Everything in a contract means something. The fact that language looks like it is standard or boilerplate does not mean that it is unimportant. This fact is particularly true for hold harmless, indemnification and insurance provisions. Although these provisions may seem boring, they can be critical when a contractor is facing a potential claim.
A hold harmless provision is exactly what it sounds like: a contractual clause where one party agrees not to hold the other party responsible. The critical issue with hold harmless provisions is who is holding whom harmless. For example, a customer may require that a contractor hold it harmless for any injury resulting from snow or ice. If this is the case, it is important that the contractor understands that it cannot try to shift responsibility to the customer for a slip and fall or other accident.
More problematic is a situation where a customer’s contract with a general contractor includes a hold harmless provision, but the general contractor’s contract with its subcontractor does not include any similar protection for the general contractor. This situation can lead to a general contractor being the target of a claim despite a subcontractor having performed its contractual obligations poorly.
Like a hold harmless provision, indemnification shifts risks or potential costs from one party to another. Again, the key is to understand what a contractor is agreeing to when it enters into the contract. That a contractor did not fully understand or carefully review an indemnification provision is no defense. If the contractor has agreed to indemnify a customer should certain circumstances arise, the contractor has to know what those circumstances are and what it can do to avoid them.
The key with hold harmless or indemnification provisions (as with everything in a contract) is to read the language that is used and understand what it means. It is far better to address such provisions while negotiating a contract as opposed to being surprised by their existence after a claim is filed.
A contract’s insurance provisions are also critical to understand. There are many types of insurance, including workers’ compensation and commercial general liability. A winter maintenance contract will often require a contractor to maintain certain coverages in certain amounts. These obligations cannot be ignored, and a contractor should not assume that its insurance agent knows the contractor’s contractual obligations. To the extent possible, a contractor should ensure that its contracts’ insurance provisions are consistent and have been reviewed by their insurance agent and/or an attorney. By following these best practices, a contractor can be confident that it has the coverage in place that its customers require.
A contractor should also make sure that its subcontractors have the necessary types and amounts of coverage. A contractor and its subcontractors having different (or different amounts of) coverage can lead to serious issues if a claim arises out of the subcontractor’s work. Again, the key is to raise these issues during the contract negotiation process so that they can be addressed before any potential claims.
A contractor should always be aware that seemingly boring contractual provisions can become critical if an accident happens. The language that might be glossed over by a customer and/or a contractor when a contract is being negotiated will likely be analyzed word for word by an attorney if a claim arises. To avoid any unwanted surprises, it is crucial to carefully read and fully understand every word of your contracts.
Brendan D. O'Brien is an attorney with Primmer Piper Eggleston & Cramer PC, based in Manchester, NH. Contact him at bobrien@primmer.com.