Hold Harmless Agreement (Haftungsfreistellung)

Concept

A hold harmless agreement is a contractual clause under which one contracting party undertakes to place the other party in the financial position as if it were not affected by certain liability risks, third-party claims, or costs. Such clauses are common in construction, service, lease, and supply contracts to contractually allocate liability risk between the parties.

Relevance for Liability Insurance

Because a hold harmless agreement frequently represents a contractually assumed obligation that goes beyond statutory liability, coverage of such claims under liability policies is not automatic: many policy wordings contain exclusions for so-called “assumed contractual liability” to the extent it exceeds the scope of statutory liability, meaning that far-reaching indemnification agreements frequently require a separate coverage extension.

Practical Application

Hold harmless agreements are typically found in contracts between principals and subcontractors, in the leasing of machinery and equipment, and in event and sponsorship contracts, where one party contractually transfers the risk of certain loss events to the other party.