What Is A Hold Harmless Agreement?
A hold harmless agreement is a legal document or clause between two parties that agrees to absolve one party of responsibility for a claim brought by a third party if the underlying facts leading to the claim were within the control of the other party. Hold harmless agreements are used most often in construction contracts, but can apply to any claim or dispute between parties arising from a contract. These agreements are meant to protect one party from being held liable for harm, loss, damages, expense, and other consequences that the other party may suffer, or that are suffered by someone else, as a result of the performance of the contractual duties. A hold harmless agreement may be contained in a contract, an indemnity provision in a contract, or it may be a separate contract itself . In some cases the terms of the hold harmless or indemnity agreement do not take effect unless a claim is filed by a third party. In other cases, it takes effect as soon as one party has committed a breach or a wrongful act or omission.
The hold harmless agreement may also have more specific meanings in various fields of law. For example, a hold harmless agreement may be used in family law to protect a divorced spouse from having to pay one half of a tax liability. The dentist’s and physicians’ field uses hold harmless agreements to mean that no payments may be pursued from a claimant (patient or provider) for any claims not reimbursed by an insurance carrier. In California Relocation Law, a hold harmless agreement is used to identify the person responsible for damage to surrounding property when home property is being moved.
When Are Hold Harmless Agreements Used In California?
Hold harmless agreements can be found in a variety of contexts within the California legal landscape. They are commonly used in business contracts to protect one party from liability that may arise from actions taken by the other party. For example, a hold harmless agreement may be included in a licensing, distribution, or joint venture contract to clarify that one party is not responsible for any resulting harm or damages.
In the California real estate sector, hold harmless agreements are frequently used in transactions such as leases, licenses, and the sale of property. These agreements may explicitly state that the tenant is not responsible for the owner’s negligence or for damages resulting from defective plumbing, electrical work, or other installations. In residential leases, landlords may require a hold harmless agreement to shield them from liability for injuries that occur on the property, except in cases of gross negligence or intentional misconduct.
Event planners in California often incorporate hold harmless agreements into their contracts with clients. These agreements typically make the client responsible for any damage or personal injury caused by their guests, as well as the client’s own negligence, within the confines of their home or at the event venue. This is particularly important at private parties, where the risk of accidents or injuries is magnified when alcohol is involved.
In the field of construction, hold harmless agreements are routinely included in contracts with subcontractors. These agreements commonly stipulate that the subcontractor is fully liable for any accidents, injuries, or damages that occur as a result of their work on the project, essentially indemnifying the contractor from any harm caused by the subcontractor.
Medical facilities in California also make use of hold harmless agreements, which allocate liability for patient injuries that may result from the facility’s negligence. For instance, an outpatient surgery center might employ a hold harmless agreement in its contracts with patients, specifying that the patient waives any claim against the facility for medical malpractice, except in cases of grossly negligent conduct.
Important Provisions in a California Hold Harmless Agreement
It’s a binding contract.
In California, certain elements are required for a hold harmless agreement to be valid. The essential parties must be named as well as the scope of protection and limitation of liability.
For a no-fault agreement to be valid, the following elements must be part of the contract:
Parties – who is providing protection and who is actually protected
Scope of Protection – the extent of the protection being provided
Limitation of Liability – the type of protection being afforded and the general limit involved
The Agreement may not be available if it violates state policy or statute. The contract must be signed to be enforceable; otherwise, it is simply an agreement of mutual promises to be binding in the future.
Legal Issues pertaining to California’s Hold Harmless Agreements
In addition to the enforceability issues discussed above for Hold Harmless Agreements in California, there are other issues to consider with Hold Harmless Agreements in California.
Common law indemnity, as mentioned above, allows a party to obtain contribution from another party for its own failure or liability in a lawsuit in which both parties were at least partially responsible. A Hold Harmless Agreement is essentially an agreement whereby one party agrees to indemnify another and, therefore, assumes the other’s liability in the event a lawsuit or claim arises. It is generally agreed that the intent of the parties may be an exception to this general rule. That is, even if a Hold Harmless Agreement contains express language of indemnity, such Agreement may still be interpreted as an agreement to indemnify another party for its own negligence and not to indemnify another party for its own negligence due to the particular language used in the Agreement.
Another issue that California courts have dealt with is the applicability of Hold Harmless Agreements to releases of liability. Again, the California courts have held that the terms of the agreement will determine the scope of the liability that, such agreement shall release and Hold Harmless Agreement, and whether it releases a party for its own negligence.
The California Courts have required that the Hold Harmless Agreements contain specific language, or express provisions in order for such releases of liability and Hold Harmless Agreements to be enforceable and such releases of liability and Hold Harmless Agreements to not violate public policy in California. If the terms of such Releases and Hold Harmless Agreements are not sufficiently clear or specific to indicate that the releasing party or Indemnitor was contemplating exemption of the other party from liability for future negligence of the other party, then such release would be construed as being against public policy in California.
