What is a hold harmless agreement?

We answer what is a hold harmless agreement, explain the different types, and how it pertains to business insurance. Learn more in our Insurance 101.

handshake signifying a business agreement

Whether you’re acting as an individual or a small business, there are a variety of measures you can and should take to mitigate risk and liability. From purchasing small business liability insurance to being bonded, the more layers of risk protection you have, the better off you are. Along those lines, one such liability defense mechanism that a business will regularly employ is a hold harmless agreement (HHA).

Maybe you’ve heard this phrase but don’t know what it entails. Read on to learn everything you need to know about how an HHA can benefit your business.

What is a hold harmless agreement?

A hold harmless agreement is a clause you’ll see in legal contracts—particularly in those related to construction. It absolves either one or both of the participating parties from the legal liabilities of injuries or damages (caused by either party’s mistakes). It’s often added on when there are services rendered that involve more risk than the business is willing to take, whether legally or financially. Like the name suggests, the agreement compels the parties to hold each other harmless in the event of injury.

Often, subcontractors will add it in their dealings with builders, contractors, and other related professions. It insures that all the work being done will have little to no risk of litigation in the case of accident or injury. As such, these provisions will have very clear and explicit language that protects the contractor from:

  • Damages
  • Claims
  • Losses
  • Expenses

By signing such a clause, the other party agrees to the matter and takes accountability for the various risks involved with contracting the job. The benefits of this include:

Decreasing your exposure to lawsuit – Such precautionary, preventative actions help ward off legal issues. When they are included in your contracts, you get sued less frequently, if at all.

Reducing legal expenses – If your business typically operates with a hold harmless agreement, you actively work to minimize your legal battles. Fewer legal suits and liability claims translates to less money spent on legal defense fees. And, seeing as how exorbitant hourly rates are, there are plenty of savings to be had.

Protecting your reputation – Any lawsuit can damage your reputation regardless of whether or not you are at fault. This gets magnified tenfold if it’s covered by the media, which in turn, exposes the business to a bombardment of bad press, libel, and negative feedback—all of which can hurt the business’ perception in the eyes of its clients and the general public.

Lowering stress – Your job is stressful enough as it is without the constant fear of being sued by your customers or vendors. This lets you do your job and worry about the things that matter, rather than fretting over all the possible liabilities.

In summary, a hold harmless agreement is:

  • An agreement that states the parties will consider each other harmless in the case of an injury or property damage

This agreement is beneficial because it:

  • Decreases your exposure and liability
  • Reduces legal expenses
  • Protects your reputation (and your business)
  • Lowers your stress

The types of hold harmless agreements

Now that you understand what a hold harmless agreement is, you need to know the multiple forms they take. You need to know:

Although there may be various sub-types or variations, typically speaking, there are three base forms of a hold harmless agreement (HHA). These types all fall under the umbrella term of general HHA, which shields the protected party from legal action resulting from a specific activity or job. The three forms worth noting are:

Broad Form HHA – Protects a subcontractor from:

  • General contractor negligence
  • Accidents
  • The business’ own negligence
  • Shared negligence of both the subcontractor and contractor

This form of HHA is so broad that several jurisdictions require that the subcontractor finance the liability by adding another insurance policy.

Broad Form HHA Scenario: For instance, in a broad form HHA agreement, if an accident occurs on the jobsite, the subcontractor can be held “harmless.” If the language of the contract permits, then the subcontractor would be protected even if they were at fault.

Intermediate Form HHA – This is the most common form of an HHA. With this, the subcontractor accepts liability for negligence and accidents. They are responsible for their own actions, but can’t be held liable for those of the general contractor. The entire contract hinges upon who was directly responsible for the incident or who was acting negligently. So, it discounts whether or not a particular action was the fault of the subcontractor.

Intermediate Form HHA Scenario: For this type of contract, if workers were installing drywall only to drop their tools and crack the newly installed tile flooring, then the specific person that caused the accident accepts liability.

Limited Form HHA – This narrower type of HHA states that a subcontractor can only be held liable for negligence or an accident on a limited, proportional front. In other words, the subcontractor is only held liable for the parts of the project for which they were responsible. With a limited form HHA, you take no part in the mistakes of others.

Limited Form HHA Scenario: At the end of a remodel, the general contractor is accused of negligence. The client claims that they didn’t install the cabinetry correctly, resulting in financial loss (now they need to pay for the job again). However, as a flooring contractor under a limited form HAA, being that the cabinetry had nothing to do with you, you have no liability.

When would you need a hold harmless agreement?

Although there may be situations where it is unnecessary, generally speaking, you may want to consider a hold harmless agreement any time that a contractor or subcontractor does work for you, uses your property or equipment, or takes part in an event that you sponsor.

And vice versa, if you’re a subcontractor that’s constantly hired by general contractors, it’s smart to include an HHA in your own agreement.

Examples of when an HHA may be a smart move include:

  • You hire an arborist to come clear or trim your trees. Since this is a dangerous job, you don’t want to be held responsible for the business owner or their employees getting injured while doing work on your behalf.
  • You sponsor a football exhibition but don’t want to be held liable in the very likely case that one of the athletes gets injured in some way or another.
  • You lease out your property and don’t wish to have any sort of liability tied to the property and someone potentially getting hurt or having their property damaged while visiting it.
  • Your business is working in conjunction with another on an exciting new venture, but you don’t want to be the one assuming all, if any, of the legal risk.

Protect your small business

A hold harmless agreement is one of the many important ways that a business can protect itself and its interests. That said, on its own, an HHA isn’t enough to adequately shield your operation from risk.

This is why you need a Thimble General Liability Insurance and Professional Liability Insurance policy.

You never know when your next job will happen or how long it will be. Thanks to Thimble’s revolutionary on-demand insurance policies, you can pay for liability coverage by the hour, day, or month. Thimble provides an impressive coverage limit of either $1 million or $2 million for incredibly affordable prices. The quote is free, and so are Additional Insureds. Do you need small business insurance, like, yesterday? If so, all it takes is 60 seconds on the Thimble app to instantly get the coverage you require and get to work.

Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.

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