Enlarging the Fine Print of Contract Language | September 15, 2015
Travis Thompson – Director of Risk Management, Hylant Administrative Services
The use of contracts to clearly define the expectations of two or more parties within an agreement permeates almost every aspect of business. The complexity of contract language (hold harmless, indemnification, additional insured) has made it almost impossible to understand every agreed-upon term within a simple contract.
In its most simplified form, a contract should place the financial burden of loss on the party most likely to control or prevent an incident from happening. The terminology to begin this transfer of risk is often included in the hold harmless clause of the contract. This clause is generally a promise by one party not to hold the other responsible for loss or damage. For example, a youth sports organization requesting use of a school athletic field for a game should hold the school owner of the field harmless, as the youth sports organization has all control of the event.
To further strengthen the agreement, the field owner should require the youth sports organization to indemnify them as part of the hold harmless clause. Indemnification means that the youth sports organization is agreeing to compensate the field owner for loss or damage that occurs as a result of this event. For example, a youth is badly injured as a result of a game held on the school athletic field resulting in significant personal injury and medical expenses. Should the school be responsible for those expenses?
The indemnification statement is a clear assignment of that financial responsibility being accepted by the youth sports organization. The field owner will most likely be named in any legal action taken on behalf of the injured youth. The field owner will then experience some cost to defend itself as part of this legal process. A third term would complete the entire transfer of financial responsibility: additional insured. The field owner should request a copy of the youth sports organization’s certificate of insurance with the field owner listed as an additional insured. Listed as an additional insured, the youth sports organization is agreeing, at its expense, to defend the field owner should legal action be pursued.
A complete and comprehensive contract with these three terms (hold harmless, indemnification and additional insured) ensures that the transfer of financial responsibility is with the party most able to control or prevent loss. The Ohio School Plan risk managers have several examples of simple agreements to facilitate the adequate transfer of risk. With all legal documents, consultation with your legal representation is strongly recommended before signing any agreement.