Indemnity and Hold Harmless Provisions in Association Contracts

Condominium and homeowner associations frequently enter into contracts with third-parties. Examples include landscaping contracts, management contracts, and construction contracts. In order to protect the interests of the association, many community association attorneys include indemnity provisions in the contract. Here’s a common example of an indemnity provision:

Contractor will indemnify, defend, and hold harmless the Association from and against any and all claims of every kind, whether known or unknown, resulting from or arising out of Contractor’s work under this agreement.

In this example, the contractor is the “indemnitor” and the association is the “indemnitee”. What is the effect of this language? Let’s assume the Contractor is a landscaper hired to take care of the common areas of the community. One day the Contractor is trimming tree branches. Standard practice requires one worker to operate the saw, and another worker to control the direction of the falling branch. The contractor is short staffed, and there is no second worker to control the direction of the falling branch. A cut branch falls on a unit owner’s exterior deck and damages patio furniture and a BBQ grill. The unit owner then sues the association and wins a judgment for the damaged property.

If the agreement between the association and the contractor contains indemnity language, then the contractor is required to hire and pay for an attorney to defend the association, as well as pay the judgment against the association.

Indemnity provisions don’t transfer liability—the contractor caused the damage and remains legally liable. Instead, these provisions shift the financial obligation related to the claim from the indemnitee to the indemnitor.

Typical indemnity provisions fall into one of three categories: limited, intermediate, and broad. In Oregon, broad indemnity provisions are prohibited by law. I’ll explain each type of indemnity category.

1. Limited indemnity

The limited form indemnity obligates the indemnitor to save and hold harmless the indemnitee only for the indemnitor's own negligence. Let’s go back to our landscape contractor example. In that example, the property damage was caused entirely by the negligence of the contractor. The association did not cause or contribute to the damage. Here, the contractor must indemnify the association.

2. Intermediate

The intermediate form of indemnity obliges the indemnitor to hold harmless the indemnitee for all liability except that which arises out of the indemnitee's sole negligence. Back to the landscape contractor example. Let’s now assume that the tree branch fell much quicker and forcefully than normal because the tree is decaying. Also assume that the association has known that the tree is decaying and decided not to address the issue. In this case, both the contractor and the association are negligent and the contractor is required to indemnify the association.

The contractor would not be required to indemnify the association if the cause of the damage resulted entirely from the association’s negligence. Let’s now assume that the contractor has not touched the tree and the tree branch fell because of rot and decay. In this case, the damage resulted entirely from the association’s negligence. The contractor has no obligation to indemnify the association.

3. Broad

The broad form of indemnity requires the indemnitor to save and hold harmless the indemnitee from all liabilities arising from the project, regardless of which party's negligence introduces the liability. Under this category, the contractor is required to indemnify the association even if the association contributed to the damage or was entirely responsible for causing the damage. This form of indemnity is prohibited under ORS 30.140:

(1) Except to the extent provided under subsection (2) of this section, any provision in a construction agreement that requires a person or that person’s surety or insurer to indemnify another against liability for damage arising out of death or bodily injury to persons or damage to property caused in whole or in part by the negligence of the indemnitee is void.

(2) This section does not affect any provision in a construction agreement that requires a person or that person’s surety or insurer to indemnify another against liability for damage arising out of death or bodily injury to persons or damage to property to the extent that the death or bodily injury to persons or damage to property arises out of the fault of the indemnitor, or the fault of the indemnitor’s agents, representatives or subcontractors.

When entering into a third-party contract for any services related to construction, the association should always have a qualified attorney review the agreement. As part of that review, the attorney should make sure that the indemnity provisions do not fall under the “broad indemnity” category.

Snow Removal in Community Associations

The Portland metro area and central Oregon are covered in snow and ice. As a result, dangerous conditions may exist in common area parking lots, sidewalks, or roadways.  What is the community association’s obligation to clear or remove natural accumulations of snow and ice?

Some states have adopted the “Massachusetts Rule”. This rule states that property owners have no obligation to remove snow or ice from common areas under an association’s control. However, if the association aggravates the natural conditions, there may be liability.  For example, suppose an association shovels snow from a walkway, but fails to put sand or salt on the surface. The walkway is now covered in a sheet of ice and has created an even more dangerous condition.  In that case, there may be liability.

