Posted on February 16, 2009 by Sanjay Kurian

Indemnity and the Association, Part 2

Sanjay KurianLast week I wrote about Indemnification. Specifically about hiring contractors and ensuring that contract clauses were properly worded so that the Association was being indemnified and not providing the indemnity. At the end, I concluded by noting that indemnification in the absence of adequate insurance may be illusory. What does that mean?

Remember that the whole idea for indemnification is to have another party hold the Association free from liability for any negligent conduct. However, if the indemnitor does not have adequate funds then what good is the indemnification? 

For example, Happyland Condominium contracts with Acme Lawn Care for monthly maintenance services. Acme is a small shop with only a 10-year old truck and 2 riding lawn mowers as assets (total value $5,000) and no insurance. One month Acme is driving the truck from the front to the back of the property when the it runs into and kills a jogger. The Association and Acme are sued by the family for wrongful death, and millions of dollars in damages. The Association has put in the contract that Acme shall indemnify the Association from any claims made against the Association as a result of Acme’s conduct. The Association demands that Acme indemnify it against the wrongful death claim.

 

Despite the language of the contract, Acme does not have the wherewithal to defend the association or hold it harmless from liability. In such a case, the Association would be responsible to defend itself against any claim (ostensibly through its own insurance carriers) with no recourse against Acme for out-of-pocket expenses (such as the insurance deductible). Also, if the Association’s insurance is insufficient, or the claim denied, then the Association could itself be facing significant liability. If Acme had insurance, then the Association could be able to recoup against Acme’s carrier for anything not covered by the Association’s own carrier, and would also give the Association’s carrier the possible right to subrogate against Acme’s carrier.

 

Clearly, it is important that in addition to language about indemnification that all vendors/service providers also have adequate insurance. This would provide actual protection for the Association, not just the illusion of protection. Such requirements should be put into the contract, and verified at the start of any work as well as at periodic points during the life of the contract.

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Posted on February 6, 2009 by Sanjay Kurian

Indemnity and the Association

Sanjay KurianIndemnification. A scary word and a confusing subject. However, almost all contracts for services contain requirements for one party to indemnify the other from damages. Often these clauses are in small type of allegedly “standard form” agreements. For purposes of today’s blog, let us discuss non-construction services. Indemnification for construction contracts is governed by section 725.06, Florida Statutes which is not applicable to non-construction contracts. Look at any contract you have with a service provider and inevitably the following language, or similar, will appear:

Party A agrees to the fullest extent permitted by law, to indemnify and hold harmless Party B, its officers, directors, members and employees from all liabilities, damages, losses and costs, including but not limited to reasonable attorney’s fees, to the extent caused by the negligence, recklessness or intentional wrongful conduct of Party A.

In layman’s terms, this means that one party (the indemnitor) has contractually obligated itself to protect a second party (the indemnitee) against damages which may result from the indemnitor’s conduct. These damages would include any foreseeable damages resulting from a negligent act or omission, including damages to person or property.  Sounds easy enough. However, who is indemnifying whom?

The language most often seen in these contracts is similar language to the form language above:

Association agrees to the fullest extent permitted by law, to indemnify and hold harmless contractor, its officers, directors, members and employees from all liabilities, damages, losses and costs, including but not limited to reasonable attorney’s fees, to the extent as a result of any work done at the Condominium by contractor.

The Association has agreed to indemnify the contractor for work done at the condominium by the contractor. It requires the Association, which does not control the project or those working on it, to protect the contractor. Why would the Association agree to this? Think about the fire alarm monitoring, elevator maintenance or other monthly service provider. Many of these companies perform services, which if done improperly, could result in damage to persons or property and ultimately claims against the Association. Courts will enforce such agreements to indemnify, even if it is a bad deal for one side.

All service contracts should require the contractor to indemnify the Association. If the contractor will not negotiate the term, then another contractor should be considered. These terms, like most contract terms, can be negotiated even if the contractor says such terms are “industry standard.” The Association should be protected from sloppy safety procedures, carelessness or negligence of the contractor. Finally, remember that indemnification in the absence of adequate insurance may be illusory, but that is a subject for another day.

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