The presence of a hold harmless agreement between parties in a contract can have a significant effect on the parties liability insurance and indeed the premium they pay for that insurance but what is a hold harmless agreement?
What is an indemnity agreement or hold harmless agreement?
The purpose of a hold harmless agreement in a contract between two parties is to release one or both parties from liabilities that may arise under and during the contract that would otherwise fall upon them but for the absence of that agreement.
The hold harmless agreement can apply to only one of the contracting parties or it can apply to both, this is known as a mutual hold harmless agreement.
What does a hold harmless or indemnity agreement say?
The exact nature and wording of an agreement may differ from contract to contract and certain standard forms of agreement are present in the UK oil and rail industry but an example of a limited form of hold harmless agreement may look like this;
The [Main Contractor] shall (in addition to, and without affecting, any other rights or remedies the other party may have whether under statute, common law or otherwise) indemnify and keep indemnified the other and hold the other harmless from and against all actions, claims, demands, liabilities, damages, costs, losses or expenses (including without limitation, consequential losses, loss of profit, loss of reputation and all interest, penalties, legal and other professional costs and expenses) resulting from any breach or non-performance by [the sub contractor] of any of the provisions under this agreement.
When are hold harmless agreements used?
A hold harmless agreement can appear in contracts in any industry although they are not commonplace in most contractual arrangements. However, there is a tendency within certain industries for the inclusion of the hold harmless or indemnity agreement in order to make the use of specialist sub-contractors much easier for the main contractor.
Good examples of this are in the gas, oil and rail industries where the perceived risks are high as are the requirements for limits of indemnity for third party liability insurance. The level of cover that might be required for a specialist contractor to work on an oil platform would be so expensive for the specialist contractor that it would either preclude them from undertaking the work or make the cost of the work to the main contractor extremely expensive. In cases such as these the actual risks that are being undertaken by the sub-contractor are already present and presumably insured by the main contractor. It makes good business sense for a hold harmless agreement to be in force between the parties in respect of the work being undertaken.
What effect does a hold harmless agreement or indemnity agreement have on insurance?
If you are involved in contracts that include hold harmless agreements you should make your insurance company aware of this. This applies to contracts with mutual hold harmless as well as agreements that are in effect in your favour or otherwise.
If you have an agreement with a sub contractor or other party that extends your liability by assuming risks that you would otherwise not be responsible for you must inform your insurance company so that they can accommodate this aspect of cover. This will increase your premium and may in some circumstances affect the availability of cover.
If you have agreements that relieve you of legal liabilities arising from work that you undertake you should also inform your insurance company as this can have a very positive effect on the premium you pay for your liability insurance.
Do hold harmless agreements reduce the liabilities of the parties to the contract?
Not necessarily, almost by definition if one party is relieved of liabilities that would otherwise arise then it would seem that automatically the other party is assuming them where they would not normally exist.
Is a hold harmless agreement or indemnity clause enforceable in law?
There have been few legal challenges to these agreements in UK law but it is generally accepted that they would be enforceable although the exact terms and conditions of the clause and other clauses in the contract that may have bearing on this may allow a challenge in some circumstances.
It is also worth noting that certain forms of hold harmless clauses are not enforceable in certain states of the USA.
Where can I get more information of hold harmless clauses and insurance?
You can call us direct to discuss your situation with specialist liability insurance broker.