Construction work, by its very nature, is a high-risk business. It often isn’t a question of if a loss will occur but when and how large it will be.
When a loss happens—an electrical fire, a structural failure, or a site accident—parties on a project frequently point fingers at one another. One contract tool used to allocate those risks is a hold harmless clause, which can shift responsibility and potential costs from one party to another.
Express indemnification is a written clause in a contract that secures one party against legal responsibility for a loss. The indemnitor is the party that agrees to assume responsibility; the indemnitee is the party protected. These clauses appear throughout construction documentation and sometimes hide in purchase orders or subcontracts.
Construction sites are also addressed by specialized insurance and risk-control resources; for more on insurance and accident scenarios, see Construction Site Accidents and Insurance.
There are three common forms of express indemnity used in construction contracts.
Type Three (comparative fault clause) holds the indemnitor liable only for the portion of a loss it causes. For example, a contractor might agree to hold an owner harmless for claims related to the project, but only to the degree the contractor’s omissions or negligent acts contributed to the loss.
Type Two (intermediate form clause) is the most commonly used. The indemnitor assumes responsibility for a claim unless the indemnitee is the sole cause of the loss. For instance, a contractor could agree to hold an owner harmless for claims even if the owner’s negligence contributed—but not if the owner alone caused the claim.
Type One (broad form indemnity) requires the indemnitor to hold the indemnitee harmless even when the indemnitee’s negligence was the entire cause of the loss. This is the broadest transfer of risk and is often most burdensome for subcontractors.
Because construction bidding is competitive, subcontractors and contractors sometimes accept broad indemnity to win work, which can expose them to catastrophic financial risk. Some companies mitigate contractual risk with other tools; for example, surety arrangements are another form of protection for project obligations—see Contract Surety Bonds.
State laws differ on enforceability of indemnity clauses, and the law of the state where the work is performed usually governs enforcement. That means an indemnity clause valid in one state may be unenforceable in another, so where a job is located matters for what a contractor can be required to accept.
Subcontractors at the bottom of the contracting ladder tend to dislike broad hold harmless clauses because they have less control over the overall project and less ability to absorb large losses. Contractors at the top—owners and general contractors—often prefer clauses that push or limit liability downward.
Contract language is only one part of managing risk; contract negotiation, insurance coverage, and project safety practices all matter. If you’re unsure how a specific clause affects your exposure, consider consulting insurance resources or Challenges in Construction and Design Defects for related risk topics, or ask an agent to review your contract and coverage.
Frequently Asked Questions
What is a hold harmless clause?
A hold harmless clause is a contract term where one party agrees to assume legal liability for claims or losses that might arise from a project.
How do Type One, Two, and Three clauses differ?
Type One shifts nearly all risk to the indemnitor, Type Two shifts risk unless the indemnitee is the sole cause, and Type Three limits indemnity to the indemnitor’s share of fault.
Can a subcontractor refuse to sign a broad indemnity clause?
Yes, a subcontractor can refuse, negotiate limits, or seek insurance or other protections, but market pressure may affect bargaining power.
Does insurance cover obligations created by indemnity clauses?
Insurance may cover some liabilities, but coverage depends on policy terms and any contractual liability exclusions, so review policies carefully with an agent.