You're excited about landing a new contract, but then you see it buried in the fine print: a hold harmless agreement. The other party wants you to take responsibility for any injuries, damages, or lawsuits that might happen—even if they're partially at fault. Before you sign, here's what you need to know about how these agreements work and how they interact with your business insurance.
Hold harmless agreements are incredibly common in business contracts, especially in construction, commercial leases, and vendor relationships. But here's the thing most business owners don't realize: signing one of these agreements could leave you exposed to liability that your current insurance won't cover. Let's break down what you're actually agreeing to and how to protect yourself.
What Is a Hold Harmless Agreement?
A hold harmless agreement (also called an indemnity agreement) is a clause in a contract where one party agrees to protect another party from legal liability. Essentially, you're saying: "If something goes wrong and someone sues you, I'll cover the costs—even if you were partially responsible."
These agreements are everywhere. If you lease commercial space, your landlord probably requires you to hold them harmless if someone gets injured in your leased area. If you're a contractor, property owners typically want you to assume liability for accidents related to your work. Event venues, equipment rental companies, and professional service providers all use these clauses to shift risk away from themselves.
The critical issue? Your general liability insurance policy typically doesn't cover contractual obligations with third parties. Since a hold harmless clause is a legal contract, your insurance company may refuse to pay for losses that occur as a result of your agreement unless you've specifically notified them and obtained the proper endorsements.
The Three Types of Indemnification
Not all hold harmless agreements are created equal. Understanding the differences can save you from accidentally agreeing to unlimited liability.
Limited form indemnification is the most reasonable type. You agree to hold the other party harmless only for claims arising from your sole negligence. If a subcontractor you hired causes an accident, you're responsible. If the property owner's own negligence contributed to the problem, they share the liability. This is fair because you're only liable for what you actually did wrong.
Intermediate form indemnification goes further. You hold the other party harmless for your sole negligence or for situations where both parties were negligent. So if you're 30% at fault and they're 70% at fault, you're still covering 100% of their liability. This is more risky but still somewhat reasonable in certain business relationships.
Broad form indemnification is where things get dangerous. You agree to hold the other party harmless even when they're 100% at fault. A classic example: you're working at a construction site, and the property owner's faulty scaffolding collapses and injures a passerby. Under a broad form agreement, you'd be responsible for that claim even though you had nothing to do with it. Many states have banned broad form indemnification as against public policy, but not all.
Insurance Requirements in Hold Harmless Agreements
When you sign a hold harmless agreement, you're typically also agreeing to maintain specific insurance coverage. Common requirements include general liability insurance that covers bodily injury, property damage, and personal injury; workers' compensation insurance if you have employees; and sometimes commercial auto insurance if you're providing transportation services.
Here's the part that trips up most businesses: the contract will likely require your general liability policy to specifically cover the contractual liability you're assuming under the indemnification provision. Standard general liability policies include some contractual liability coverage, but it may not extend to the specific agreement you're signing. You need to submit the contract to your insurance company and have underwriters review it to confirm coverage.
You'll also likely need to add the other party as an additional insured on your policy. This gives them direct rights under your insurance policy for claims covered by the agreement. But here's a critical point: just because someone gives you a certificate of insurance doesn't mean the coverage actually exists. Certificates of insurance explicitly state they're informational only and don't guarantee coverage. If you're the one requiring insurance from a contractor or vendor, always request copies of the actual policy declarations pages and additional insured endorsements—not just the certificate.
Negotiating Hold Harmless Agreements
The single most important thing to understand about hold harmless agreements is this: they're negotiable. Just because a contract includes a broad form indemnification clause doesn't mean you have to accept it. Many businesses simply sign whatever contract is put in front of them without realizing they can push back.
Start by having your attorney review the agreement before you sign. They can identify overly broad language and suggest alternative wording that limits your liability to situations where you're actually at fault. A reasonable middle ground is often mutual indemnification, where both parties agree to hold each other harmless for their own negligent acts. This way, everyone takes responsibility for their own mistakes.
You can also negotiate what operations or activities are covered by the agreement. If you're a vendor at an event, for example, you might agree to indemnify the venue for accidents that occur at your booth but push back on indemnifying them for unrelated incidents elsewhere on the property. The goal is to only be liable for what you actually do or control.
Before you agree to any terms, contact your insurance broker. They can tell you whether your current policy would cover the contractual obligation, what endorsements you might need, and how much additional premium you'd pay. Sometimes the insurance costs alone make a contract unprofitable, and it's better to walk away than to accept unlimited liability.
Protecting Your Business
The legal fees for having an attorney review a contract are significantly less than the litigation costs, property damage, or bodily injury costs your business could face if a claim occurs and you're not properly protected. Think of it as insurance for your insurance.
Create a system where any contract containing indemnification language goes through a review process before signing. This should involve both legal counsel and your insurance broker. Keep copies of all hold harmless agreements you've signed, and provide them to your insurance company during policy renewals to ensure you maintain proper coverage.
If you regularly require others to sign hold harmless agreements (as a property owner, general contractor, or event organizer, for example), make sure you're also protected. Require proof of insurance that goes beyond just a certificate—get the actual policy endorsements. And consider whether you need your own contractual liability coverage to protect against situations where your indemnification requirements aren't properly backed by the other party's insurance.
Hold harmless agreements are a standard part of doing business, but they require careful attention. Take the time to understand what you're agreeing to, negotiate terms that align with your actual level of control and fault, and make sure your insurance actually covers the obligations you're assuming. Your future self will thank you if a claim ever arises.
