Hold harmless and indemnity provisions are used to shift risk from one party to another. They can be beneficial or harmful to an association depending on how they are used. They are commonly found in:
1. Governing Documents. CC&Rs and bylaws commonly contain language shifting liability for negligent acts from volunteers to the association. Without such provisions, it would be difficult or impossible to find volunteers.
2. Contracts. When used in contracts, they can be harmful to associations if improperly drafted.
3. Covenants. Recorded maintenance covenants between the association and a homeowner who modifies common area elements often contain hold harmless and indemnity provisions from injury or damage caused by the alterations.
4. Facility Rental Agreements. Common area rental agreements by members to use the clubhouse, pool, open space area, etc. for private events normally contain hold harmless and indemnity provisions protecting the association from liability in the event someone is injured.
Hold Harmless. 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.
Indemnify. 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.)
Are the words “indemnify” and “hold harmless” synonymous? No. One is offensive and the other is defensive—even though both contemplate third-party liability situations. “Indemnify” is an offensive right—a sword—allowing harmless” is defensive: The right not to be bothered by the other party itself seeking indemnification. (Queen Villas Homeowners Assn, v TCB Property Management, (2007) 149 Cal.App.4th 1, 9.)
Recommendation: Depending on how they are written, hold harmless, indemnity and exculpatory clauses can help reduce an association's exposure to risk. Mistakes involving these provisions can, on the other hand, be quite costly. Accordingly, all contracts entered into should be reviewed by the association's legal counsel before they are signed by the board.
ASSISTANCE: Associations needing legal assistance can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.