How to address indemnification clauses in service contracts
Q: I am on the board of our condo association and we are about to have some remodeling done by a reputable contractor. The contractor has asked us to sign an indemnification clause that reads, “Association agrees to the fullest extent permitted by law, to indemnify and hold harmless contractor, its officers and employees from all liabilities, damages and losses, including but not limited to reasonable attorney’s fees, as a result of any work done by contractor.” Should we sign this?
A: Service contracts, including elevator and alarm maintenance, ask this of associations frequently. Despite the fact that these services, if done improperly, could result in damage that results in claims against the association, many agree because they are told it is a “common practice” and preprinted stock contracts contain this clause.
The important consideration from the association’s perspective is that service contracts require the contractor to indemnify the association. For protection, the contractor should indemnify and hold harmless the association and also the association officers and employees from all liabilities, damages and losses, including but not limited to reasonable attorney’s fees as a result of any work done by contractor. This indemnification should be tied to the insurance of the contractor.
The contractor’s insurance must be a sufficient amount to fund the costs and damages resulting from the filing of a claim of negligence. The objective of indemnification is to have the contractor hold the Association free from liability but if the indemnitor does not have adequate funds then the indemnification may be worthless.
For example, Paradise Condominium contracts with Apple Painting Company to paint the pool house. Apple has total assets of $20,000 and no insurance. An Apple truck, driven by an Apple employee, hits and severely injures a female resident who was walking on a common element roadway. The association and Apple are sued for damages including substantial medical bills for the woman. The association had required Apple to indemnify the Association from any claims made against the Association as a result of the painting company’s employees. The association demands that the painting company indemnify it against the wrongful death claim but without insurance and with assets of only $20,000, Apple does not have the ability to defend the association or even itself. They declare bankruptcy.
The association now has to defend itself against the claim with no recourse against the defunct painting company for the costs. The association would fall back on their insurance policy and pay the required deductible. If the Association’s insurance is insufficient, or the claim is denied, the association could face significant liability and costs resulting in special assessments to pay any judgements.
Clearly, it is important that the association negotiate adequate indemnification and insurance terms in its contracts. Seek the advice of an attorney if issues of indemnification are unclear to your board.
Attorney Sylvia Heldreth is a Certified Specialist in Real Estate Law. Her office is located at 1215 Miramar Street in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.