What Is a Hold Harmless Agreement & How Does It Impact Your Business Insurance?

A hold harmless agreement (HHA) is a legal document in which one party accepts full responsibility for potential losses resulting from a specific activity. Essentially, this legal contract reduces the liability exposure of the party requiring the hold harmless agreement. HHAs are used across several types of businesses, including construction projects, gyms, event venues and more.

How Does a Hold Harmless Agreement Work?

Hold harmless agreements are a way for a business to transfer risk from the company to another party. Under a hold harmless clause, the signing party assumes responsibility for potential losses or damages that may arise from a certain business service, such as gym membership benefits or renting a party bounce house. This means that if a third party is injured or suffers a property damage or financial loss, the signing party agrees to not hold the HHA provider legally responsible.

HHAs can offer the provider various levels of protection depending on whether its type is limited, intermediate or broad.

Limited HHAs protect the HHA provider only for losses caused exclusively by the HHA signer’s negligence, while broad HHAs protect the provider from nearly all types of losses — whether it’s caused exclusively by the signer, provider or by both parties. We’ll explain this in more detail in a later section.

Hold Harmless Agreement Example

A parent rents a bounce house from Bounce House Rentals, LLC for their child’s birthday party. To rent the bounce house and necessary equipment, the parent signed a hold harmless agreement, acknowledging that the rental company is not liable for any injuries or property damages while using or setting up the bounce house rental. On the day of the party, a child falls out of the bounce house and injures their knee. Since the parent signed the hold harmless agreement, they cannot file a claim against Bounce House Rentals, LLC to cover the medical bill.

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What Is a Hold Harmless Agreement Used For?

Hold harmless clauses are used to protect the party requiring the contact from legal liability during an event or some commercial service. Businesses with a high liability exposure typically require customers to sign this agreement — gyms often require members to sign agreements that free the center of liability for injuries sustained while exercising, for instance. As a result, these agreements reduce the liability exposure of the party requiring the hold harmless agreement.

Types of Businesses That Use Hold Harmless Agreements

All types of businesses, whether they’re a startup or a national chain, use HHAs and are especially common in business models where there is a higher risk of injury or damage. Here are some common types of businesses that may use hold harmless agreements:

• Construction companies: HHAs are commonly used in the construction industry to protect contractors and subcontractors from liability in the event of an accident on the job site. For example, if the client signs a hold harmless agreement, they cannot sue for damages if they are injured while a contractor is renovating their home.
• Fitness centers: To purchase a gym membership, you may need to sign a hold harmless agreement for damages or injuries you or your guest sustains while using the equipment and facilities.
• Event venues: Event venues such as banquet halls, convention centers, and sports arenas may require vendors and contractors to sign HHAs. The venue will not be liable for any losses the vendors or contractors incur during an event.
• Landlords: A property owner may require tenants to sign HHAs as a condition of renting a property. The HHA may free the landlord of liability that would be assumed by the tenant — a tenant’s guest gets injured inside their unit, for instance.
• Real estate: A real estate agent may require home buyers to sign a hold harmless agreement, freeing the agent of liability if the buyer is injured during a home tour.

Types of Hold Harmless Agreements

There are three main types of HHAs: limited, intermediate, and broad. The main difference between these types of agreements is the scope of protection they provide to the party being held harmless. Limited provides the narrowest scope of coverage, while broad offers the most comprehensive protection.

HHAs can be unilateral or reciprocal. In a unilateral HHA, one party agrees to hold the other party harmless. In a reciprocal HHA, both parties agree to hold each other harmless for losses caused by each party’s sole negligence.

Limited

Limited HHAs provide the narrowest scope of protection. These HHAs will hold the provider harmless only for liability incurred exclusively by the signing party.

Example: The subcontractor (HHA signer) agrees to hold the general contractor (HHA provider) harmless for losses caused by the subcontractor. If the subcontractor is solely responsible for injuries to a pedestrian, the subcontractor must rely on their general liability insurance policy to cover the losses.

Intermediate

An intermediate hold harmless clause provides a broader scope of protection than its limited counterpart. These HHAs protect the provider from losses due to negligence solely by the signing party plus joint negligence by both the HHA signer and provider.

Example: The subcontractor agrees to hold the general contractor for all losses incurred during the construction project, except for when the general contractor can be held exclusively liable.

