Property Management Indemnification Standards

3 Replies

I am reviewing a property management agreement and came across this clause RE: Indemnification that seems too broad:

INDEMNIFICATION:

(a) The Owner shall indemnify, defend and save Agent harmless from all suits and/or other legal proceedings whatsoever and cost incurred therefrom in connection with the management of the Property and from liability for injuries suffered by any employee or other person whomsoever, except in cases of willful misconduct or gross negligence on the part of Agent or its employees, 

(b) The Owner shall indemnify and hold harmless the Agent from and against any costs, loss, expense or damage (including attorney's fees) suffered or incurred by the Agent arising out of or related to the enforcement of this Agreement arising out of a default or other breach by the Owner, the management, operation, improvement, alteration and leasing of the Property, including all other activities arising out of or related to Agent's duties under this Agreement or as a result of any act or thing done or permitted by the Agent or its agents or employees; provided, however, that such indemnification shall not apply to any such cost, loss, expense or damage to the extent that the same relates to or as a result of conduct by Agent which constitutes willful and wanton misconduct.

It seems like if one of the Property Manager workers (aka Agent) slips and hurts himself while cleaning the floor the "Owner" is then responsible. 

Am I reading it incorrectly?  Is that standard?  The agreement will be made in Indianapolis, IN. 

Thanks.

JZ

I'm not sure that there is any standard clauses but my company has similar language in our agreement.   Maybe not quite as comprehensive.  It has been explained to me that this ultimately is an insurance issue that provides a clear path for settlement for the person harmed.  It does not prevent the owner from a subsequent claim against owner if there is proven negligence.  

Now..I am not an attorney so that statement is like us getting a cup of coffee together and brainstorming.  It has little to no value and you might want to have it independently confirmed.  

Fortunatley, in over 20 years of being in the management business (knock on wood) I have never once had to find out how it works in real life. 

Joshua,

I would review this with both your insurance agent and attorney.  Part (a) seems to overly restrict you from going after the agent if they make a mistake that causes you a loss.  By restricting it to will full misconduct or gross negligence it makes me think that a case of simple negligence on their part would be precluded.  If their negligence, whether on not it could be considered gross negligence, causes a loss at your properties, shouldn't it be their responsibility to pay for.

Indemnity and insurance are similar but different animals. They often overlap, but the analysis must be done separately. An indemnity obligation exists regardless of whether you have insurance to pay for it. Insurance may cover certain indemnity obligations, but not always. So it is important to review any indemnity obligations with your attorney and insurance broker before you agree to them.

The first section is likely designed to deal with third party liability (i.e. if someone slips and falls on the property and sues both the Owner and PM). This section states that requires the Owner to pay the defense fees and any settlement or judgment (regardless of whether the Owner's insurance covers it) except in the case of willful misconduct or gross negligence. This standard seems high, since the PM may have some negligence (i.e. failure to maintain walkways, etc.) that doesn't rise to the level of gross negligence.  As an Owner, you would expect the PM to be responsible for its own negligence.  As others have said, this provision is even broader because it also makes the Owner responsible for injuries to the PM's employees.

You should have an experienced attorney review in conjunction with your insurance policy to determine the real scope of additional risk you are taking, and what portion, if any, might be uninsured.

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