What is a Hold Harmless Agreement?
Hold Harmless Clauses and Agreements in Georgia have been around for a while, but as with most of the other contracts that contractors or tradesman enter into, these clauses are rarely understood, yet they typify the idea of "Risk Transfer." The idea that in some trades or parties to the contract, transfer risk from one party to the other, thereby pushing risk to another when it comes to the possibility of paying for defects or chance of loss. The basic definition of a Hold Harmless Agreement is "an agreement in which one party assumes the liability of another party." Giddens told us that "These agreements are generally entered into between two parties in order to provide one of the parties with greater liability protection on a project. This can be seen on projects where you have Owners, Architects and Contractors, where the Owner requests that the Architect have the contractor name the Architect as an additional insured on the contractors policies. Thus, if the Architect is sued for something that was caused by the Contractor during design, not construction, then the Architect has an opportunity to bring some of that claim to the Contractor’s carrier. Thus, bringing in the contractor’s carrier to pay anything that was caused while the contractor was performing work, thereby relieving the Architect from the threats of having to pay or defend themselves against any claims that are brought against them for the work . " Giddens said that these clauses are typically found in Contracts of Adhesion. "These type contracts have very little room for negotiation, thus making it a "take it or leave it" situation," Giddens explained. "It’s more of a sign here (initial here) and it’s yours." Giddens reminds all contractors and subcontractors that these agreements are binding and typically only apply to future claims. "They do not apply to any accidents that have already occurred, or those which may occur in the future, unless there is clear language, meaning the language clearly states prior to any accident or date certain." Giddens reminds all that these contracts can most times be used in either Construction Law or Litigation, and they are used to help offset costs to the other party. "If you’re faced with a claim of $1,000,000. I’ll give you an example of why you should push back against these contracts of adhesion that are becoming more common amongst general contractors and large owners. If the costs come in at $500,000, you will have to bear the costs, repair the issues and then sue the other party to recover the costs, by showing them why they should be paying. With a contractor of adhesion, they rarely budge from their position. In contrast, if you are able to negotiate before signing, and ensure that you are limited in your exposure, you can then offer up a lower repair cost and still reach an agreement without any future litigation. Hope that helps.
Georgia Law Requirements
In Georgia, there are no special regulations that specifically govern hold harmless agreements. General contract law and principles apply to the use and enforcement of hold harmless language. Among those general contract concepts is the importance of clarity whenever a person seeks to waive a right or claim. Georgia law has long recognized that indemnification and hold harmless agreements must be in clear and unambiguous language to preclude a party’s rights. The meaning of an unambiguous contract is a question for the court, but a court cannot remake a contract between the parties. If the language in the indemnification agreement is clear, unambiguous, and explicit in its scope and range, the court will consistently enforce it.
Georgia follows the doctrine of contributory negligence, meaning that if a plaintiff’s contributory negligence is less than that of the defendant, the jury can mitigate the damages to the extent to which the plaintiff’s negligence contributed. Simply stated, in a negligence action, a plaintiff cannot recover damages if his or her negligence was equal to or greater than that of the defendant. It is important to note that where a plaintiff’s negligence is equal to or less than that of the defendant, the jury can reduce the damages in proportion to the negligent party’s percentage of fault. A defendant may be held liable to the extent that their fault exceeds that of the plaintiff, so a hold harmless agreement that would absolve a defendant for any damages arising out of the plaintiff’s negligence may be seen as contrary to public policy as Georgia law does not allow defendants to contract away their liability for their own negligence. Thus, while Georgia courts will typically interpret hold harmless agreements as contemplated by the parties, the anti-indemnity statute limits the extent to which the agreements can be applied to claims of negligence.
When Should You Use a Hold Harmless Agreement
It is most common to see a hold harmless agreement in the context of real property. For example, if one party is going to be on the property of another party to do work, such as where a subcontractor is working on a construction project, then it is common to see hold harmless agreements. Such provisions protect the general contractor against any accident, injury, or damages that may occur while the subcontractor is on the job.
Similarly, in, for example, a venue or concert setting, it is common for the landlord/venue owner to require all vendors, musicians, etc., to sign a hold harmless agreement as part of a lease agreement for the facility. There are numerous other scenarios where the same type of understanding is reached among the parties.
