A Hold Harmless Agreement is an agreement one party makes not to hold the other party legally responsible for any danger, injury, or damage.
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As a business owner, the last thing you want on your hands is an expensive lawsuit. Legal fees can be astronomical, draining you of time and money that you would probably prefer to invest in growing your business. While you might attempt to limit your risks with precautionary safety measures, in some instances, danger is unavoidable. If you are starting a business in an industry known for frequent personal injury or property damage, you might assume that a lawsuit is inevitable at some point in the future. However, you can dramatically improve your chances of avoiding a legal battle by using a Hold Harmless Agreement.
What is a Hold Harmless Agreement?
A Hold Harmless Agreement, or waiver of liability, is an agreement on the part of one party not to hold the other party legally responsible for any danger, injury, or damage. You may be familiar with this type of contract as a consumer if you have ever participated in an activity like ice skating, horseback riding, or bungee jumping. When you sign a business’s Hold Harmless Agreement before the activity begins, you renounce your right to sue the business in the event of an accident.
Whether you are interacting with consumers or one of your business partners, a Hold Harmless Agreement is one of the best precautionary measures you can take to avoid unnecessary litigation.
Who needs a Hold Harmless Agreement?
Hold Harmless Agreements are common in industries known for carrying a high degree of personal injury or property damage risk. Examples of fields where Hold Harmless Agreements are common include:
Real Estate – if you rent your property to another party and they are injured or cause damage to your site, they may have grounds to sue. Hold Harmless Agreements can substantially reduce this risk.
Construction – property owners, contractors, and subcontractors face large liability risks given the nature of the construction industry. For example, a contractor and property owner could be held liable if a subcontractor is injured on site, or a property owner could sue their contractor for causing structural damage to their building.
Sports – a customer who rents out your equipment, uses your facilities, or is incorrectly coached by one of your instructors can sue your business in the event of an injury. Examples of these sports include: water skiing, skydiving, jet skiing, mountain biking, and other extreme outdoor sports that carry a high degree of risk. Most gyms and sporting events (e.g., marathons) also use Hold Harmless Agreements.
Travel – businesses that specialize in taking customers to dangerous countries or on high-risk adventure excursions often require travelers to sign a Hold Harmless agreement.
Unilateral vs Reciprocal Hold Harmless Agreements
Hold Harmless Agreements can be either unilateral or reciprocal. In a unilateral Hold Harmless Agreement, one party agrees not to hold the other liable. This is in contrast to a reciprocal Hold Harmless Agreement, which goes both ways. In a reciprocal Hold Harmless Agreement, both parties agree not to hold each other liable. You will probably use a unilateral agreement if your business faces consumers, for example if you own a trampoline gym. When you deal with other business partners who are afraid of being sued themselves, like a construction company or corporate rental property, you will probably use a reciprocal agreement.
- You hire a construction company to renovate your storefront. If a construction worker gets injured on your property, your business could be held liable. Knowing this, you decide to add a Hold Harmless Clause to your construction agreement. On the flipside, because you and your associates are still working throughout the renovation, the construction company is worried that they might injure someone from your company or one of your clients, making them liable. Therefore, you both agree to make the agreement reciprocal and indemnify each other from injury.
Hold Harmless Agreements in Construction
In the construction industry, there are three basic types of Hold Harmless Agreements:
Broad form – one party agrees to completely absolve the other of liability for any accident. This is rare, because it means that the indemnitee (the party being held harmless) could commit an act of gross negligence, and the indemnitor would have no right to sue. Many courts will not honor this form of agreement if it’s used in the field of construction.
Intermediate form – one party agrees to assume all liability for accidents and negligence that he is responsible for. In this type of agreement, fault does not come into play. Even if the accident was not the indemnitor’s fault, as long as the indemnitor was responsible for the accident, he is liable. This is the most common type of agreement in the construction industry.
Limited form – one party agrees to assume liability for only the portion that is his fault.
What are the benefits of a Hold Harmless Agreement?
The primary benefit of a Hold Harmless Agreement is that it reduces your chances of losing money in a lawsuit. This is why they are one of the best preventative measures you can take to protect the financial health and reputation of your business. Other benefits include:
- Reduces your chance of going to court – businesses with Hold Harmless Agreements are less likely to be sued.