There are dozens of cases in different jurisdictions dealing with a property owner or association’s obligation for snow and ice conditions. For instance, in a number of cases in which an individual slipped and fell on ice or snow while walking on or across a parking lot, the courts, reasoning in general that a defendant was not liable for slip-and-fall accidents on natural accumulations of snow but could be liable for unnatural accumulations or aggravations of natural conditions, held that it was or could be proven that there was liability because the defendant plowed, sanded, or otherwise cleared the snow in a poor manner, or left icy or slushy ruts or tracks in which the plaintiff slipped.

Many court decisions have found that It is unfair to make a landowner or community association absolutely liable for every slip-and-fall accident on snow in a lot, especially as this would require the owner or association to spend the entire winter clearing the lot on pain of losing a liability suit. Moreover, it is equally unfair to require the lot owner or association to shoulder the expense of plowing and replowing the lot during the course of a continuous storm. In this vein, many jurisdictions have ruled that there is no liability for an accident that takes place while a storm is still going on or a reasonable time thereafter, to give the owner a chance to clear out the lot.

Here are the general rules of thumb for community associations:

1. If the Declaration or Bylaws requires the association to plow, shovel, or clear common areas, the association must do so. Many community associations, particularly in central Oregon, are obligated under the governing documents to provide snow removal.  Use a licensed, insured, and bonded contractor to perform those services.

2. In the case where the association has no obligation for snow removal, there is a potential to create liability if the association engages in those activities.

3. If the association has common areas which are generally open to the public, there is typically an obligation to keep those areas clear of snow and ice, regardless of any requirements in the governing documents.

4. If the association has no obligation for snow removal, but decides to provide that service, it should hire a licensed, insured, and bonded contractor.  The removal of snow or ice must result in a safer condition than leaving the natural accumulation on the common areas.

Disclaimer: By reading the information above, you do not become a client of the firm. The information provided above is based on general legal principles, and may not be applicable to you. If you have a legal issue or question, you should speak with an attorney.

Insurance Policies Every Community Association Should Carry

The right insurance policies with the right coverage amounts are critical for every community association. State law may mandate insurance policies, and your association’s governing documents likely require certain types of coverage. Each association should review (on an annual basis) its coverage and coverage limits. Here are the policies every association should carry:

1. Property Insurance

Property insurance covers real property and insurable improvements owned or controlled by the association. Common examples include: clubhouses, restrooms, play structures, entrance monuments and fences.

The policies limits should be sufficient to cover replacement of any of the buildings or structures. If the association’s clubhouse is valued at $500,000, the property policy covering the clubhouse should be at least that much.

2. General Liability

Liability insurance covers the association and board against claims arising out of bodily injury. When an owner’s guest slips and falls on the association’s sidewalk, it’s the liability policy which is triggered and will provide coverage.

3. Directors & Officers Insurance

Some older governing documents may refer to this policy as “Errors & Omissions.” This policy will provide legal defense and coverage for claims asserted against the board or the association related to mismanagement, breach of fiduciary duty, or errors in judgment. The policy should cover the association, past and present board members, committee members, and managers of the association.

4. Fidelity Insurance

Fidelity policies cover theft of association funds. This type of coverage is especially important in self-managed associations which may not have sophisticated financial safeguards in place. Your policy limits on fidelity insurance should be least as much as the association has in all of its bank accounts.

5. Other Insurance Policies

In some cases, it may be appropriate (or required) for the association to carry earthquake or flood insurance. These policies are often expensive, but shouldn’t be overlooked if the risk is present. Lastly, if the association has employees worker’s compensation insurance is absolutely necessary.

5 Ways to Invite Lawsuits Against Board Members and Associations

1.  Violating Open Meeting Requirements Board meetings in Oregon (by statute) must be open to the membership. The same is true for Washington condominiums or any community association with open meetings requirements in the governing documents. The purpose of open meeting requirements is to allow the membership to witness the deliberation, discussion, and decision making of the board of directors.

There are exceptions to the open meetings requirements--namely, emergency meetings and executive session. But unless an exception applies, any time a majority of the board convenes and discusses association business, it's likely a "meeting". And if it's a meeting, it requires notice and observation by the membership.

Violating open meeting requirements casts a shadow on board transparency, causes suspicion among the owners, and increasingly, may cause a lawsuit against the association or board of directors.

2.  Failing to Renew Incorporation

Most associations are incorporated as nonprofit corporations. In some cases, it's legally required that the association be incorporated. Incorporation may provide a shield against liability for board members and owners.