In a business context, the use of a hold harmless agreement may arise in a situation where different companies are entering into a contract for a product or service. A common example is found in a franchise context. For example, a franchisee in the package delivery space signs a contract to buy specific equipment from its franchisor and the franchisor provides them with services of various types. In the contract, the franchisor may want a provision holding harmless from other responsibilities.
Elements of a Hold Harmless Agreement
Georgia’s hold harmless agreements typically contain the following components:
1. Description of Parties Involved
Every hold harmless agreement needs to specify which parties will be held harmless in case of any damages or claims. The identities of the parties, including the roles in the transaction (such as owner, developer, contractor or subcontractor), should be clearly stated.
2. Comprehensive Details of the Property
The property for which the indemnification is being offered should be clearly delineated in the hold harmless language. A vague description of the property may lead to questions of whether or not the language applies to a specific claim.
3. Indemnification Language
Essentially a promise to protect a party from damages, the indemnification language should be comprehensive and cover a variety of contingencies that could occur, considering the specific situation. If the language is too broad it could cause a problem in the future if one party is held liable due to causes unrelated to another party covered under the indemnity.
4. Insurance Requirements
Required coverage limits and relevant insurance details should be included in the hold harmless language and agreeably considered by all parties.
Pros and Cons
Benefits and Risks of Hold Harmless Agreements in Georgia
For the hold-harmless party, the advantages are generally excellent. Assuming the hold harmless agreement is fully enforceable, the company is not liable if its negligence or fault causes injury or damage. For instance, if a contractor signs an agreement with a general contractor, and the contractor negligently causes a jobsite injury or harm, the contractor will have no liability in the event of a lawsuit unless the contractor acted with gross negligence (and even then the limitation might not be valid. More on that another day.)
The contractor basically has the benefit of a free ride. The indemnification, if enforceable, means that the contractor will not notice any rise in insurance rates, save the money for any set-off claims (which are rare), or worry about being sued.
The risks for the hold-harmless party are slower to materialize, and they are often impossible to anticipate. If a hold harmless agreement does not cover a given type of claim (for instance, it might cover contract indemnification or contract defenses only, but not tort actions), then a general contractor may be stuck with liability on the front end. If the claim is in federal court , the general contractor can incur considerable large attorney fees to defend the case, but can often recover those costs from the hold harmless party. If it is in state court, the general contractor will almost invariably see its litigation costs rise. Likewise, if a subcontractor has very limited insurance coverage, the general contractor will likely face substantial claims on accounts of the conduct of the subcontractor.
Finally, there is a risk for the indemnifying party in Georgia involving an enforceability of a hold harmless agreement in some instances. Georgia law only allows the indemnification or hold harmless provision to be enforced in full if the indemnification bears a reasonable relationship to the indemnifying party’s relationship to the indemnified party. Because of this, a sub-subcontractor may have a claim that a hold harmless provision requires the sub-subcontractor to indemnify (that is, take on the liability for) a general contractor’s alleged negligence when the two were not proximal in their connections to the job at hand. For example, if the sub-subcontractor is only one step removed from the owner, but the general contractor is several steps removed, the court may find the hold harmless provision unenforceable.
How to Create a Hold Harmless Agreement
As with any contract, a clear and well-written hold harmless agreement can prevent future litigation or liability claims. Drafting an effective agreement requires a thoughtful process and a clear understanding of your particular needs. Here are some tips for drafting an agreement:
Parties to the Agreement: It is important to identify all parties to the agreement such as those who are indemnifying, those who are indemnified, all members involved, agents, employees, etc.
Identification of Actions or Liabilities: An agreement should state with specificity the actions and liabilities that will be subject to the indemnification. General terms such as "adverse actions" and "suits" are too vague and should be defined.
Allocation of Responsibility: Call out if certain costs are being allocated with respect to the indemnification (ie. attorney fees and costs are not allocated to the indemnifying party).
Approval Rights: Address the right to participate in the session if applicable.
Insurance: If insurance will apply to the indemnification, reference the insurance policy specifically, if possible.
Applicable Law: Every contract should contain a "Governing Law" section designating which jurisdiction’s laws will apply to the interpretation of the contract. If the indemnification is between parties in different states, it is extremely important to designate this.
Governing Language: If multiple languages are used in one agreement, reference the one governing language.
