Hold Harmless Agreement

Written by: Chloe Silverman, Senior Writer at The Hartford

Reviewed by: Gene Marks, CPA, Author & Small Business Owner

What Is a Hold Harmless Agreement?

A hold harmless agreement is a clause in a legal contract that releases one party from liabilities such as damage, bodily injury or financial loss. Business owners, especially those in high risk industries, should consider having a seguro para pequeñas empresas policy that includes a hold harmless agreement to protect their business and any additional insureds from lawsuits. In some cases, these agreements could stop a third party from suing you or involving your business in expensive litigation.

What Is a Hold Harmless Agreement Used For?

A hold harmless clause is used as a release of liability in a contract that protects one party from injury or property damage caused by another party. By signing the clause, the other party is agreeing not to hold business owners legally responsible for the risks involved in certain services. Businesses that have hold harmless agreement insurance are also sued less frequently, so the high cost of getting legal advice from a law firm is minimized.

Small business owners may need a hold harmless agreement if a third party will be using their property or performing work for them. A hold harmless clause can help limit legal liability when:

You’re renting or leasing a property and you don’t want to be sued if someone gets injured or experiences property damage while visiting. Business renters insurance can help cover expenses from getting sued, but will not prevent you from getting sued.
You’re hiring a general contractor or other service provider for a project on your property and you want to avoid legal liability if that person gets injured on the job.

What Is an Example of a Hold Harmless Agreement?

High risk industries, such as construction or real estate, have the most to benefit from hold harmless agreement insurance. Their employees are constantly working at a third party’s property where injuries or damages can occur. Por ejemplo:

If a construction company or independent contractor is doing work at your business property, the company may have you sign a hold harmless clause to avoid being legally liable for any injuries resulting from the construction work.
If a real estate agent meets with a client to view a property, their company may require a hold harmless agreement so that the client can’t sue their business in the event of an injury during a home tour.

What Are the Pros and Cons of Hold Harmless Agreements?

A hold harmless agreement can be an important part of a business’ liability insurance policy, minimizing the risk to the business’ reputation and the financial impact of litigation. Some of the benefits of a hold harmless clause include:

Reduced legal liability and law firm expenses, because small businesses with hold harmless agreement insurance are sued less and therefore don’t need to hire lawyers as often.
An increased ability to focus on your work and spend less time worrying about getting sued or finding legal advice.
A lower risk of taking a hit to your business’ reputation in a public legal battle.

Holding a party harmless for injuries or damages can also have some drawbacks. For example:

Some states do not honor hold harmless agreements that are too broad or unclear.
Some types of hold harmless agreements can be voided if the signers believe they were forced or tricked into the indemnity agreement.
Being held harmless may not always protect your business from a lawsuit. Consult with an attorney for legal advice on any unexpected risks.

How Binding Is a Hold Harmless Agreement?

In most cases, a hold harmless agreement is binding and legally enforceable. Business owners should include specific language in their contract, stipulating a release of liability from lawsuits that occur as a result of negligence. However, a customer could still claim legal liability from a third party if the hold harmless agreement was signed exclusively with the business owner.