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What Is the Difference between a Hold Harmless Agreement and a Waiver of Subrogation?

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  • Written By: R. Kimball
  • Edited By: Daniel Lindley
  • Last Modified Date: 03 December 2016
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    Conjecture Corporation
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A hold harmless agreement included within a contract grants the party providing the service the right to be free from liability. A waiver of subrogation causes one to give up the right to allow an insurance company to step into the position of the contractual party to recover damages. Frequently, contracts include both of these types of clauses; however, one must determine based upon the specific terms of a transaction if the clauses are appropriate.

In a contract where one is receiving services from a provider for extensive maintenance to an asset, a hold harmless agreement is not suggested. When the provider makes repairs or does the necessary maintenance and something goes wrong, the party receiving the service is going to want the right to retribution of some kind. If the party receiving the service signed a hold harmless agreement, the service provider would not be liable for poor service. Many form contracts include a hold harmless agreement, so it is imperative to review the documents and determine if one is willing to give up the right to damages in the event of a problem.

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Many construction contracts include a waiver of subrogation. There are form contracts used for all of the different layers of service providers within a construction project. In order for the waiver of subrogation to work, each of the contracts for each layer must include terms that work together. If one contract within the mesh of contracts does not include a waiver of subrogation clause, then it can invalidate all of the other contracts. The parties normally agree in these circumstances to allow for a waiver of subrogation, as they purchase a specific insurance policy for the construction project and split the costs for such among each of the providers.

Service contracts that include both a hold harmless agreement and a waiver of subrogation clause have been developed to protect the service provider and limit liability from insurance claims. These contracts do not split the risks fairly between the parties. It is up to the party contracting for the service to determine if he or she is willing to forgo the right to damages or retribution in the event of service failure or other issue from the provision of service. Depending upon the service being provided, the party receiving the service might agree to such clauses. Any time that the damage associated with a service may vastly exceed the cost of the service, the party contracting for the service should seriously consider whether or not to include these two clauses in an agreement.

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