Since Georgia law does not force indemnification upon the parties, it is important to have a clear agreement that an indemnification is agreed to. Otherwise, reciprocal responsibilities will be assigned and could lead to a liability claim against each party. Legal consultation helps ensure that you have a contract that shows the intent of the parties and will hold up if contested.
Mistakes to Avoid
Mistakes to Avoid When Drafting Hold Harmless Agreements
There are numerous mistakes, which lead to unenforceable hold harmless agreements, that I commonly see made. Unfortunately, they are made by lay people and lawyers alike. Some of them are so simple that it is shocking to see them in an agreement when reviewing it.
Common Mistake 1: No Identifying Information
A hold harmless agreement should specifically identify the parties in a manner that is suitable for identification in a lawsuit. I have seen agreements that simply say "the Landlord agrees to hold the Tenant harmless in the event the Landlord is sued." The Tenant is a party to the case if a lawsuit is filed against him or her. If the Landlord is sued, he or she is the defendant. It is not clear from the agreement if the agreement is referring to the tenant or defendant as the ultimate victim of the suit. The agreement should specifically identify the parties by their full names. If the parties are corporations, the agreement should also specifically identify the entity in a manner that proves that entity was, and remains, in good standing with the Georgia Secretary of State. For example, if the Landlord is Larry’s Lawn Care,’ the agreement should state "Larry’s Lawn Care, a Georgia Corporation, is hereby held harmless by Jane Doe, Tenant."
Common Mistake 2: No Signature or Signatures of Minor Children
A hold harmless agreement is a contract. Contracts are unenforceable unless executed properly. A hold harmless agreement should be signed by the parties or their agents. If a party is executing the agreement on behalf of a company, he or she should sign in the capacity of the company. If a party is signing in the capacity of an agent, executor, or trustee, the type of agent relationship should be well established through use of appropriate language or attachment of appropriate documents. If a party lacks the capacity to enter the agreement, the agreement is void. For example, if minor child signs a hold harmless agreement in a lawsuit seeking to recover damages for personal injuries, the minor’s signature on a hold harmless agreement may void that agreement and bar the company from the defense. In other words, the company could be required to defend the lawsuit and pay any judgment entered against it.
Common Mistake 3: Logging Hours, Paying for Work Not Performed
More the hold harmless agreements are drafted as "Deed of Trust" and less as an insurance policy. From my experience, most people enter into these agreements believing they will never be held to the agreement. They erroneously believe the hold harmless agreement is designed to protect them and no assessed fault on their part. I have see the mistaken belief that you must be negligent and negligent with regard to a contract obligation in order to be subject to the hold harmless agreement. Therefore, it is absolutely common that they engage in excessive work, charge for hours on a project that fall far below normal for the type of work performed, and charge for additional monthly fees that are actually designed to offset the costs of litigating a mess you got yourself into. When you do not properly monitor what is going on with these contracts and sign them, the risk of loss could be higher than you believe it is. Be careful if you are offering a hold harmless agreement at all. The liability for losses resulting from the contract could be entirely on you or him if you approach the project the wrong way.
Enforcement and Legal Disputes
A hold harmless agreement legally protects one party from liability for acts or omissions of another party. This typically occurs where one party (the indemnitor) agrees to pay for losses caused by the negligence of the other party (the indemnitee).
Specifically, O.C.G.A. § 41-11-5 states that an obligation of indemnification is invalid unless it is contained in a contract or policy of insurance. Without an express agreement, indemnification may not be implied based on the circumstances. If a contract expressly includes indemnity and liability without fault, the courts will enforce that agreement. The Supreme Court of Georgia, in Dillon v. Slagle, 261 Ga. 247 (1984) , held that an indemnity agreement is valid and enforceable even where the contract obligates indemnification against one’s own negligent acts or transactions.
As a defense to indemnification, courts will find that an indemnity agreement is unenforceable if it violates public policy. Georgia law holds that a party cannot be absolved from liability for his own negligent conduct. In Cheltov v. Century II Realty Co., 154 Ga. App. 869 (1980), the court unenforceably as a matter of public policy, indemnified an owner and contractor for any claims brought by third parties arising from negligent acts of either the owner or contractor while working on a construction project. The court found that allowing a party to indemnify itself for its own negligent conduct would violate public policy and be unenforceable.