Which of the following statements about hold-harmless agreements is correct?
A) Hold-harmless agreements create moral hazard.
B) In a hold-harmless agreement, a party assumes a second party's financial responsibility in the case of a loss.
C) Hold-harmless agreements are created after a loss occurs.
D) All of the above are incorrect.

Question

Quizplus · Accepted Answer

A hold-harmless agreement is a contract whereby one party assumes the legal liability of another party. In such an agreement, a party agrees to indemnify and hold harmless another party for any potential losses or damages that may occur in the course of their business dealings. This means that the second party assumes the first party's financial responsibility in the case of a loss. Hold-harmless agreements are used to allocate risk between parties, and they are usually created before a loss occurs. The statement A is incorrect because hold-harmless agreements are not necessarily associated with the creation of moral hazard. Statement C is incorrect because these agreements are usually created before a loss occurs, not after. Statement D is incorrect because B is correct.

Which of the Following Statements About Hold-Harmless Agreements Is Correct