An Indemnity Agreement, also known as a Hold Harmless Agreement, helps protect someone who hired a contractor from liability in the event that contractor harms themselves while working for them. It acts as a form of insurance, and lets people work together who might otherwise not be able to because of potential risk.
1. What is a Hold Harmless Agreement?
A Hold Harmless Agreement (or an Indemnity Agreement) is a legal document that transfers risk from one party, the Promisee, to another party, the Promisor. The Promisor promises to indemnify or hold the Promisee harmless against future claims, losses, or damages related to a particular activity.
A simple Indemnity Agreement will identify the following basic elements:
- Promisor: the name and address of the person or corporation making the promise to indemnify
- Promisee: the name and address of the person or corporation receiving the indemnity
- Activity: the contract or agreement between the parties that might give rise to future losses or damages
- Indemnity: what will be covered under the indemnity
The Promisor may also be called the Indemnitor, Indemnifier, or Indemnifying Party. The Promisee may also be called the Indemnitee or Indemnified Party.
What are the obligations?
The Promisor in an Indemnity Agreement promises to “indemnify”, “hold harmless”, and “defend” the Promisee. Below is a closer look at what each of these mean.
Indemnify
The word “indemnify” means that the Promisor will reimburse the Promisee for any loss or damages the Promisee incurs.
Hold Harmless
To “hold harmless” the Promisee means the Promisor promises that he or she will not sue or hold the Promisee liable for any injuries or damages.
Duty to Defend
If the agreement includes the word “defend”, the Promisor is also promising to defend the Promisee against third party suits.
The statute of limitations on an indemnity claim, which varies by state, begins to run on the date a claim is paid out by the Promisee.
As a reference, an Indemnity Agreement is known by other names:
- Hold Harmless Agreement
- Indemnification Agreement
- Contract of Indemnity
- Indemnity Contract
- No Fault Agreement
- Reparation Agreement
- Assumption of Liability Agreement
- Agreement to Indemnify
2. Sample Hold Harmless Agreement Template
The sample hold harmless agreement below shows what a typical agreement looks like:
Hold Harmless Agreement
| State of _________________ | |
| HOLD HARMLESS (INDEMNITY) AGREEMENT | |
This Hold Harmless (Indemnity) Agreement (this “Agreement”) is made as of this ______ day of _______________, 20______ (the “Effective Date”) by and among/between:
Indemnitor(s): ________________________________________________, located at ______________ ______________________________________ [Address] (individually and collectively, “Indemnitor”), and
Indemnitee(s): ________________________________________________, (individually and collectively, “Indemnitee”).
Indemnitor shall include all of their respective (Check all that apply) ☐ owners ☐ directors
☐ officers ☐ employees ☐ agents ☐ contractors ☐ subcontractors ☐ representatives
☐ invitees ☐ volunteers ☐ other: __________________ as applicable.
Indemnitee shall include all of their respective (Check all that apply) ☐ owners ☐ directors
☐ officers ☐ employees ☐ agents ☐ contractors ☐ subcontractors ☐ representatives
☐ invitees ☐ volunteers ☐ other: __________________ as applicable.
Indemnitor and Indemnitee may be referred to individually as “Party” and collectively as “Parties”.
WHEREAS, Indemnitor has agreed to _____________________________________________________
____________________________________________________________________________________________________________________________________________ [Description of activity/event giving rise to indemnity] ( ☐ in accordance with the _______________________________ [Agreement title related to activity/event]) dated ______________________ (the “Activity”).
NOW THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged, Indemnitor and Indemnitee agree as follows:
- Indemnification. To the extent permitted by law, Indemnitor will indemnify, defend and hold harmless Indemnitee from any and all claims, actions, liabilities, suits, injuries, demands, obligations, losses, settlements, judgments, damages, fines, penalties, costs and expenses, including attorney’s fees and other expenses, (collectively, a “Claim”) arising out of or relating to: (Check one)
☐ (All acts) The Activity.
☐ (All acts, except those by third parties) Any act or omission by Indemnitee or Indemnitor in connection with the performance of the Activity.
☐ (Only acts by the protecting party) Any act or omission by the Indemnitor in connection with the performance of the Activity.
Indemnity Limits (Check one)
☐ Indemnity is limited to only personal injury, loss of life or property damage.
☐ Indemnity is NOT limited to only personal injury, loss of life or property damage.
- Exceptions. Indemnitor’s obligation to indemnify, defend and hold harmless Indemnitee shall not extend to any Claim arising from the sole negligence or willful misconduct of Indemnitee. Indemnitor is not obligated to indemnify Indemnitee against any Claim to the extent the Indemnitee has been reimbursed for such Claim under an insurance policy.
Cap on Indemnity Amount (Check one)
☐ In no event shall any individual Claim or combined cumulative total of all Claims exceed $_________.
