What Exactly Is a Hold Harmless Agreement?
What is a hold harmless agreement?
A hold harmless agreement is a legal agreement to not hold another party legally or financially responsible should something go wrong in the course of performing a contract agreement. Businesses use hold harmless agreements to avoid liability for other companies’ actions. Hold harmless agreements protect the company and help preserve their insurance policies from claims. These clauses are generally included in any contracted work you may do as a towing company.
The Need for Hold Harmless Agreements for Towing Companies
In addition to the service you provide for clients, towing companies have a lot to deal with on a daily basis. From the time you begin scheduling/services through the time that the vehicle is returned to the client, your business is susceptible to risk. Since motorists need your business to move their vehicles, they sadly can’t predict every situation that may arise once they leave their vehicles in your care. It’s important to always make the best decision possible when it comes to your service, but there are always cases where a vehicle ends up damaged or in an accident while you’re in possession of it. That said, the last thing you may be thinking about if you’re faced with a lawsuit because of a vehicle that was damaged or stolen while under the possession of your business is agreeing to take responsibility and liability for it.
Even though you may see hold harmless agreements as an extra piece of paper to add tell your clients, these agreements offer many benefits for your business including:
- Risk Mitigation- Limiting your risk exposure to employees and clients offers security for your business.
- Liability Coverage- Covering your bases in the case of an expensive legal situation can save you lots of money.
- Protection Against Third Parties- When faced with accidents and mistakes while a vehicle is in your possession, you may be held accountable to the person or business suing you in addition to all third parties involved.
- Prevention- If you have a hold harmless agreement in place, it could act as a deterrent for clients who are attempting to sue your business for things that you’re not liable for.
Hold harmless agreements should clearly layout the agreement, signature lines, and attach any additional documents, if needed. If you have a law office that specializes in this area, they can draft a specific agreement with your company information already submitted, or they can create a template agreement you can easily modify for each new client.
Towing Hold Harmless Agreement: Mandatory Elements
When putting together a towing hold harmless agreement, at a minimum, you should include the following essential terms, in order to minimize the exposure of the holder of the Hold Harmless: The Request for Indemnification, The Indemnification, The Exculpatory Clause, The Arbitration Clause / Choice of Law.
The Request for Indemnification. One of the most important terms that the holder of the Hold Harmless document should be looking for is, of course, the Indemnification itself. Unfortunately, it is frequently overlooked. The Request for Indemnification is usually found at the beginning of the hold-harmless agreement. It will state that you are being asked to hold the named parties harmless under the terms and conditions set forth in the attached agreement. This is simply a request from the counterparty that you agree to hold them harmless under the terms and conditions set forth in the hold harmless agreement. Of course, the more important item to look for is the Indemnification itself.
The Indemnification. The Indemnification is the specific key element that the holder of the hold harmless should be on the lookout for. This is the actual term or language that states that you shall hold one of the parties harmless. It also usually includes a statement that you will indemnify one party in the event of a claim against that party, up to a certain dollar amount. Any time you can get an indemnification built into your hold-harmless agreement, you should get it. Conversely, if you are the entity requesting the hold-harmless agreement, you should specifically exclude indemnification language that would provide coverage for the person requesting the hold-harmless agreement.
The Exculpatory Clause. An exculpatory clause is a statement included in a hold-harmless agreement which states that the person signing the hold-harmless will not seek to recover their damages from the signing party if any damages are incurred. It is particularly important for a towing company to protect themselves from damages suffered by the towing company while engaged in the process of towing a vehicle. The only thing that the towing company should be liable for in the hold-harmless agreement is the actual cost of towing the vehicle. Once the property owner pays that cost of towing the vehicle, and the property owner completes the terms and conditions that are set forth in the hold-harmless agreement to the tow truck driver, the Tow Truck company and the driver are freed from liability. The exculpatory clause is a vital term in the hold-harmless agreement that allows the tow truck driver and the towing company to recover their costs through the provisions contained in the hold-harmless agreement.
