Hold harmless agreement

How it works

Hold harmless language usually appears in leases, client contracts and subcontracts, often worded as a promise to “indemnify, defend and hold harmless.” One party, often the tenant, vendor or subcontractor, promises to protect the other, often the landlord, client or general contractor, from claims tied to the work or the use of a space. That can mean paying the other party’s legal defense, settlements or judgments.

How far the promise reaches depends on the wording. Clauses are often described in three rough levels:

• Limited: you cover claims only to the extent you caused them.
• Intermediate: you cover claims even if the other party was partly at fault.
• Broad: you cover claims even if the other party was entirely at fault.

Some clauses are mutual, with each side covering claims it causes. Others run one way. Whether a given clause is enforceable depends on the contract and state law.

How insurance fits in

General liability typically excludes liability you take on by contract, but with an exception for an insured contractInsured contractAn insured contract is a type of agreement, defined in general liability policies, under which liability you take on for someone else’s injury or damage claims can still be covered.Read the definition. In many policies, that includes the part of a business contract where you take on someone else’s liability for injuries or property damage to others. So your general liability may help pay for a hold harmless promise, subject to its terms and limits. Not every promise is insurable, and other policies may treat contractual liability differently.

A hold harmless clause is a promise in the contract. Additional insuredAdditional insuredAn additional insured is a person or company, such as a landlord or client, added to your liability policy so it can protect them from claims tied to your work.Read the definition status gives the other party rights under your policy. Contracts often ask for both.

Before you sign

Read the clause, note whether it’s limited, intermediate or broad, and ask your insurer how your general liability policy would treat it. For larger contracts, a lawyer can tell you how your state handles these clauses.