Overview
Before you sign a contract to start a job, read the agreement closely for clauses that shift responsibility or create insurance obligations you may not expect.
Hold-harmless or indemnity provisions commonly transfer financial responsibility for injuries or property damage to one party, and those responsibilities can trigger liability claims that your insurance may or may not cover.
Key takeaways
- Have an attorney review contracts that include indemnity, hold-harmless, or similar clauses.
- Confirm with your insurer whether assumed contractual liabilities are covered under your current policies.
- Nonstandard or broad indemnity language can create gaps between contract obligations and insurance coverage.
How it works
A hold-harmless clause generally requires one party to accept liability for certain losses, legal costs, or damages arising from the work or relationship described in the contract.
Insurance responds to covered losses, so if the contract requires you to accept responsibility for events outside your policy's coverage, you could face uncovered exposure.
When a contract triggers bonding or financial assurance requirements, you may also need to secure additional instruments; for guidance on surety arrangements, see Contract Surety Bonds.
What it may cover (and what it may not)
Standard liability insurance typically covers negligence-based bodily injury and property damage within policy terms, but it may exclude certain contractual liabilities or specified operations.
Some policies include contractual liability coverage for obligations you assume under written contracts, but the scope varies by policy and insurer, so review policy language carefully and consider specialist resources such as Understanding Contractual Liability and Insurance.
Certain projects or property types may have unique insurance considerations; for industry-specific guidance, consult resources like Timber Tracts Insurance if relevant to your work.
Common mistakes to avoid
Do not assume your general liability policy automatically covers every contractual promise you make; exclusions and sublimits are common.
Avoid signing contracts with broad indemnities that require you to defend or indemnify the other party for their own negligence unless your insurer explicitly confirms coverage.
Failing to involve legal counsel and your insurance representative before signing can leave you responsible for defense costs or settlements that exhaust your business assets.
Questions to ask an agent
Does my liability policy include contractual liability coverage for the types of indemnities in this agreement?
Are there exclusions, sublimits, or endorsements needed to extend coverage for this project or for work performed on another party's property?
Will accepting this contract require a separate bond, an umbrella policy, or a certificate of insurance with specific limits and additional insured wording?
Next steps
Before signing, have the contract reviewed by an attorney and review your policy declarations and endorsements with your insurer to confirm coverage and identify any gaps.
If the contract requires additional financial assurance or specialized cover, consider obtaining appropriate endorsements or bonds and document coverage in a certificate of insurance.
If you need a quick quote or want to formalize a review with insurance staff, talk to an agent who can help match policy terms to your contractual obligations.
Frequently Asked Questions
What is a hold-harmless clause?
A hold-harmless clause is a contract provision where one party agrees to accept responsibility for certain losses or claims that may arise from the work or relationship described in the agreement.
Will my general liability insurance cover contract indemnities?
It depends on your policy language; some include contractual liability coverage while others exclude or limit such obligations, so check your endorsements and ask your insurer.
Should I sign a contract that requires me to defend the other party?
Exercise caution: agreeing to defend another party can expose you to significant legal costs, so consult your attorney and insurer before signing.
When is a surety bond required?
A surety bond may be required when the contract demands financial guarantees for performance or payment, and a surety specialist can explain the options and costs.