The Arbitration Clause / Choice of Law. We are finding more and more frequently that people are agreeing to binding arbitration in their hold-harmless agreements. This is becoming the de facto method for settling claims arising out of hold-harmless agreements. The arbitration clause is simply a statement that any claims arising out of the hold-harmless agreement will be settled via binding arbitration. The choice of law appears to be simpler than it actually is. When you are entering into a hold-harmless agreement, the expectation is that the agreement will be honored by the parties. However, the enforcement of the agreement is difficult if the agreement is not enforceable in the jurisdiction in which it is being implemented.
Why Towing Companies Favor Hold Harmless Agreements
The towing company benefits from the agreement a number of ways. First, the agreement provides some peace of mind in knowing that once the work is complete, in addition to getting paid, the towing company continues to have legal protection. In addition, the company has the comfort of knowing that a contractual agreement exists. Finally, since the party receiving the tow is entering into the agreement with the knowledge and understanding that it was freely entered, the tow company may be protected from assertions that the Agreement unduly burdens the keys to the vehicles or that one party or the other is not covered by the Agreement. To the extent there are issues arising out of events occurring subsequent to the Agreement, the company has the comfort of knowing that it has a legal framework to address such issues. Obviously, no one can predict the future, however, in the event litigation develops, the company has legal protection in place.
Issues and Resolutions for Hold Harmless Agreements in Towing Companies
Towing companies navigating this process may experience difficulties in securing agreements from every customer they service. Enforcing payment in the event of a breach is complex, including the need for potentially extensive certified documentation, as well as a trained eye on the type of lien that is appropriate for a particular situation. In considering hold harmless agreements, towing companies must be prepared for a rollercoaster ride of a legal process that is only as good as the strongest and most tightly written agreement.
The best way to avoid problems is to make sure you have valid and appropriate uncontested and contested liens:
Uncontested liens are simply those instances where customers do not contest the validity of the charges they incur for towing and storage of their vehicles. This is a very rare occurrence in practice. A clearer, more practical example of an uncontested lien would include parking lienes. Lien enforcement is straightforward, and courts usually issue judgements based on uncontested liens with little or no further input from the towing company.
Contested liens are more commonly occurring situations on the other hand, that unfortunately can lead to significant litigation costs before a court eventually determines the rights of the parties.
A helpful review of the facts and circumstances surrounding the lien in play can help the towing company assess a clearer understanding of its potential for success. While a brief examination of the evidence by an attorney experienced in this area of law may not cost much , the long-term benefits in understanding and preserving the rights of the towing company will be worth the small investment.
The two most commonly used methods to ensure lien enforcement sounds simpler than it ultimately turns out to actually be. In short, they require the towing company to make sure it has properly complied with the appropriate procedures in place for each applicable statute. But, the problem is two-fold: the effects of liability and the value of the property being held by the tow company. Liability Issues (i.e., Tort II Liability of the Tow Company) and the Value of the Towed Property As mentioned previously, the most important goal is to ensure that the customer signs the lien agreement. The most common mistake is to allow the customer to leave without fully executing the lien agreement. While the nature of some lien agreements will not allow for this to occur, such as accident towing situations, the towing company may still overlook this important step or inadvertently forget to have the customer sign the agreement. The type of lien that might be appropriate for a particular situation in these cases will be explored below, including the benefits of having a properly-taken lien photographs and maintaining a file.
Towing Hold Harmless Agreement: Can I Make it Specific to My Company?
Determining the proper scope of this Agreement can be very fact specific. I am not going to attempt to go through all possible scenarios that may be necessary in your business relationship. However, you must consider what is in your business relationship with the person signing the Agreement.
Let us take an example, for instance, of a towing company that enters into a service level agreement ("SLA") with a client. The SLA might provide that the towing company will only provide services until a certain credit limit, and that upon reaching that limit, the towing company will require payment before performing additional services for the client.
