Contractors Hold Harmless & Indemnity Agreements

Date Posted: 2/12/2014
Author: Kim Wilson

Contractors Hold Harmless & Indemnity Agreements

The transfer of risk from one party to another through hold harmless and indemnity agreements in contracts is very common. Through these clauses, one party, the indemnitor, agrees to hold harmless and indemnify the other party, the indemnitee for loss or liability. For example, it is common for sub-contractors to hold harmless property owners or general contractors as respects the work performed on behalf of the owner or general contractor. The idea is to transfer the risk to the party that has control over the risk.

Because this risk transfer shifts a financial burden or responsibility to the sub-contractor, it is wise to require the subcontractor to maintain liability insurance and name the owner and/or the general contractor as an additional insured. This will provide more assurance that there will be financial resources to pay for most of the claims. Moreover, being an additional insured on the subcontractor’s policy will reinforce the risk transfer in the event a hold harmless is invalidated by the courts or by statute.

Requiring a hold harmless, liability insurance, and naming the general contractor as additional insured is usual and customary for sub-contractors and is typically not an undue burden on them.

The indemnity agreement should contain wording stating that the subcontractor waives it’s immunity granted under the Workers Compensation Laws of the State of Washington (RCW Title 51) Such a waive addresses the following situation:

  1. A subcontractor’s employee is injured on the job while that subcontractor is working for the general. He can collect workers compensation benefits but by statute his employer rarely can be held liable due to immunity granted by workers compensation laws.
  2. The subcontractor’s employee then sues the general contractor alleging liability for his injury as the controlling contractor at the premises.
  3. The general contractor, because they are being held harmless and are an additional insured on the subcontractor’s liability policy can tender the claim back to the subcontractor because the subcontractor has waived their immunity granted to employers by workers compensation laws. This is allowed by RCW 4.24.115.

It is important to set up a procedure to maintain and monitor subcontractor agreements. Although it is not common to have these types of losses, when there is one it is often serious. Being properly protected through this process will save both you and the property owner time and money. An attorney should review any contract including the indemnification clause to assure the wording is proper.

-Kim Wilson