☐ There is NO cap on total indemnity amount.
- Notice of Claim. Indemnitee must provide Indemnitor notice of any Claim within __________ business days after obtaining knowledge of such Claim. Such notice will set forth in detail the Claim and the basis for indemnification under this Agreement.
- Duty to Defend. In the event any Claim is brought against Indemnitee within the scope of this Agreement, Indemnitor reserves the right to assume the defense of the Claim. If Indemnitor elects not to assume the defense of the Claim, Indemnitee may pursue its own defense of the Claim and seek reimbursement from the Indemnitor. If Indemnitor assumes the defense of the Claim, Indemnitor shall not settle any Claim without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld. If Indemnitee pursues its own defense of the Claim, Indemnitee shall not settle any Claim without the prior written consent of Indemnitor, which consent shall not be unreasonably withheld.
- Mutual Representations. The Parties represent and warrant that they are duly authorized and have the power and authority to execute and deliver this Agreement, and this Agreement constitutes a legally, valid and binding obligation on the Parties.
- Amendments. This Agreement may be amended or modified only by written agreement signed by all Parties.
- Notices. Any notice or other communication given or made to a Party under this Agreement shall be in writing and delivered by hand, sent overnight courier service or sent by certified or registered mail, return receipt requested, to the address stated above, or to another address as that Party may subsequently designate by notice, and shall be deemed given on that date of delivery.
- Joint and Several Liability. The obligation of each Indemnitor under this Agreement will be joint and several.
- Governing Law. The terms of this Agreement shall be governed by and construed in accordance with the laws of the State of _________________, not including its conflicts of law provisions.
- Disputes. Any dispute arising from this Agreement shall be resolved through:
☐ Court litigation. Disputes shall be resolved in the courts of the State of ______________.
☐ If either Party brings legal action to enforce its rights under this Agreement, the prevailing party will be entitled to recover from the other Party its expenses (including reasonable attorneys’ fees and costs) incurred in connection with the action and any appeal.
☐ Binding arbitration. Binding arbitration shall be conducted in accordance with the rules of the American Arbitration Association.
☐ Mediation.
☐ Mediation, then binding arbitration. If the dispute cannot be resolved through mediation, then the dispute will be resolved through binding arbitration conducted in accordance with the rules of the American Arbitration Association.
- 11. No Waiver. No Party shall be deemed to have waived any provision of this Agreement or the exercise of any rights held under this Agreement unless such waiver is made expressly and in writing. Waiver by any Party of a breach or violation of any provision of this Agreement shall not constitute a waiver of any other subsequent breach or violation.
- 12. Assignment. No Party may assign its rights or delegate its duties under this Agreement without the other Party’s prior written consent.
- 13. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective legal representatives, heirs, administrators, executors, successors and permitted assigns.
- 14. Severability. If any provision of this Agreement is held to be invalid, illegal or unenforceable in whole or in part, the remaining provisions shall not be affected and shall continue to be valid, legal and enforceable as though the invalid, illegal or unenforceable parts had not been included in this Agreement.
- 15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together, shall constitute one and the same document.
- 16. Headings. The section headings herein are for reference purposes only and shall not otherwise affect the meaning, construction or interpretation of any provision of this Agreement.
- 17. Entire Agreement. This Agreement contains the entire understanding between the Parties and supersedes and cancels all prior agreements of the Parties, whether oral or written, with respect to the subject matter.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the first date written above.
SIGNATURES
| Indemnitor Signature | Indemnitor Full Name |
| Indemnitor Signature | Indemnitor Full Name |
| Indemnitee Signature | Indemnitee Full Name |
| Indemnitee Signature | Indemnitee Full Name |
3. When to Use a Hold Harmless Agreement
All activities come with a certain amount of risk. An Indemnification Agreement allows parties to shift risk based on their needs and protect themselves against future lawsuits or losses. It acts as a form of insurance and also incentivizes parties to enter into contracts they wouldn’t otherwise enter into.
For example, if you wanted to remodel your kitchen, you may be reluctant to hire a contractor to come into your home for fear that if the contractor or one of his employees gets injured in your home, they might sue you. By having the contractor sign this agreement, you can protect yourself against such lawsuits. The contractor promises not to sue if he gets injured. And if the contractor’s employee gets injured and sues you, the contractor will have to defend the suit or reimburse you for your expenses in defending the suit.
It can also protect you against third party claims. If the contractor accidentally drops your old kitchen sink onto the neighbor’s new Tesla Model S, this agreement can shift the responsibility for the damage to the contractor instead of you.
Parties can negotiate how broad or how limited the Promisor’s indemnification obligation will be.
