What Is A Hold Harmless Agreement?
A Hold Harmless Agreement is a type of indemnification. Indemnification is the practice of shifting risk. Someone hires someone else and makes them responsible for the risk of loss. Typically it is like passing the insurance policy to the liability over to the other party. The indemnitor agrees to "hold harmless" the other party which essentially means they are on the hook to pay if anything goes wrong and the person seeking indemnification gets sued.
With a hold harmless or indemnification agreement , it is essentially a way to shift the burden of liability on to the indemnitor (the party giving the indemnification). The indemnified party (the person being indemnified) is agreeing not to hold any liability for a claim even though it is their property that suffered damage.
The indemnitor is typically paid for their services by someone with an insurance policy, otherwise why would a person shield another party from liability unless there is some sort of a benefit in it? If a person is being hired to do a job then gathering insurance is common but only between the hiring person and the job doing person. When a third party comes in and incurs damages and sues the holder of a hold harmless agreement, they cannot come after the party performing the work.
Significance for Towing Companies
The nature of the business presents specific types of risks and liabilities. This is one of the reasons that it is so important for towing and storage companies to use routine Hold Harmless Agreements. Towing and storage companies are subject to a wide range of potential liabilities, including but not limited to negligence, vicarious liability, bailment, breach of contract, failure to supervise and other applicability of state law. We will examine each of these liability areas, and the necessity of Hold Harmless agreements in relation to these liabilities:
NEGLIGENCE
At its most basic, negligence requires a duty, a breach of that duty, and a resulting injury. Every motor vehicle accident creates a presumption of negligence, unless it can be negated by evidence of an intervening cause. When the damage involves a third-party’s vehicle, allowing a claim against the towing company, picking up a badly damaged vehicle, or with passengers in the vehicle, could expose the garage to liability.
The Hold Harmless agreement protects against this risk of liability. It’s one thing to take responsibility for your own actions; it is quite another to accept liability for someone else’s actions. The Hold Harmless agreement is a way to protect against that risk.
VICARIOUS LIABILITY
Towing companies often employ drivers as independent contractors. The interstate carrier drives may be employees/support vehicles of the state patrol, law enforcement agencies, or local municipalities. These employees or subcontractors can cause damage or injury and expose the towing company to the liability of an employer under the theory of Vicarious liability.
BAILMENT
Taking possession of the vehicle is the first step in creating a Bailment. With some exceptions, a contract exists between the vehicle owner and the bailee, wherein the bailee is responsible for care and custody of the vehicle. A party injured by the alleged excess of care or lack of care can sue the bailee for damages due to the Bailor-breach of duty.
FAILURE TO SUPERVISE
When a bailee leaves an employee or subcontractor in charge of the property, he is subject to a theory of liability called "failure to supervise". By way of example, an employee is assigned to lower a damaged vehicle from a tow truck. The employee fails to secure the vehicle and, as a result, the vehicle slides off the bed of the tow truck, causing property damage. The bailee can be held liable for the actions of his employee, even when the employee is the one in actual control of the property away from the bailee’s direct supervision.
In general, Hold Harmless Agreements are used to protect a party from claims, losses and damages caused by or arising out of the negligent actions of a third-party, including, but not limited to, the negligent act or omission of an agent or employee. The Hold Harmless Agreement must set out the specific actions that are covered, and the scope of the protection. It is a good idea to have hold harmless agreements in place for every vehicle you carry.
Essential Components of a Well-Crafted Agreement
When it comes to creating an effective hold harmless agreement, there are certain clauses that must be included. These clauses typically involve indemnification, negligence, and limitations on liability. An indemnification clause outlines what responsibilities the company is willing to take on, in the event of a lawsuit or other claim down the road. The most comprehensive forms of indemnification involve the towing company being responsible for losses incurred by the customer and potentially the towing company, as well as those of associated parties such as their employees, affiliates, vendors, subcontractors, etc. Even if involved, the vehicle owner cannot avoid liability for damages. As such, the involvement of third parties such as insurers cannot be relied upon. This provision is meant to prevent any claims against the towing company from being brought by the customer or other related third parties. The customer agrees that the towing company will not be liable for these costs, up to a specific amount. The language used in an indemnity clause is important. Language such as "to the fullest extent permitted by law" makes it difficult for the company to avoid liability, with respect to customers and other third parties. This is an important factor for towing companies to consider when pursuing an indemnification clause.
A negligence clause defines which party bears responsibility for damage during the course of liability. It determines whether the towing company or the customer is responsible for any damages to the vehicle during the vehicle’s time in the company’s possession. In addition, when the customer provides independent instructions to the towing company, they assume responsibility for such instructions. Therefore, the indemnification clause is also important. A company may fail to obtain consent for damages that exceed the amount agreed upon in the indemnification clause, meaning it is more likely that the company is over-indemnifying itself for vehicles that are damaged during storage. The company’s indemnification should apply only to ordinary wear and tear. Keep in mind that a customer can never waive their right to sue the towing company for negligence in the scope of their relationship. This means that the negligence clause should only focus on damage that the customer agrees not to hold the company responsible for.
