Hold Harmless Clause: What is it?

A hold harmless clause, otherwise known as an indemnity clause, is a contractual agreement between two parties where one party agrees to protect the other from financial losses, liabilities, or claims of another arising from the agreement. The clause is intended to cover both parties in the event of any problem or dispute occurring in relation to an agreement that could result in one or both parties facing a financial loss or claim.

For example, in construction contracts, hold harmless clauses are often used to protect contractors from the potential financial losses associated with a faulty building structure or an accident on the construction site, or from claims from a third-party injury.

The hold harmless clause outlines that, although one party is responsible for the costs associated with a given situation, the other party is absolved of any liability should a dispute arise. This can provide more protection than a release of liability, as the clause is more specific and detailed in what is and is not covered by the agreement.

The opposite of a hold harmless clause is an indemnification clause, which outlines that one party is responsible to the other for any losses ultimately caused by the former. It should be noted, however, that neither a hold harmless clause nor an indemnification clause releases a party from their responsibility to exercise reasonable care in any activity they conduct related to the agreement.

In order to ensure its enforceability, a hold harmless clause must meet certain requirements. The clause must be signed by both parties, it must clearly explain the risk intended to be covered, and it must outline the exact responsibilities of each party. Furthermore, the agreement should not be overly broad, should be reasonable, and should be followed by the party responsible for it.

Overall, a hold harmless clause provides an additional layer of protection for both parties entering into an agreement. By having a well-drafted, reasonable clause signed by both parties it can help protect them from potential claims and liabilities that can arise from the agreement. With this greater understanding of what a hold harmless clause is and what it can do, it provides the opportunity to find a mutually beneficial agreement when it comes to contracting and entering into an agreement.