Types of Indemnity
There are three general types of indemnity clauses:
Type 1 – Broad Indemnification
A Type 1 indemnity clause is the broadest form of indemnification. The Promisor promises to indemnify the Promisee against the negligence of all parties, including third parties, even if the third party is solely at fault.
In most states, broad form indemnity provisions are invalid in construction contracts.
Type 2 – Intermediate Indemnification
A Type 2 indemnity clause is an intermediate form of indemnification. The Promisor promises to indemnify the Promisee against the negligence of the Promisee and the Promisor. The indemnity does not extend to the actions of third parties.
Type 3 – Limited Indemnification
A Type 3 indemnity clause is the most limited form of indemnification. The Promisor promises to indemnify the Promisee only against the negligence of the Promisor. The indemnity does not extend to the actions of the Promisee or third parties.
Below is a chart illustrating who is covered under the different types of indemnity clauses:
| Type 1 | Type 2 | Type 3 | |
|---|---|---|---|
| Promisor's Negligence | X | X | X |
| Promisee's Negligence | X | X | |
| Third Party's Negligence | X |
In most states, including California, the Promisor cannot be held liable for damages caused solely by the Promisee.
Be sure you have carefully read the indemnity language and fully understand the extent of the indemnity you are giving or receiving.
What is negligence?
A person is negligent when he or she does not act with the level of care an ordinary prudent person would under the same circumstances. There are two types of negligence – passive negligence and active negligence. Passive negligence occurs when a person fails to act – for example failing to discover a loose board in the floor. Active negligence occurs when a person performs an action that causes damage – for example improperly installing floorboards causing one to become loose. Many states prohibit indemnity for active negligence in commercial contracts.
4. What Happens if I Don’t Use a Hold Harmless Agreement
This agreement allows all parties to a contract to know who will bear the responsibility if something goes wrong and prepare accordingly. Without it, you may get sued or be responsible for damages that were not your fault. Or you may have no incentive to do your job with reasonable care.
Here is some of the suffering using this agreement could help avoid:
| Promisor | Promisee |
|---|---|
| Lost Money - Unable to get a job or contract - Did not obtain proper insurance | Lost Money - Responsible for unanticipated losses and liabilities - Did not obtain proper insurance |
| Lost Time - Extended argument involving attorneys in a courtroom | Lost Time - Time spent fighting legal battles instead of building a business |
| Mental Anguish - Prolonged problem hanging over your head | Mental Anguish - Fear of hiring another contractor |
In the event that something does go wrong, an insurance policy may help cover any liabilities owed under an Indemnity Agreement.
5. Hold Harmless Agreement Examples
An Indemnity Agreement is often used when two parties enter into an agreement where there is a potential risk of loss or lawsuit in the performance of the agreement.
Here are some examples of when you might use one:
| Indemnitor | Indemnitee |
|---|---|
| Tenant | Landlord |
| Independent Contractor | Homeowner |
| Rental Car Driver | Rental Car Company |
| Employee | Business Owner |
| Pet Owner | Kennel or Dog Groomer |
| Subcontractor | Contractor |
| Company | Director or Officer of a Company |
| Client | Consultant |
| Supplier | Customer |
| Homeowner Refinancing Home | Title Company |
| Thrillseeker | Skydiving Company or Amusement Park |
Common law indemnity, or implied or equitable indemnity, allows a party to file a cross-complaint or separate suit against a third party who is in whole or in part responsible for any losses or damages, even if there is no Indemnity Agreement. Laws regarding equitable indemnity vary by state.
6. What to Include in a Hold Harmless Agreement
A simple Indemnity Agreement should generally have at least the following:
- Who is the Promisor and Promisee
- What is the activity giving rise to the indemnity
- Where are the Promisor and Promisee located
- When is the effective date of the agreement
- Why might the Promisor not be obligated to indemnify the Promisee
- How broad is the indemnity being given
In addition to the above basic provisions, here are some additional terms you may want to include:
The Indemnity
- Limitations – identify any limitations on the indemnity, such as only personal injury or death, and any cap limits on the amount of the indemnity
- Notice of Claim – the Promisee must tell the Promisor about any claims within a certain amount of days
- Duty to Defend – the Promisor can take control of the defense of the claim, otherwise the Promisee can pursue its own defense and seek reimbursement
The Agreement
- Amendments – amendments must be in writing and signed by both parties
- Assignment – parties can only assign the agreement if the other party agrees in writing
- Notices – where notices about the agreement will be sent
- Governing Law – which state’s laws governs the agreement
- Disputes – how disputes regarding the agreement will be handled: litigation, arbitration, or mediation
Legal Speak
- No Waiver – any waiver of any part of the agreement must be in writing
- Severability – if one part of the agreement is ruled invalid, the rest of the agreement will not be affected
- Counterparts – the agreement can be signed separately
- Entire Agreement – the agreement supersedes all prior agreements