Indemnity Provisions can leave Associations holding the bag for someone else's wrongdoing!

A recent Broward County negligent security lawsuit filed on August 31st raises issues about who should  pay the consequences when a security breach results in a resident's death. In this case, a community with an entrance feature protected by a 24-hour guard and security cameras became vulnerable to entry when a perimeter fence was not properly maintained. An intruder with a decade-long rap sheet entered the upscale Davie community and fatally stabbed a resident. The multimillion dollar lawsuit was filed against the community's management company and security company but not the association. The initial reaction from the volunteer board of directors may have been relief to not have been named in the lawsuit until someone reminded them that they likely agreed to broadly indemnify both the management company and the security company in their contracts.

This blog post addresses provisions in existing service contracts which require the association to be financially responsible if its vendor’s negligent actions cause damage to a third party. As it is typical for boards to agree to provide broad indemnification in management, security and elevator contracts, in the negligent security case discussed above, it is likely that the management company and/or security company will file third party claims against the association to enforce the terms of those indemnification provisions.

While agreeing to an indemnification clause is often a cost of doing business these days, these provisions should not be treated as harmless boilerplate. Indemnification clauses must be carefully considered and discussed with legal counsel prior to agreeing to same. Moreover, the association must contact its insurance agent to confirm whether or not its current insurance policy will cover such clauses or if additional coverage is required. Most indemnification clauses will require that the vendor be added as an additional insured to the association's policy and the association's policy will be treated as the primary coverage for any claims even if the vendor has sufficient coverage to address its own negligence.

In the case of an onsite manager, that individual really is an extension of the board so it is reasonable for the association to indemnify him or her for actions taken at the board's request and with their direction. However, consider the case of a woman trapped in an elevator who sues the elevator company for negligent maintenance which resulted in her entrapment and injuries. The elevator company was hired to perform regular maintenance and repairs on the association's elevators. Neither the volunteer board members nor the association manager have the skill or expertise to determine when repairs and maintenance must be performed nor how to perform those functions, hence the need to hire an elevator expert. With a broad indemnification clause in place, however, the elevator company can avoid liability for all but the most egregious actions which typically must rise to the level of gross negligence or willful misconduct.

In a contractual setting, a fair indemnification provision should be reciprocal (meaning the contractor or vendor agrees to protect the association in addition to the association protecting them) and should be based on the party causing the harm being the party responsible for fixing it.