, the indemnitor assumes the obligation to hold the indemnitee harmless only to the extent of indemnitor’s fault (calculated as a percentage).
    • To return to the construction site example, if a pedestrian is injured and the owner was 60% at fault, the contractor would have to indemnify the owner for 60% of the total damages claimed.

With general liability insurance, on the other hand, insurance companies may remove coverage from contractual liability through a Contractual Liability Limitation Endorsement (Form CG 21 39). There are also often significant differences in coverage and scope between liability insurance plans and HHAs.

It is vital to keep HHAs and insurance coverage separate. Having both in place provides owners with two ways to pay a claim (often referred to as a notice of claim).   

Common Situations for HHA's

Intellectual Property

HHA clauses pertaining to intellectual property generally cover issues related to patent, trademark, copyright infringement, or other risk.

Intellectual property HHAs can be burdensome to vendors because of the costs related to defending an intellectual property claim often exceed payments to the vendor under the agreement.  

HHA clauses often include representation and warranties to protect the main party to the fullest extent.

  • For example, software licenses might include a representation and warranty that specifies that the licensor of the software will be indemnified from claims by a party.
  • For example, in the event a third party sues for copyright infringement, the licensor will use the hold harmless clause and force the developer to defend the claim and pay for any associated damages or settlements.

Due to the typically high costs of intellectual property liability, HHAs for intellectual property often cap liability. Licensing contracts may include a limitation of liability clause in the agreement and that also applies to the hold harmless clause.

  • For example, if an agreement includes a $30,000 fee to the vendor to develop software, the vendor may be liable for more money if they are required to defend any copyright infringement claims by others. So, he contract may include a clause capping liability at $30,000.

It is important to note, however, that many purchasers/licensors will negotiate earnestly for uncapped intellectual property indemnification.

HHAs and Risk Control in Business

In business, insurance is the standard way to transfer risk, but including an HHA or indemnification clause in contracts is also common. HHAs can serve as a liability release in a situation where a customer injures themselves, or can offload liability in the event of third-party legal action.

  • For example, if your business offers outdoor entertainment (e.g. horse or bike rides),  a HHA clause can minimize your business’ exposure to lawsuits in the event a customer incurs an injury.
    • With an HHA in place, the customer signing the agreement assumes the risk of injury.

Note: Situations like the example above can be complicated. It is difficult, for example, to offload all liability if the entertainment offered is used primarily by children (e.g. indoor play spaces, bounce houses, etc.).

  • Persons under 18 cannot legally waive these rights, nor can their parents.
  • The manner in which most companies work around this law is to require parents to sign an agreement agreeing to compensate the business if a child files a lawsuit.

HHAs are also common on online dating sites. The terms of use for these sites typically include  a waiver that states that the user indemnifies the website from legal responsibility for the actions of any of its members. As a result, lawsuits against dating websites typically have difficulty earning standing in court.  

Note to consumers: Even if you sign a HHAr, gross negligence on the part of business still allows a consumer to seek a legal remedy.

HHAs and Divorce

HHAs are commonly used in divorce to transfer financial obligations to a particular spouse. These obligations include credit card debts, student loan debt, and bankruptcy related financial obligations.

HHAs and Rental Agreements

Landlords typically include HHA clauses in their rental property agreements. HHA clauses in these agreements indemnify the landlord in the case of injury in or near the unit or sometimes if the tenant’s property is burglarized. In other words, the HHA stipulates that renters are responsible for acquiring their own renter’s insurance.

HHAs and Subcontractor Agreements (Construction Industry)

HHAs for a construction project between a contractor and a subcontractor typically cover any damages or legal actions brought forth, including attorneys' fees and settlements. HHAs in this scenario usually stipulate that the clause does not take effect until restitution is due.

If a contractor has an HHA with a subcontractor and a lawsuit is brought by a third party, the subcontractor must hire a lawyer and assume the defense of the contractor. Subcontractors are obligated to indemnify the contractor and pay the judgement, if one is awarded. If there is no judgement, the subcontractor must still pay theirs and the contractor’s legal fees.

HHAs and Rental Car Companies

Rental car companies use HHAs to protect themselves against lawsuits involving rental car drivers in the event of an accident.

Conclusion

Although rather simple, HHAs are an incredibly consequential part of business contracts. They define and allocate legal liability between two parties entering a contract. We hope this guide gives you the tools and background you need to manage HHAs in your businesses.

Anti-Indemnity Statutes by State

June 14, 2018

Methodology

Anti-indemnity statutes help to prevent a party with greater bargaining power in a contract or agreement (such as an owner or contractor) from taking advantage of a party with inferior power. Our team cumulated the anti-indemnity statutes of all 50 states. We noted whether or not the state prohibits broad or intermediate indemnity, and whether it allows additional insured clauses. Note that this an overview of public contracts only, and restrictions apply to a mix of construction, engineering and residential contracts and agreements.

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