In this scenario, towage usually does not involve any spill or release of hazardous substance or pollutants. As such, it would seem that section one would need to be narrowly tailored to that service. Conversely, the towing company provides storage at its facility for vehicles that it tows, which could result in pollution from gasoline, oil, anti-freeze, brake fluid etc. In this case, it would appear that a broader hold-harmless Agreement would be needed, applicable to spills and releases of hazardous substances and pollutants due to that service.
Undertaking a proper review of your business relationship and discussing the scope of your Agreement with independent legal counsel is a priority.
Legal Implications Surrounding Hold Harmless Agreements
Hold Harmless Agreements are subject to the laws of each state. Most but not all states have enacted legislation that renders an agreement to indemnify or hold harmless any person named in the agreement for the negligence or fault of that person or persons whose liability the agreement is being allocated to as void and unenforceable in all such states. The drafting of those agreements again should carefully consider the allocation of fault and liability to the other parties who are responsible for the motor vehicle which is being presented for towing or which is being stored on the premises of a calling company or another location: the storage provider. In many states, liability rests on the storage provider to maintain that facility in a safe and proper manner and to present the car in a safe condition. In some states, once the car is placed in storage it is entirely the property of the depositary and any and all fault or liability for subsequent injury to others rests with the depositary and not with the callout or towing company. The allocation of fault must be carefully considered by counsel for both facilities as to what issues might arise and how those issues might be allocated. Further, when you look at how a Hold Harmless Agreement may work in a particular state may vary, depending upon the specific statute for that state. For example, prior to 1971, most states allowed a Hold Harmless Agreement and if there was a Hold Harmless Agreement done in Missouri, a clause requiring a hold harmless agreement would be valid. If the injured party was a passenger in a vehicle, and the company was enforcing its Hold Harmless Agreement, a ceding of liability to the passenger was valid. However, when the Missouri Legislature enacted its Motor Vehicle Safety Responsibility Act, the Legislature put into law that in the area of passengers who were in an automobile, their right to sue was independent of the agreement that they said they had signed.
Likewise, when you look at Section 402 of the Restatement II of Torts, it sets the Standard and it is followed by the Courts when there are ambiguous clauses. That Rule says, "Where harm is caused to a third party, if that harm is caused by someone, they are liable and responsible for that harm, even if they come together at a particular place under a Hold Harmless Agreement."
How to Create and Enforce a Hold Harmless Agreement
The first step in implementing a hold-harmless agreement in a towing company is to consider the risk. It is important that the owner of the company consult with their general liability carrier, and if warranted, an attorney that specializes in liability defense and/or risk management. A general liability insurance carrier may have its own risk management specialist who will review the issue with you. Most carriers are more than willing to work with their insureds in order to help them maximize the benefits they have purchased. This is often the most cost-effective route for many people who may not understand the complexities of contract law. If after consultation, you are still convinced that a hold harmless agreement should be implemented, you will then need to draft it. A well-balanced contract providing enough flexibility to accommodate a variety of situations is useful. It also protects your business from undue hardship should the circumstances not be sufficiently defined in the agreement . Once the agreement is drafted, it should be reviewed periodically by the insurance carrier, or an attorney specializing in risk management or contract law. If the liability carrier of your company charges a higher premium for companies using hold harmless agreements, it still may be worth considering. It is also advisable to discuss the specific situation with your insurance agent or representative prior to presenting it to the other party. They may have suggestions for drafting a stronger agreement or suggestions for improving the language of the contract. After the final version of the agreement has been drafted and signed, it should be reviewed biannually or annually to ensure it remains applicable to your situation. It is equally important to review the agreement any time there is an organizational change- be it the acquisition of another company, a merger, change in carrier, etc.. You may even consider revisiting the agreement upon receipt of complaints concerning the other party. This may be a sign that the other party is not honoring the terms of the contract.