What is a hold harmless agreement?
An agreement that states the parties will consider each other harmless in the case of an injury or property damage.
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.
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:
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:
In summary, a hold harmless agreement is:
This agreement is beneficial because it:
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:
Protects a subcontractor from:
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.
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.
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.
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:
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 general liability insurance and professional liability insurance.
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