What is a Hold Harmless Agreement?
What is a Hold Harmless Agreement in Texas?
Hold harmless agreements are a crucial component of business and commercial transactions. They exist in various forms, whether as a provision in a contract or as a standalone agreement. Essentially, a hold harmless agreement frees one party of liability to another under specific circumstances. In many cases, a hold harmless agreement is associated with settled claims in which one party agrees to compensate another for a loss that has already occurred. You’ve most likely seen this type of hold harmless agreement in settlement documents.
However, hold harmless agreements are not limited to claims that have already occurred. They can also apply to future acts or omissions. If you are entering into a contract or agreement with a Texas company or individual and you are concerned about existing debts or an unknown future risk, a mutual or one-way hold harmless contract may be a good option.
The most frequently used hold harmless agreement relates to debts. If you are dealing with a debtor who has filed for bankruptcy and is attempting to settle current debts while accumulating more debts , you may be wise to demand a hold harmless agreement before doing business with this debtor. A hold harmless provision inserted into the applicable agreement can protect you against any additional future liability, including payment on any third-party claim.
In addition, when one party agrees to indemnify another for negligent actions, for example, they are protecting the other party from certain types of liability. If you are in this type of situation, a mutual hold harmless provision, indemnity agreement, or indemnification clause may be beneficial. Another term related to a hold harmless agreement is indemnification, which is similar but may involve a few differences.
If you are entering into a contract and are concerned about being held liable for any debts or claims, you will want to have a hold harmless agreement (also referred to as indemnity agreements in this context) included in the contract. If you don’t have such an agreement, you risk repayment for debts incurred by the other party. This often occurs in new business ventures or companies that owe debts to a third-party company.
Texas hold harmless agreements requirements
In Texas, a variety of laws guide a hold harmless agreement, each serving to define the legal requirements for a valid release of liability. For example, according to Texas law, compliance with the statute of frauds will be essential in both enforcing and satisfying a liability release. All contracts to be performed in one year or longer are within the statute of frauds, meaning they must be in writing. Enforcement of a liability waiver that fails to comply with the statute of frauds would be virtually impossible in result, since an oral agreement is enforceable for a one-year period and not beyond. The statute of frauds does not apply in most professional liability waivers, such as an agreement between a dentist and patient. The statute of frauds also does not affect liability limitations or liability releases contained in contracts with individuals that, although they run longer than one year, the arrangement can be completely performed within one year. In addition to the statute of frauds, the Texas Consumer Protection Act also imposes limitations on the enforceability of certain contractual waivers. In fact, Section 1702.201 of the CPA renders any liability release related to a home repair contract or practice agreement void if it attempts to limit the liability of any person for negligence or intentional torts.
Elements of hold harmless agreement
Indemnification Clause
A hold harmless agreement is essentially a contract that contains an indemnification clause. In this contract, one party (the indemnitor) protects another party (the indemnitee) against losses incurred from a third-party liability, such as a lawsuit. Typically, the indemnity portion of a hold harmless agreement will require the indemnitor to cover any losses, damages, or legal expenses incurred by the indemnitee in the event of a lawsuit involving third-party claims.
Scope of Protection
Because there are several forms that a hold harmless agreement can take, the scope of the indemnification can be limited or broad. A broad indemnification can include potential claims involving personal injury, but a limited indemnification might focus on only certain types of claims.
In addition, it is important to note whether a hold harmless agreement provides indemnification for only purely economic damages, or whether it provides indemnification for emotional and property damage as well.
Other Key Components
In addition to the indemnification clause, a hold harmless agreement includes:
• A clear outline of the parties involved in the indemnification.
• A detailed description of the specific losses that are covered in the contract.
• A clause regarding the indemnifying party’s control of defense.
• Language that prohibits the party being indemnified from taking certain actions prior to the indemnitor’s consent.
How to draft a hold harmless agreement
When Texas parties execute a hold harmless agreement, it is not enough that they intend to be held harmless. They must express this intent clearly enough so that they do not accidentally forfeit their contractual rights or incur liability. Specificity varies by purpose and the parties’ intent. For example, a complicated commercial transaction may require more detailed language than a simple mutual waiver of subrogation. Texas law does not require parties to use any specific language or format in hold harmless agreements. Generally, however, a hold harmless agreement should be an acknowledged, in writing, by all parties to the agreement. A sentence such as the following will usually suffice: [Party A] agrees to indemnify, defend and hold harmless [Party B], its agents and employees from and against any and all costs, damages, liability, claims, actions, suits, demands and expenses, including but not limited to reasonable attorneys’ fees and costs incurred by [Party B] arising out of or relating to [the] negligence of [Party A]. Additional clauses specific to the transaction, including definitions of certain terms (e.g., "costs," "damages," etc.) and exemptions for certain parties (e.g., general contractors or subcontractors) may be necessary. Careful attention should be paid to preventing the agreement from inadvertently creating additional liabilities, such as by extending the statute of limitations. Templates exist for various types of hold harmless agreements, and these templates are generally fine for relatively straightforward transactions. For more complex transactions, however, a customized agreement crafted for the parties’ particular situation, including contingent or conditional language, may benefit the parties.
