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What exactly IS a Hold Harmless Agreement?

April 14, 2014

“I’m lonely, I’m bored. I’m looking for somebody interesting to date, somebody with some passion,” said Steve to his good friend Zach, who immediately thought of Kim, who was fun, lively, attractive…and had a disquieting tendency at restaurants to toss drinks in the face of nearby strangers whom Kim deemed were talking too loudly.

Sora Garlasco

Sora Garlasco, Commercial Lines Account Manager

“Well…,” said Zach, thinking about it, “There is someone…fun, lively, attractive…but with this habit of throwing drinks in the face of overly talkative strangers.”

“Hmm…” said Steve, imagining a scale of justice with boredom on one side and soggy strangers on the other, “I’ll take the risk.”

“If you take this plunge, I can’t be responsible for what happens,” said Zach. “We will need a hold harmless agreement in place first.”

While not necessarily common in the dating world, hold harmless agreements — also known as indemnity agreements — are actually very common and a smart safeguard for individuals and businesses to have in place when they come together in a transaction.

When two companies jointly work on a project, a hold harmless agreement between them might state that concept of good contract with magnifying Glassneither will sue the other because of losses or damages that occur as a result. (This is sometimes accomplished through a “double indemnity” clause in a comprehensive contract. Such a clause would explicitly state that Company A agrees not to sue Company B, and Company B agrees not to sue Company A. Less commonly, the agreement is one-way only and the “indemnity” clause states Company A agrees not to sue Company B, but Company B retains its right to sue Company A.)

Other hold harmless agreements between two parties cover circumstances where a third-party like a consumer, another business, or an innocent bystander, brings a liability claim against one or both parties. In this type of scenario, a hold harmless agreement is a legally binding contract in which one party agrees to indemnify or “hold” the other party “harmless” – literally, to take the full brunt of any liability claim that arises against the other party in certain circumstances. These hold harmless agreements come in limited form, intermediate form, and broad form.

Limited form hold harmless agreement — Zach needs a new roof on his house and hires Nearsighted Roofing Company to do the job. While working on the roof, a nearsighted employee who keeps rescheduling his eye doctor appointment attempts to toss a crowbar into his toolbox. He misses, and the crowbar goes sailing off the roof, bonking a newly minted lawyer on the head. Because Zach insisted on a hold harmless agreement, if the bonked law-school grad tries to sue Zach, Nearsighted will legally have to bear the full responsibility for responding to the suit, even if the company itself is not named in it. In this scenario, Zach would have no potential liability. Like a pinch hitter in baseball, Nearsighted would step in and replace Zach in the legal sphere.

Intermediate form hold harmless agreement — Zach is a “hands-on” kind of guy who likes to work on his home alongside the contractors he hires. While up on the roof, Zach and some of the Nearsighted Roofing Company guys engage in an inadvertent game of hot potato involving a crowbar, which, as you may have guessed, ends up getting tossed off the roof and only a newly minted lawyer’s head. He sues Zach and Nearsighted because both were responsible for the accident. However, Nearsighted had agreed to sign an intermediate form hold harmless agreement, which meant they would legally bear the full responsibility for responding to the suit if it was the result of their behavior solely OR the joint behavior of both parties. Thus, even though Zach was also involved, Nearsighted will step in and replace him in the suit.

Broad form hold harmless agreement — These are uncommon and not allowed in many states, including Connecticut, which has statutes that specifically prohibit holding someone harmless for his own negligence in connection with construction contracts. But, just to give an example, let’s suppose Nearsighted really wanted the roofing job, and agreed to sign such an agreement. Now, if Zach himself tosses the crowbar onto the lawyer’s head and is solely responsible, Nearsighted would STILL have to step in and cover for him. Indeed, whether the accident was Nearsighted’s fault, both of their faults, or just Zach’s fault, Nearsighted will be on the legal hook.

One thing to keep in mind: Hold harmless agreements are typically out the window if somebody causes harm intentionally or negligently. Many courts have thrown out indemnity clauses that attempt to cover intentional or negligent behavior. Fraud and criminal intent is also a big no-no and will render a hold harmless agreement invalid.

Tip: When entering into a contract with another individual or business, make sure any indemnity clause provides at least equal protection for you, in what is known as double indemnity.

Tip: Whenever you are preparing to have work done on your home, make sure your agreement with your contractor includes a hold harmless provision that absolves you from legal responsibility for actions taken by your contractor that injure a third party.

Tip: Not all jurisdictions allow both kinds of hold harmless agreements. Some allow only those between two parties, while allows allow the limited and intermediate versions that protect against third-party legal action.

 

 

Questions?  Give me a call!  860-482-3506

Sora Garlasco

Commercial Lines Account Manager

sgarlasco@foundersgrp.com 

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