Broad

Broad HHAs provide the broadest scope of protection to the HHA provider. A broad HHA clause will hold the HHA provider harmless for all losses incurred, including those caused by the sole negligence of the HHA provider.

Example: The subcontractor agrees to hold the general contractor harmless for all losses incurred during the project. In other words, the subcontractor will assume liability for losses caused by negligence caused by themselves, the general contractor, or joint negligence of both parties.

How Binding Is a Hold Harmless Agreement?

Hold harmless agreements may not always be enforceable in a court of law. In some cases, a court may determine that the agreement is invalid because it was signed under coercion or because the signer was deceived. Some states have laws that restrict the use of hold harmless clauses. In Connecticut, for example, a hold harmless clause that frees a party solely responsible for damages of liability may not be recognized.

Generally, hold harmless agreements are considered legally binding and the parties involved are expected to abide by the contracted language. But there are some exceptions.

Here are a few situations in which a hold harmless agreement may not be considered binding:

• Invalid agreements: HHAs may be deemed invalid if they were signed under duress, coercion or deception.
• Unenforceable agreements: HHAs may be unenforceable if they violate the laws of the state in which they are signed, or if they are considered to be against public policy.
• Ambiguous agreements: HHAs that are unclear or ambiguous may be subject to interpretation, which can lead to disputes about their meaning or enforceability. It is important to carefully review the terms of the agreement and consult with a lawyer if you have any questions about its binding nature.

Hold Harmless Agreements: Benefits and Drawbacks

The main advantage of a hold harmless agreement is that it frees the party requiring it from liability, providing some peace of mind. However, HHAs may not always hold up in court.

Pros	Cons
Reduce liability exposure	Does not guarantee the HHA signer can cover losses
Clarity	Potential for disputes
Focus on other business activities	Enforceability not guaranteed
Peace of mind

Are There Benefits to Using Hold Harmless Agreements?

There are several potential benefits to using HHAs:

• Reduce liability exposure: HHAs protect the provider from liability in the event that an accident or injury occurs while participating in an activity that has been organized or sponsored by the signing party. This can be particularly useful for businesses that operate in high-risk industries, such as construction or recreational activities.
• Clarity: HHAs provide clear, written evidence of the terms and conditions under which the activity is taking place. This can help to minimize understandings or disputes that may later surface.
• Focus on other business activities: Worrying about liability can be a significant resource and energy drain. HHAs can lighten this weight and allow you to focus on sales, marketing, product development or some other revenue-generating activity.
• Peace of mind: For individuals or businesses participating in activities with a higher risk of injury or damage, HHAs can provide peace of mind by protecting them from liability in the event of an accident.

Are There Any Drawbacks To Hold Harmless Agreements?

There are a few potential drawbacks to HHAs:

• Does not guarantee the HHA signer can cover losses: Just because one party signs the HHA, freeing the other party of liability, it does not mean that the signer can actually pay for the losses. If an HHA is formed between two businesses, the HHA provider should ensure that the other party has the financial resources (i.e. commercial insurance) to cover liability losses.
• Potential for disputes: HHAs may not always be clear or comprehensive, which can lead to disputes about their interpretation or enforcement. Consulting an attorney can help address vague language that could be exploited down the line.
• Enforceability: HHAs may not always be enforceable in a court of law. In some cases, a court may determine that the agreement is invalid because it is one-sided or because it was signed under duress, coercion or deception.

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Key Takeaways A hold harmless agreement (HHA) is a legal document in which one party agrees to assume full responsibility for potential losses or damages specified in the contract. For example, a gym may require members to sign an HHA, agreeing to hold the center harmless for injuries sustained while using the exercise equipment. HHAs are often used across various industries and contracts, including recreational activities, construction projects, and other types of business ventures. There are three main types of HHAs: limited, intermediate, and broad — each type offers varying scopes of protection to the party being held harmless. HHAs may not always be enforceable in a court of law, such as in cases where the court deems the agreement invalid because the signer was coerced or the state does not acknowledge its validity.

A hold harmless clause is just one part of a comprehensive protection plan for your business. SmartFinancial can help match you with general liability, professional liability and other coverage options for your business. Just enter your zip code below or call 855.214.2291 to receive your free commercial insurance quotes.