Hold harmless and indemnity provisions are used to shift risk from one party to the other. They can be beneficial or harmful to an association depending on how they are used. They are commonly found in bylaws shifting liability for negligent acts from volunteers to the association. Without such provisions, it would be difficult or impossible to find volunteers. When used in contracts, they can be very harmful to associations if improperly drafted.
. A "hold harmless" or "liability waiver" provision in a contract is an agreement between the parties whereby one or both parties agree not to hold the other party responsible for any loss, damage, or legal liability that may arise under the agreement. In other words, the two parties cannot sue each other for any damage they may suffer due to the negligence of the other party. Hold harmless provisions are often combined with indemnity language. Following is an example:
Contractor shall indemnify, defend (by counsel reasonably acceptable to Association) and hold harmless the Association and its officers, directors, agents and employees from and against claims, damages, losses and expenses, including but not limited to attorneys' fees, arising out of or resulting from the negligence or misconduct of Contractor in connection with performance of the work described in this Agreement.
. To "indemnify" is to protect against or reimburse for damage, injury or loss. Typically, an association's governing documents will indemnify officers and directors against expenses, judgments, fines, settlements and attorneys' fees reasonably incurred in connection with any threatened or actual civil or criminal proceedings. In civil proceedings, officers and directors may be indemnified if they acted in good faith and in a manner reasonably believed to be in the best interests of the association. In the case of criminal proceedings, they may be indemnified if they had no reasonable cause to believe their conduct was unlawful. (Corp. Code §7237
: Depending on how they are written, hold harmless, indemnity and exculpatory
language can protect an association from liability or they can shift liability onto the association. Mistakes involving this provision can be quite costly to an association. Accordingly, all contracts entered into should be reviewed by the association's legal counsel before they are signed by the board. Associations needing assistance with contract formation and enforcement can contact us
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