Pros and Cons of Hold Harmless Agreements
For the Indemnitor (the party promising to indemnify the other):
By including a hold harmless agreement in the contract, the indemnitor can avoid having to pay losses and damages (including attorneys’ fees) on behalf of the indemnitee (the party being indemnified), but may still allow the indemnitor to provide a defense for the indemnitee.
In an indemnity action, "the indemnitee is entitled to recover even though he acts in bad faith… so long as he is keeping the other person informed and making no unreasonable demands." In that case, a hold harmless agreement "serves safety unless acted on by [the indemnitee’s] interests…and not otherwise." The indemnitor can avoid paying fees and damages on behalf of the indemnitor where the indemnitor agrees to defend the indemnitee.
The indemnitor can protect herself from the potentially coinciding liabilities arising out of the indemnitor’s own negligence. Hold harmless provisions can be either "independent of, or dependent upon, the applicability of indemnity." An independent clause "grants indemnification to one who is liable but less liable than another, so that indemnification inures to the benefit of the indemnitee if both parties [are] liable." The dependent type of indemnification only applies to liability where the indemnitee is made liable due to the actions of the indemnitor. California law provides:
Thus, where a third-party judgment is rendered against a general contractor and the subcontractor was retained on an agreed-upon basis like the one here , indemnification will be triggered if the contractor’s liability is due to the subcontractor’s negligent performance of his work.
For the Indemnitee (the party being indemnified):
The holder may be able to recover what they would have been responsible for if it weren’t for the hold harmless clause.
The indemnitee must give timely notice of claims for there to be an obligation of indemnification. Notice is usually defined in the contract itself, but generally requires serving documents on the indemnitor or posting on the web.
To be defended in an indemnity action, the indemnitee must provide timely notice to the indemnitor and "cooperate in the settlement or litigation of any claim."
An indemnity clause will not apply if liability is incurred due to a party’s own fraud or intentional misconduct.
Indemnification agreements are not created equal. Where an agreement contains a subjective standard, the indemnitor is justified in denying indemnification. Subjective standards include those based on the conduct of a party that cause or contribute to the claim or the degree to which a party acted reasonably. A subjective standard allows a party to seek employment records of the claimant and investigate whether that claimant’s conduct caused or contributed to the loss.
On the other hand, a party that contracts "on a general indemnity" for all sums that the indemnitee becomes legally obligated, the party seeking indemnification must be granted indemnity for claims relating to the indemnitee’s own conduct.
How To Write a Hold Harmless Agreement In California?
Drafting a hold harmless agreement is a straightforward process, but it’s important to take the time to do so properly. A poorly drafted agreement may create havoc, especially if there is a future personal injury or an issue with one party causing damage to another’s property. The steps below provide a simple process for drafting an agreement. If you have any questions, or if you are concerned that your agreement does not capture all relevant information, consult an experienced local law firm to help you get answers.
Clarifying the Obligation
The language of the hold harmless agreement often begins with the following phrase: "The … [insert name of hold promoter] agrees to hold harmless, indemnify and defend … [insert name of beneficiary]." It’s important that you include the name of the hold promoter, such as an event sponsor, property owner, or operator, and the beneficiary which could be injured participants or event attendees at risk due to specific activities. The list could also include third party licensees, liquor licensees, and vendors.
Identifying the Activities
Next, you should identify the activities the agreement applies to. These could include such activities as construction-related risks, special events, licensee-related risks, and sports-related risks. It’s important to note that many of these liability risks can be reduced through insurance or risk transfer, and the agreement should specify those options.
Including the Insurance Requirements
Be sure to include appropriate insurance requirements in the agreement, including any minimum amounts of general and excess coverage. If event sponsors are able to secure additional excess general liability coverage, the hold harmless agreement should require the name of the insurer and the purchase date. For liquor licensees, captive liquor liability may provide superior protection. If a substantial number of guests or clients will be consuming alcohol at an on-site location, you should mention the type of insurance available.
Assessing the Indemnity
The level of indemnity should protect the hold harmless party yet be fair for the frequency of the activities performed by the hold promoter. Also, confirm that the different indemnities work together. Generally, for good faith efforts, limited indemnity, or low frequency activities, the hold promoter should indemnify the other party, such as an event sponsor, for its own negligence. However, for high frequency activities for which the risk exposure is higher, general contractors and property owners should seek reciprocal liability protection.
Seeking Legal Help
If you have any questions about drafting a hold harmless indemnity agreement or you want to make sure the rights and obligations of the parties are all covered in the agreement, consult an experienced California lawyer.
Where To Get Hold Harmless Agreement PDF Templates
Whether you are hiring a contractor or entering into a contract for services, you can find free downloadable templates for your hold harmless agreement in PDF format. These sample forms can be used to get a general idea of the basic components of a valid hold harmless agreement and ensure these components are all included . Keep in mind that no one template will apply to every situation for a California hold harmless agreement. Each of the sample forms can be modified to suit your individual needs.