Using Hold Harmless Agreements in Your Business Contracts

If you’re a business and you’re hoping to limit your legal exposure, or to at least have some control over any lawsuits brought against you, the use of exculpatory clauses or hold harmless agreements may accomplish that goal.

But the last thing you want is false confidence—it’s important to make sure that the exculpatory clause you are using, does in fact do what you think it is doing for you.

Use in Business Transactions

We tend to think of hold harmless agreements as being insulation from claims that may cause injuries, and yes, they are often used in that way. But exculpatory clauses also can insulate you from business or commercial claims as well.

One thing to be wary of, is that overuse of an exculpatory clause in a business context, could lead to the contract being illusory, and thus unenforceable. An illusory contract is one where one party is bound, but the other is not.

So, if you have a contract to do something but the contract also says “but I can’t be sued if I don’t do what I’m contractually obligated to do,” you could end up with a bigger legal problem—the contract itself being unenforceable.

The better strategy is to limit liability. Not to excuse your own performance completely. You can limit damages, or time to sue, or the actions that can lead to a lawsuit, so you still have some “skin in the game,” when it comes to the contract, but you are not as legally exposed as you would ordinarily be.

One common scenario is to limit consequential damages—that is, damages that aren’t specifically in the contract, but which may stem from, or be caused by, a breach of the contract.

Using Specific Language

It is important in an exculpatory contract to specify what you are being released from. For example, are you being released from liability that may arise from conditions out of your control? Are you being released from liability for things that you may do or cause to happen or not happen? Are you being released from all events, or just unforeseeable events?

You may want to limit your liability for subjective or aesthetic items. Imagine that you are painting something or someone. You don’t want to have liability because they didn’t like what you did or didn’t do. Anything subjective, where there is no objective standard to measure performance, should have some waiver of liability if the other side of the contract just “doesn’t like” what you did.

Independent Contractors

If you are using independent contractors, you don’t want to be liable for what they do or don’t do, because you don’t have as much control over them as you would an employee. Indemnification clauses are common when using independent contractors, where they are protecting you from any legal wrongdoing for the contractor’s actions.

Do you need a hold harmless agreement or an exculpatory contract drafted? Call the West Palm Beach commercial litigation attorneys at Pike & Lustig today.

Sources:

law.cornell.edu/wex/hold_harmless#:~:text=Hold%20harmless%20is%20defined%20as,damage%20to%20the%20first%20party.

investopedia.com/terms/h/hold-harmless-clause.asp