Frequently Used-Rarely Understood, Hold Harmless Agreements

Those of you doing business have come across the Hold Harmless Agreement at one time or another. While many have signed and accepted this agreement, quite a few aren't really familiar with the actual purpose and intent behind it. The purpose of the hold harmless agreement is to transfer risk from one party to another. In the contract, one party (A), promises to pay another party (B) for certain losses sustained by (B). One example would be when the tenant of a building agrees to pay for any fire damage to the building that occurs during the lease. Another example would be when (A) agrees to indemnify (B) for defense costs and damages resulting from third party claims against (B). An example of this would be if a building contractor agrees to pay the landowner for the costs of a claim arising from injuries at the building site. This agreement does not, however, change the fact that (B) is still legally liable for all damages to an injured 3rd party. The hold harmless agreement make (A) the one responsible for paying for those damages on behalf of (B). The caveat to this is that in the event that (A) can't pay, (B) is still legally liable to pay the 3rd party claimant. While this might sound confusing, the basic idea is that those who wish to do business are oftentimes going to be asked to sign these agreements before they are awarded the job. It's important that you do not sign an agreement without first checking with your agent, and possibly even legal counsel. Many times insurance companies have not recognized a hold harmless agreement based upon the language of the policy. Additionally, some states have statues that forbid one party from assuming another party's liability in certain situations. Even if that isn't the case, courts in the past have held them unenforceable due to the disparities in the bargaining powers of the parties involved in the contract.