Liability limitation clauses define the maximum amount that a company will have to pay for damages, such as damage to the vehicle while in the company’s possession. This clause should designate a flat rate fee for damage up to a certain value (for example, $10,000). It should also define that damages from theft, fire, or flood are not covered, as well as service charges, fees, mileage, hours, and costs incurred during the vehicle’s time in the company’s possession. Even if the damage to the vehicle is extensively higher than what is designated in the liability limitation clause, the towing company can still only be held liable for the amount set forth in the contract.
Considerations When Drafting
The hold harmless agreement should be drafted for the specific business in mind, acknowledging the services the towing company will actually be performing and how they will affect other people or their property; seeking to protect the towing company for liabilities that may arise from those services. In this sense, it is particularly important that the broadest of all encompassing language be included, but also that the relevant considerations of the respective business be considered. Such drafting will typically require the assistance of competent legal counsel, who will be in the best position to assess the risks involved in the particular business and use the appropriate boilerplate forms.
Challenges and Solutions
You may wonder whether your hold harmless agreement will be enforceable. The law will presume that a contract is valid between the parties and will decide that a party is bound by the contract unless it is made to appear that the contract is invalid. Therefore, the burden is on your opposing party or potential claimant to show that the contract is invalid. This is virtually impossible considering a well-drafted hold harmless agreement.
Furthermore, there are certain "Public Policy" considerations that would allow a court to invalidate your hold harmless agreement. If any of the following are found in your hold harmless agreement, a court may deem them unenforceable.
A hold harmless agreement may run afoul of public policy by releasing the holder from liability for its own negligence where the holder is under a duty of care to the person seeking protection. A very common example of this type of restriction is where the holder of a tow truck company or garage releases the owner of a vehicle from liability for damages arising from damage to a vehicle while in the possession of the holder. In this case , a court will likely determine that the damage to the vehicle was the fault of the garage, whose duty is to exercise ordinary care in storing the automobile. By a hold harmless agreement, that garage effectively removes its responsibility to be a good "steward" of the customer’s automobile. Courts will generally not permit the garage to avoid this duty by having a hold harmless agreement.
A court may also find a hold harmless agreement entered into between parties who have significantly unequal bargaining power offensive to public policy. In this case, a very common example would be a hold harmless agreement entered into between a towing company and an insurance company. Generally, a court will invalidate such an agreement based on the fact that the tow truck operator had no choice but to sign the agreement, or lose out on a lot of potential work with that insurance company.
Practical Applications
To understand how hold harmless agreements protect towing companies in real-life scenarios, we can look at a few examples. In the case of ABC Towing v. Doe, the towing company had entered into an agreement with a parking lot owner, which was signed by a parked vehicle’s driver to handle all towing from the property. This agreement included an indemnification clause in favor of the towing company. When a vehicle was stolen just days later after being towed and impounded by the tower, the impounded vehicle’s driver sued the tower. However, the tower mitigated its liability and denied liability by referencing the indemnification clause in the hold harmless agreement, automatically shifting any liability from the tower to the parking lot owner.
In another case, 123 Towing v. XYZ Apartments, a tower assisted a complex with removing illegally-parked vehicles. A third-party witness was injured inside the apartment complex by a guest who retaliated against the tower for having the vehicle removed. After an expensive lawsuit ensued, the tower was able to successfully defend itself on the grounds that a hold harmless agreement executed between the two parties prevented the complex from claiming any liability against the tower.
While hold harmless agreements do mitigate the liability for a towing company, they don’t prevent all lawsuits, nor do they guarantee that the towing company won’t be sued. Rather, they reduce the likelihood of losing such a lawsuit by providing an effective defense when one does occur.
Conclusion and Best Practices
In conclusion, the safest and sanest hold harmless agreement is the one that acknowledges that you are working on private property and name your client as an indemnified party. In addition, you want to include in your contracts strict rules for conduct on those private properties. This would be Section 2 in the lengthier agreement referenced above (i.e., there should be a reference to the customer’s responsibility to conduct themselves in a reasonable manner when on private property). Even then this will not create complete immunity.
You need to acknowledge that the risks you are taking on are associated with the decision to park a vehicle in a certain location. No one ever begins their day planning to get towed. You want to be the company that reminds your customers that they share the risk of where they left their car at the end of the evening . Another best practice is to have GPS in all your trucks. There is no reason today why you cannot locate a vehicle. Section 1 in the sample agreement discussed above obligates the wrecker company to tow the vehicle to a specific location. This is your opportunity to talk about GPS and the ability for the wrecker company to locate the vehicle and ensure they fulfill that obligation. I’ve discussed at length disclaimers and ensures that your software or contracts do not require your customers, but they also do not bind you. It is a huge problem for the industry today. Having a robust indemnification strategy in your software is important because like a general verdict without special interrogatories, general indemnification without specific requests for the towing company to fulfill its obligations will bind it to things it has fulfilled.