- Reduces legal fees – fewer lawsuits means less of a need to hire expensive lawyers. Hold Harmless Agreements also reduce the length of any lawsuits that do occur.
- Protects your reputation – a legal battle reflects poorly on your business, and the last thing you want is to develop a reputation for causing accidents and injuries to your customers or business partners.
- Allows partners to perform dangerous work – if you need a risky or dangerous service performed, signing a Hold Harmless Agreement may be enough to convince the service provider to work with you.
When should you use a Hold Harmless Agreement?
Any business that works in an industry prone to accidents can benefit from a Hold Harmless Agreement. If your business does one of the following, you should consider a Hold Harmless Agreement:
- You hire someone to work on your property – e.g. construction, painting a multi-storied building, cooking meals for your staff.
- You rent or lease out your property – if an injury occurs on land that you own or with property that you own, you can be sued.
- You offer a high-risk experience – e.g. laser tag, swimming with sharks, or bungee jumping.
- You accept verbal agreements not to sue – a Hold Harmless Agreement is a stronger legal guarantee that the party will keep their word.
What kinds of protection does a Hold Harmless Agreement offer?
Hold Harmless Agreements generally provide three types of protection:
General protection – provides protection for specific activities and events.
- Your company holds a potato sack race as part of an annual picnic. Participants have fallen and been injured in the past, so your business requires all employees in the race to sign a Hold Harmless Agreement to protect you from liability.
Services protection – used whenever one party offers a service to another.
- Your contracting company is working on a new high-rise apartment building, and you hire plumbing, electrician, flooring, and drywall subcontractors to work on the project. You require all of your subcontractors to sign Hold Harmless Agreements to protect your company from liability.
Property use protection – used when you allow another party to visit, live on, rent, or otherwise use your property.
- You own a southern gothic mansion in New Orleans that you rent out to businesses for corporate retreats. The mansion has a creepy, romantic appeal, and it’s very popular around Halloween. Because the building is very old and filled with heavy antiques and creaky floorboards, you require any business that rents it out from you to sign a Hold Harmless Agreement.
How should you set up a Hold Harmless Agreement?
Hold Harmless Agreements are usually written by lawyers, but you can also find templates online. The specific terms of the agreement are essential because some states may not honor a Hold Harmless Agreement if the language is too vague or the coverage is too broad in scope. Additionally, both parties must choose to sign without coercion. Proof that any party was forced into the agreement is grounds for nullification. Hold Harmless Agreements are also irrelevant in the case of negligence, illegal activities, or fraud. Additionally, they are invalid if signed by customers who are under the age of 18.
It is always recommended that you consult a qualified lawyer for legal advice on any Hold Harmless Agreements you are taking part in.
Essential information that you should always list in a Hold Harmless Agreement includes:
- Date the agreement was signed
- Name of the party that is being held harmless
- Name of the party agreeing to hold another party harmless
- Addresses of all parties involved
- Details about the activity and its location
- Date that the agreement starts and ends
Limits of a Hold Harmless Agreement
Though Hold Harmless Agreements are a great way to lower your chances of a lawsuit, they are by no means airtight. Negligence, coercion, illegal activities, or an overly broad scope of terms are just a few of the reasons why a court might nullify a Hold Harmless Agreement. Additionally, if one party is unable to pay damages due to lack of funds, the other may be held liable, even if they are protected by a Hold Harmless Agreement.
- A construction company is working on your property. A group of teenagers sneaks onto the site and starts shooting a nail gun, injuring a 13-year-old boy. You have a Hold Harmless Agreement that says that your liability is limited in the event of an accident, but the construction company is on the brink of bankruptcy and is unable to pay the full cost of the lawsuit. You may be held partially liable and forced to pay for the injury.
Consider combining your Hold Harmless Agreement with liability insurance for maximum coverage in the event of an unforeseen accident.
If you work in a high-risk industry and want to take steps to reduce the chance of lawsuits, a Hold Harmless Agreement can be a useful tool. Companies with Hold Harmless Agreements are sued less, and businesses that agree to them are more attractive to business partners. Litigation is expensive and time consuming. Hold Harmless Agreements, when constructed properly, can save you a significant amount of money in the long run.