A hold harmless agreement is a legally binding contract designed to release one or more parties from legal liability. In a standard agreement, one of the parties essentially agrees not to sue the other for certain kinds of expenses, losses, or damages that may result from a particular transaction. This type of contract can be unilateral, or it can apply to both of the contracting parties.
These agreements can be treated differently in one jurisdiction than in another. Some jurisdictions maintain that hold harmless agreements can address claims that arise between the contracting parties themselves, while others have held that they may only protect a contracting party from claims brought by a person or entity who isn’t a party to the agreement. In this case, the agreement ensures that one party will not attempt to sue the other party for any allegations of liability that are brought by a third party.
To illustrate, suppose that two companies have signed an agreement in which Company A, a widget manufacturer, agrees to hold Company B, a retailer, harmless from any claims brought by a third party relating to the manufacturing of the widget. If a consumer purchases a defective widget from Company B and subsequently sues Company B, Company B could seek recourse from Company A. Under the terms of their agreement, Company A would be responsible for paying expenses associated with the consumer’s claims, including legal fees.
A hold harmless agreement is commonly used in a variety of business transactions. They are frequently used to limit liability between contractors and construction companies, for example, as well as among product manufacturers, retailers, and distributors. These agreements are also often entered into by individuals, such as tenants renting a house from a landlord or someone who takes out a loan or mortgage from a bank. They can be limited to specific issues, or they can cover a wide range of events.
In general, a hold harmless agreement covers any expenses relating to a lawsuit, such as court costs, attorney fees, settlement amounts, and judgment awards. Typically, one doesn’t apply if a party has acted intentionally or negligently. In fact, many courts have found clauses that include intentional or negligent behavior to be invalid and unenforceable. In addition, hold harmless arrangements are generally not upheld if a party has engaged in fraudulent or criminal behavior.