In a 2010 Alabama case, a homeowners association attempted to enforce its architectural restrictions against an owner who constructed improvements without approval. The Alabama Court of Appeals held that the association could only enforce the governing documents if the association was incorporated.

Georgia dealt with a similar case in 2007, when an association filed suit against an owner for delinquent assessments. The owner claimed that because the association had become administratively dissolved when it filed the suit, the association was prohibited from collecting assessments. During the course of the lawsuit the association filed the appropriate renewal paperwork and was reinstated with the secretary of state. As a result, the court allowed the association to pursue collections.

For Oregon associations, visit www.filinginoregon.com to check on the association's incorporation status.

Washington associations can search here: https://www.sos.wa.gov/corps/search_advanced.aspx

3. Failing to Enforce Governing Documents

Board members have an obligation to enforce the provisions of the association's CC&Rs and Bylaws. If a board fails to enforce provisions of the governing documents for an extended period of time, many courts will find that the association has "waived" its right to enforce the same or other provisions.

In an Ohio case, an owner built an addition on his property. The association sued the owner, arguing that the additional building violated the CC&Rs. The court said that because the association had allowed other owners to build unapproved additions, the association couldn't require the defendant in this case to remove the building.

Similarly, some governing documents require the association to make architectural decisions within a certain number of days. The association may waive its right to enforce those covenants if it misses the deadline to respond. In a different Ohio case, the association's documents required the board to respond to architectural applications within 30 days. When the owner didn't receive a response, he proceeded with construction. When the association told the owner he could not proceed, the owner sued and prevailed because the association didn't make a decision within the 30 day window.

4. Violating the Fair Housing Act

There are literally hundreds of court cases involving lawsuits against associations for violations of the Federal Fair Housing Act. Here are some examples:

Auburn Woods I Homeowners Association v. Fair Employment and Housing Comm., 121 Cal App 4th 1578 (2004). A married couple suffered from depression and other disorders. The association's governing documents prohibited all animals. The couple bought a small companion dog to accommodate their mental condition and a lawsuit ensued. The association was found liable of discrimination.

Jacobs v. Concord Village Condominium X Association, Inc., 2004 U.S. Dist. LEXIS 4876 (S.D. Fla., 2004). The court found that the defendant condominium association had violated the Fair Housing Act by refusing to allow a physically handicapped resident to install a ramp so that the plaintiff could freely store, access and charge her motorized tricycle in a storage closet in the condominium building.

Sabal Palm Condominiums of Pine Island Ridge Association, Inc. v. Fischer, No. 12-60691-Civ-SCOLA (S.D. Fla. March 19, 2014). A Florida district court ruled that a condominium association violated the Fair Housing Act by its unreasonable delay in granting a request by a physically disabled resident to keep a service dog.

Hollis v. Chestnut Bend Homeowners Association, No. 13-6434 (6th Cir. July 29, 2014). A Tennessee homeowners association may have violated the Act when it denied owners from constructing an exterior sun room which was designed to accommodate two children with Downs Syndrome.

Board of Directors of Cameron Grove Condominium, II v. State of Maryland Commission on Human Relations, No. 47 (Md. Mar. 28, 2013). A Maryland appeals court ordered a condominium board to pay damages to unit owners who were denied reasonable accommodation of their disabilities. Bhogaita v. Altamonte Heights Condominium Association, Inc., No. 6:11-cv-1637-Orl-31DAB (M.D. Fla. Dec. 17, 2012). A Florida court found that a condominium association's intrusive search for more information regarding a unit owner's medical condition constituted a denial of his requested accommodation under the Fair Housing Act.

5. Filing Incorrect Liens / Collecting Inconsistent Assessments

May lawsuits involve associations levying assessments which are inconsistent with the governing documents. In a 2004 Texas case, an association's governing documents capped assessments at $50 per month. Nevertheless, the board unilaterally raised assessments to $75 per month. An owner sued the association and the court ordered the association to reimburse the owner for the overpaid assessments, plus pay the owner's attorney fees.

In another case, the owner of a commercial condominium unit in Georgia filed a lawsuit when the association levied assessments against the commercial unit to pay for expenses related exclusively to the residential units. The court's review of the governing documents concluded that the association was prohibited from assessing the commercial unit owners for residential unit expenses.

Make sure you read the assessment provisions of your governing documents carefully, and that all assessments are properly apportioned among the owners!