What Are Limitation of Liability, Indemnity, and Hold Harmless Clauses?

To protect your business from avoidable losses, liabilities, and risk, you need to understand limitation of liability, indemnity, and hold harmless provisions.

The way these terms are written is crucial to the protections the contract provides and the amount of risk your company takes on.

1.     LIMITATION OF LIABILITY CLAUSES.

Limitation of liability clauses are used to limit the amount of money a business can be held responsible for if something goes wrong. These clauses can help protect businesses from claims of negligence or breach of contract, but if the protections are written too broadly, courts can find them unenforceable.

2.     INDEMNITY CLAUSES.

Indemnity clauses require one party to provide financial protection to the other party against any losses or damages when certain things happen.

For example, if two parties contract for design services, the parties might include an indemnity provision in the contract that promises the design company will cover any costs and legal fees if the designer uses someone else's design without permission and the original designer sues the client. This way, the client is protected from having to pay for legal fees or damages, and the design company takes responsibility for any mistakes.

3.     HOLD HARMLESS PROVISIONS.

Lastly, hold harmless provisions are used to protect a party from liability. They can either protect the party from liability for the actions of another party, protect the party from liability for damages related to certain risks, or they can be broader and restrict a party from suing the other party altogether.

For example, let’s say you hire a company to provide copywriting services for your website, and they make a mistake on your site. If your company is sued for damages caused by their mistake, and you agreed to hold the copyrighting company harmless for its mistakes, you generally wouldn’t be able to sue them because you agreed to hold them harmless.

All of these provisions should be clearly spelled out in your contracts and understood by all parties involved.  If you don’t understand all these terms, your business may be agreeing to take on more risk than it needs to.

Just as limitation of liability, indemnity, and hold harmless provisions can be unfavorable for your company, they also can be written in a way that’s favorable for your company and fair for all parties.

This is why it’s important to speak with an attorney who can help you come up with limitation of liability, indemnity, and hold harmless terms that are fair and in line with the goals of your agreements.