3 Types of Hold Harmless Agreements and When to Use Them
Details to Include Before Signing One
A hold harmless agreement is a clause typically included in construction contracts to release one party from consequences or liabilities due to the act of the other. Subcontractors typically provide hold harmless agreements to contractors, builders, or other related professionals, insuring against all work being executed by the subcontractor. The provisions of a hold harmless agreement minimize the risk of being part of a litigation or allow you to pursue a claim for indemnity if a subcontractor or any of his employees sustain an injury.
A hold harmless agreement clause in a contract document should have specific language to protect the contractor or the intended parties. The agreement must include provisions to neglect any claims, damages, losses, expenses, or any other cause of action to the contractor if any problem or dispute arises in the construction project.
Hold harmless agreement protections vary depending on the jurisdictions in which they are being executed. In some cases, agreements will protect a contractor from claims brought by corporations or companies not forming part of the agreement.
Three Basic Types
Three basic types of hold harmless agreements are used in the construction industry: broad form, intermediate form, and limited form.
- Broad Form: With this type of agreement, a subcontractor being insured assumes all related liability for accidents, its own negligence, general contractor negligence, and the combined negligence of both the contractor and subcontractor. Due to its broad terms, many jurisdictions prohibit this form of hold harmless agreement. In some cases, to validate this type of agreement, a subcontractor must finance its own liability with an additional insurance policy.
- Intermediate Form: Under this form of agreement, a subcontractor assumes all liability for accidents and negligence. A subcontractor is responsible for her related actions and will not be held accountable for the general contractor's accidents or negligence. It is one of the most common types of hold harmless agreements. The agreement is not dependent on whether an action was a subcontractor's fault or not; it depends only on who was responsible for the accident or who was acting negligently. If both parties were negligent, a subcontractor will be held responsible for her actions and will be liable for her actions and omissions.
- Limited Form: In this agreement, a subcontractor will be held accountable only for the accident or negligence, but on a limited form. A subcontractor will assume liability only for the proportional part of what was his responsibility. This type of agreement limits the liability of a subcontractor only to his responsibility and will include others, under their respective hold harmless agreements, for their corresponding part of the accident or negligence.
Before entering into a hold harmless agreement, be prepared to provide the following details:
- The person or party to be held harmless, including the name of the person signing the agreement.
- The person or party providing protection. Again, this should include the name of the person signing an agreement to hold the other party harmless.
- The type of protection being provided. Construction-related hold harmless agreements typically fall under the category of services.
- A time frame. It typically is a range of dates that coincide with the construction project.
Normally, a hold harmless agreement will contain specific language, and your insurance company or the contract issuer can provide one. It is recommended that an attorney review or help draft the specific language. Hold harmless agreements often are clauses within broader contracts, and they might fall under some of these common headings:
- Terms Definition
- List of Exceptions for Indemnification
- Notice of Claim
- Authorization of Indemnification
- Assumption of Defense
- Failure to Defend
- Settlement and Consent (for both parties)
- Rights and Obligations of Both Parties
- Governing Law
- General Provisions
In terms of wording, the clause should be similar to the following:
"Contractor shall agree to defend, indemnify, and hold harmless the Owner and ______________________ (lender), and the (city/state/county) from liability and claim for damages because of bodily injury, death, property damage, sickness, disease or less any expense arising from Contractor’s Performance under this agreement to install or construct housing rehabilitation to be paid for out of the proceeds of the Owner’s rehabilitation loan. Contractor is acting in the capacity of an independent Contractor with respect to the Owner." Every county could potentially require specific language to address the aforementioned issues, so be sure to verify the validity of your clause and contract language.