The free hold harmless agreement PDF form
Free downloadable templates of hold harmless agreements are readily available, in PDF format, on several sites. I have provided links to three reliable online resources where such documents can be downloaded free of charge, with a brief description of each resource below:
TexasLawHelp.org – This Texas-based site for online legal resource as created by The State Bar of Texas provides a "general release" form under the heading Legal Releases. This simple but comprehensive general release form can be used to author a release document to hold a previous property owner harmless from future claims. The form is available as both a Word .doc and a .pdf file.
Nolo.com – Nolo is a legal helper site that provides legal books and self-help legal forms and has an excellent reputation for providing reliable reliable legal advice at low, flat fees. Nolo.com offers a general release form (also called a waiver , a liability waiver or a hold harmless agreement) for $7.99 in either Word .doc or .pdf formats.
LegalDocsOnline – The website LegalDocsOnline offers general release templates for free, "as-is." As described on the website: "A Release Form (also called a Waiver, Liability Waiver, or Hold Harmless Agreement) is a contract that protects one party by relieving them of certain legal obligations relating to a possible future event. You may use this document when you need to protect yourself from potential liability for any damages that may occur when dealing with a specific situation."
I recommend comparing these three free downloadable forms to find the best template for your particular situation, and contact an attorney or consider obtaining a different form if the free documents do not provide you with adequate protection.
Filling out a hold harmless agreement is deceptively simple. But it is important not to be lulled into complacency – be sure to use a template or document that is appropriate for your specific situation.
Common misconceptions about hold harmless agreements
Common Misconceptions about Hold Harmless Agreements in Texas
Reading a little bit more about the Texas law of Hold Harmless agreements you may run across confusion and misunderstanding about Hold Harmless Agreements and whether or not they are enforceable in Texas.
One common misconception about Hold Harmless Agreements & Liability Waivers in Texas involves the context in which they may be used. Some folks suggest Hold Harmless Agreements are sometimes unenforceable under Texas law, because these documents somehow conflict with the Texas law of Non-Disclosure Agreements and/or noncompete agreements.
The reality is much different than this common misunderstanding. Hold Harmless agreements do not implicate the law of non-competition or the law of non-disclosure because they are not restrictive covenants and they do not require a party to keep information confidential. Rather, Hold Harmless agreements hold party harmless for claims that one party may have against another party, such as a customer or client who seeks to enforce their rights in a claim made against a business or professional services provider.
Another misconception involves Hold Harmless Agreements which exempt a party from grossly negligent acts, such as committing fraud or breaching fiduciary duties owed to other parties. In fact, the law governing Hold Harmless Agreements absolutely prohibits businesses and other entities from entering into agreements with their clients or customers that eliminate liability for claims of gross negligence or fraud committed by the service provider. Therefore, while some Texas courts and case law may suggest that Hold Harmless Agreements cannot absolve or exempt a business from all liability, Courts will enforce them when they contractually agree to limit liability under certain circumstances. In this case, businesses & service providers can limit their liability provided no Texas law is violated. This is an important distinction. If the Hold Harmless Agreement is written in such a way as to eliminate the effects of grossly negligent conduct, it will be null and void because Texas law prohibits any entity from entering into an agreement seeking to eliminate the effects of gross negligence or fraud.
One more common misconception about Hold Harmless Agreements is the belief that these documents are not binding on the parties. The reality of Hold Harmless Agreements and Liability Waivers is that they are absolutely binding on parties that agree to their terms and that Courts will enforce them provided they do not violate public policy or involve the commission of fraud or an act of omission. In other words, people who sign Hold Harmless Agreements in Texas are stuck with the obligations they agree to and they cannot escape their legal obligations to fulfill those terms simply because they want to do so, or they later find out what the implications are from having agreed to the contract.
Potential risks, limitations, and pitfalls
While hold harmless agreements can provide a measure of protection against potential claims, there are risks and limitations that every party should consider before entering into such agreements.
Limitations on Indemnity for Gross Negligence
Most indemnity agreements attempt to protect the enforcing party from all losses, damages, and related expenses. However, Texas courts will not enforce an indemnification provision that seeks to indemnify for gross negligence. Because this is a strict rule in Texas law , your attorney must closely examine the indemnity agreement to ensure that it does not exceed the boundaries that the law has set.
General Challenges
Even agreements that are intended to be enforceable are sometimes challenged. For example, the agreement may be interpreted as unconscionable if one party has more power and negotiating leverage than the other. Even if the agreement is not found unconscionable, it may be subject to limitations under general contract principles. For example, a hold harmless agreement may not be interpreted as barring a party from indemnification for its own negligent acts unless the agreement explicitly states that such a limitation applies.