What is a hold harmless clause?
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Table of Contents
What is a hold harmless clause?
A hold harmless clause is a contractual clause where one party agrees to hold the other “harmless” from any risk, liability or damages resulting from a specific event.
For example, in a service contract, the client will request that the service provider hold it harmless from any damages or claims resulting from the poor workmanship or failure on the service provider’s part to fulfill its contractual obligations.
What is the hold harmless definition?
The Business Dictionary defines a hold harmless clause as follows:
“A provision in an agreement under which one or both parties agree not to hold the other party responsible for any loss, damage, or legal liability. In effect, this clause indemnifies the parties on a unilateral or reciprocal basis (as the case may be). See also indemnity clause.”
When do you use a hold harmless clause?
A hold harmless clause is used in business transactions or commercial activities where a party will be exposed to financial risk or even personal danger.
In fact, it can be used in any context when the attainment of the objective of the contract may expose a party to unavoidable risk.
For example, if a person asks a service provider to render service in a hazardous place, the service provider will demand a hold harmless clause to ensure it is free from any exposed risk when going to the client’s premises.
A hold harmless clause is often used in commercial contracts as well particularly when a party purchases a product or a service exposing to important risk.
A hold harmless clause can be found in any type of commercial contract.
It can also be a standalone agreement generally called a hold harmless agreement.
Is a hold harmless clause the same thing as an indemnity clause?
Many refer to a hold harmless clause and an indemnity clause interchangeably.
However, they each have a different purpose and objective, although interrelated.
Hold harmless clause
A hold harmless clause is a contractual statement where one party is freed from risk or possible liability.
In other words, a company will perform its obligation under a contract for another provided they are not going to be sued for attaining the objective of the contract.
Imagine a company offering parachuting services.
They will demand a hold harmless clause from their client wanting to go parachuting.
Essentially, the company is saying that this activity is risky and you cannot sue me if something were to happen to you.
Indemnity clause
An indemnity clause or indemnification clause is a clause where a person demands to be compensated for any damages or injuries suffered due to specific events agreed by the parties.
The term indemnification refers to the actual payment of compensation.
Generally, the indemnity and hold harmless clause are outlined in the same clause, something like this:
“The Party A hereby agrees to indemnify and hold Party B harmless from any damages, liability and expenses resulting from…”
Although a hold harmless clause and indemnity clause can live together in the same clause, it’s important to note the differences and understand the term indemnity and hold harmless are used.
What is a hold harmless agreement?
A hold harmless agreement is the mutual understanding between two or more contractual parties as to a waiver of responsibility or waiver of liability resulting from certain events.
The hold harmless agreement outlines the specific details as to:
- Identification of the parties
- Who is held harmless from risk
- Who is the one assuming the risk
- What is the potential risky activity or event
- What are the covenants between the parties
Under the hold harmless agreement, the responsibility for certain unavoidable risk is transferred from one party to another.
Is a hold harmless clause legally valid?
A hold harmless clause can be valid in certain circumstances and not in others, all depending on the governing law.
For example, a company providing transportation services cannot waive its responsibility if the passengers suffer bodily injury if the laws in that jurisdiction impose a minimum level of responsibility for transportation companies.
However, they can waive responsibility in the event one passenger steals their personal effects left unattended.
The waiver will be valid for property loss but not for bodily injuries.
In US states, you even have “anti-indemnity statutes” where the law prohibits hold harmless provisions in certain specific situations such as working in construction.
Just because a person has signed a hold harmless clause or agreement does not mean that the courts will automatically uphold its terms.
It’s important to draft a hold harmless clause in alignment with what’s permitted under the applicable law.
What does a hold harmless class protect against?
A hold harmless clause protects a party against a possible and potentially inevitable risk.
Typically, there are three types of protections that you can get using a hold harmless clause:
- General protection
- Service protection
- Property use protection
Let’s have a brief look at each of these types of protection.
General protection
A hold harmless clause can provide a party with general protection against potential risks or liability.
In essence, a party will not be liable for events resulting from the performance of the contract.
For example, a tour guide taking people on a safari may ask for a hold harmless clause for what may happen at a safari.
The question of the validity of a general hold harmless clause is always relevant based on the applicable law.
Service protection
A hold harmless clause can be found in service contracts to ensure that a person is protected against liability or risk due to the rendering of the services.
For example, if you hire a person to paint your house, the painter may ask for a hold harmless clause for liability events happening in your home while they are rendering the services.
Property use protection
Finally, a hold harmless clause can be used when a contract provides for the sale or transfer of goods or property.
The vendor will ask for a hold harmless clause should the buyer use the property in a way that results in a risk to the person.
Sample hold harmless clause
A hold harmless clause can be drafted in many ways but must observe some key elements:
- There should be a clear statement as to which party is accepting liability
- A clear statement as to the protection afforded
- A clear statement as to any possible exclusions to the protections afforded
To help you draft a hold harmless clause, you can download a few samples of hold harmless clauses to get started.
It’s important that you consider the unique elements of your contract, the governing law and the potential risks so you can properly draft a hold harmless clause.
Acknowledgment of risk form
It may be a good idea for a company or person to provide an acknowledgment of risk form for someone to sign in addition to a hold harmless clause.
For example, a safari tour guide can ask for his or her clients to sign a hold harmless clause for the unavoidable risks of the safari and can also sign an acknowledgment of risk form to ensure the client knew and understood what the risk meant.
Takeaways
A hold harmless clause is a contractual clause where one party agrees to hold the other “harmless” from any risk, liability or damages resulting from a specific event.
A hold harmless clause is used in business transactions or commercial activities where a party will be exposed to financial risk or even personal danger.
Typically, there are three types of protections that you can get using a hold harmless clause:
- General protection
- Service protection
- Property use protection
A hold harmless clause can be drafted in many ways but must observe some key elements:
- There should be a clear statement as to which party is accepting liability
- A clear statement as to the protection afforded
- A clear statement as to any possible exclusions to the protections afforded
To help you draft a hold harmless clause, you can download a few samples to get started.
We hope that this article helped guide you in the right direction in your review, assessment and drafting of a hold harmless clause.
