Hold-Harmless Agreements (also known as Indemnification Agreements) are becoming an increasingly important, and common, part of business contracts. They can significantly affect your company’s potential liability and therefore should be considered very carefully when signing contracts. This document provides a short summary of these agreements, and how they can be used both for and against you or your business. It is important to remember, however, that this is intended to be a general information summary only and is no substitute for legal advice. When entering into or drafting contracts, you should always consult with your legal or business advisor to determine what is in your best interests.
A Hold-Harmless Agreement is a shorthand term for a provision in a contract whereby one party to the contract agrees to be responsible for any liability or damages that may arise out of the performance of that contract. When properly written, their effect is to impose on one party to the agreement the responsibility to pay all liability, damages, costs, expenses, and even attorney’s fees for the other party to the agreement. Because they can be a significant liability to you or to your company, but can also be a significant asset, this document discusses both aspects.
First, let’s look at typical language in a Hold-Harmless or Indemnification Agreement.
“ABC Company agrees to indemnify and hold harmless XYZ Company of and from any and all claims of any nature whatsoever related or pertaining to ABC’s conduct under this agreement, including any and all products made by ABC Company or arising out of ABC’s occupancy of the premises which are the subject of this agreement, including all damages, liabilities, costs, and expenses, including XYZ Company’s reasonable attorney’s fees.”
As you can see, if you are ABC Company, you face a substantial liability exposure. If you are XYZ Company, you pass on a similar exposure.
In some cases, the obligation assumed by ABC Company will be limited to any liability created by the acts or omissions of ABC. In that case, the following language is typical:
“This obligation to indemnify and hold harmless shall be limited to any liabilities, damages, costs, and expenses caused by, or contributed to, by the acts or omissions of ABC Company, its agents, servants, and employees.”
Indemnification and Hold-Harmless Agreements may also be written very broadly to include indemnification for liabilities that would otherwise be solely the responsibility of XYZ Company. In such a case, the following language would be typical:
“The obligation to indemnify and hold harmless shall not be limited solely to acts or omissions of ABC Company, but shall also extend to any acts, omissions, or negligence causing damage or liability that were caused in whole or in part by the acts or omissions of XYZ Company, its agents, servants, and employees.”
There are several important aspects of such agreements that need to be borne in mind:
This information is advisory, and it does not detect all unsafe acts or conditions. This information is designed to assist you in recognizing
potential safe work problems and not to establish compliance with any law, rule or regulation.
Read through any contract or agreement you are being asked to sign to see if it contains an Indemnification or Hold-Harmless Agreement. Before signing any such agreement, you should immediately consult with your legal counsel to determine whether such an agreement is in your best interests. Often, such agreements can be negotiated out of the contract. To the extent you are able, it is usually to your company’s advantage to include such Hold-Harmless Agreements, which are in your favor, when getting others (such as customers, vendors, or subcontractors) to sign your agreements. Again, you should consult with your legal counsel to draft such appropriate Indemnification or Hold-Harmless Agreements into your contract documents so that you receive this protection. If you are being asked to sign a contract with an Indemnification or Hold-Harmless Agreement, at a minimum it should be limited solely to your company’s responsibility, and not include indemnification for any acts, errors, or omissions of anyone else.
It is also important to remember that such agreements may result in creating liability where you might otherwise be immune. The most common example of this is worker’s compensation. If one of your employees is hurt in the course of your work, your company is normally immune from any liability except that which arises under your obligations from the worker’s compensation law. However, your company may waive that liability if it signs an Indemnification or Hold-Harmless Agreement. Thus, if you are a subcontractor on a project, and have agreed to indemnify or hold harmless the general contractor, if one of your employees is injured on the job and sues the general contractor, the general contractor may sue you directly for those claims if you have signed an Indemnification or Hold-Harmless Agreement. You could end up being liable for your employee’s full damages under those circumstances even though you would have otherwise been immune from them if you had not signed the liability and Hold-Harmless Agreement.
Other statutory immunities that you may have, arising under any other state or federal laws, might similarly be voided if you voluntarily sign an agreement in which you agree to indemnify and hold harmless someone else. It is vitally important that you check with your legal counsel before signing any agreement that contains any one of these provisions.