Indemnification In Your Hotel Contracts

The information provided in this video does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information in this video may not constitute the most up-to-date legal or other information. Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.

In this video, you'll learn what indemnification means, you'll get an understanding of the concept of "mutual indemnification" and how groups can use indemnification as a risk management tool.

Check out what Barbara Dunn (Partner at Barnes & Thornburg LLP, representing groups) and Lisa Sommer Devlin (Devlin Law Firm, P.C. representing hotels) have to say in Legalease With the Ladies- powered by HopSkip!

Video Transcript:

Indemnification in your hotel contracts

Lisa: Hi, I'm Lisa Sommer Devlin, I'm an attorney that represents hotels and resorts regarding convention and group-related matters.

Barbara: Hi, I'm Barbara Dunn, an attorney that represents groups in connection with their meetings, travel, and hospitality contracts.

Lisa: And this is Legalease with the Ladies powered by HopSkip. Today we're going to talk about indemnification, which is one of the most misunderstood clauses in event contracts. To talk about indemnification, I’m going to back up in time and talk about what I did before I started representing hotels. What I did before I started representing hotels was called insurance defense work. And what that means is, I was hired by insurance companies to represent their insureds when they got sued for something that went wrong. Whether that was a car accident or a slip and fall or an injury in a ballroom at a hotel. It's all called insurance defense work, because the insurance company pays for that defense attorney to handle that case.

Now why is that important? Because that's where indemnification comes in. Indemnification occurs when somebody gets sued and they think that it is somebody else's fault. So, in the hotel industry, it would be in a group event where one of the attendees slips and falls and gets hurt. And the attendee sues the hotel or sues the group. When indemnification happens, the group would come to the hotel and say, ‘Hey, we got sued by one of our attendees because of your slippery floor. So, we want you to indemnify this. Take over the defense of our case, get your insurance company to cover it and pay for the settlement of the judgment.’

Sometimes the law automatically requires that indemnification. But if it doesn't you can have a clause in your contract that says, ‘If I get sued because of something you do, you will indemnify me.’ That makes sense. In the hotel context, traditionally the indemnification clause has said that the group will indemnify the hotel if the hotel gets sued for something the group does. The reason for that is that the hotel as the operator of the premises is probably always going to get sued, if an injury occurs. Even if it was caused by the group or some third party. And so, they put those clauses in saying, ‘Okay, group we're having you come into the hotel but, if you do something that causes an injury and we get sued you're going to have to pay us back for that.’ What has happened over the years is that, customers say, ‘Well, if I as the group have to indemnify the hotel, it's only fair that the hotel should have to indemnify me.’

And so, you get what's called mutual indemnification clauses, and everybody thinks that sounds great. But ultimately what that does is it cancels each other out. If somebody gets injured at a hotel, most often they're going to see both the hotel and the group as the sponsoring organization of the event. When they have that mutual clause, the group will go to the hotel and say, ‘Hey hotel I got sued indemnify me.’ And the hotel will say, ‘Well gee, I got sued too you indemnify me.’ And it ends up that each side ends up handling its own defense in 99% of all cases and that is not an exaggeration settle outside of court and there's no determination of who's at fault. And so, neither party indemnifies anybody because they each just settle and the case goes away.

So, while mutual indemnification is very common in the industry, ultimately it doesn't really help either side. Do you need an indemnification clause? It's one of those clauses that everybody always looks for to include in the contract and they expect it to be there. But it may not be helpful to you if there's mutual indemnification. I know that for my clients, they like to have the one-way indemnification from the group to the hotel. But I understand that groups feel that they may be sued because of something that the hotel did. So, it's something that's important to understand so that you can talk with your legal eagle and your attorney and your company to find out what's important to you as you're negotiating these contracts. Barbara, what are you talking about with your clients in this regard?

Barbara: Absolutely Lisa. So, you know indemnification let's be clear, it's a risk management tool. It's one of many tools that you have in your toolbox in order to manage risk. The other I-word you mentioned earlier Lisa is insurance. Certainly, that's an important way to manage risks and then of course there's lots of practical ways to manage risk. But focusing on indemnification as you put it, I always say it's take responsibility for your actions. I pay you to do a job, I expect you to do it right. If you do it wrong and we get sued, we want you to hold us harmless. Meaning hold us harmless from a financial standpoint. That's really the essence of the clause and while I acknowledge Lisa as you indicated, the mutual indemnification issue. It really is dependent on the circumstance.

So, when you look at the clause it's really important. This is something that your legal eagle really needs to weigh in on. The first is, who's going to be indemnified? Is it the group? In my case a lot of non-profits we have directors and officers protected. So, who's going to be protected and then what are we going to be protected from? Is it negligence, gross negligence, willful misconduct? What if the word sole is in front of negligence? These are all important elements. Those are the so-called triggers to the clause. So, negligence is the garden variety you either forget to do something or you do something wrong. That's largely the basis of most personal injury matters out there.

Gross negligence really has an intentional element. You see it sloppy and you say, I'm going to do it anyway right, I see the broken step without the handle, it's dark. No, we'll just do it anyway, right. That doesn't happen a lot it certainly does happen, but there again that's where the protection could lie. So, it's really important to understand who's covered, what we're covered for and who's included in that. Is it the hotel, its employees? What about a contractor of the hotels that's working on site? Again, you really have to look closely at that clause and really figure out what it means. One thing I mentioned to groups a lot, if they walk away from the negotiating table and they're disappointed that they don't have mutual indemnification. And this doesn't rise as much in hotel contracts as it does in convention center contracts.

Convention centers may be owned in whole or part by public entities and those public entities may prohibit the facility from indemnifying the group. And the group walks away as if it now can't sue, the hotel can't sue the center if something happens. And that's not true. Without mutual indemnification, you certainly can make a claim against the center for the broken step that someone tripped on. The challenge is you're going to have to sue them on your own dime. You're going to have to defend the lawsuit from the person who was injured and turn around and sue the group or the building or facility for recovery. So, that's really the essence of if you don't have indemnification.

And the only caveat I’ll say there is once in a blue moon you'll see in a contract the word release. Do you ever see the word release and waiver in a contract? Circle it, put exclamation points on it. In those situations, you may be asked and this is not common, but it does come up. You may be asked as a group to release the facility against all claims, those the group could make and also their attendees could make. In which case I always question to the groups, ‘Do you even have authority to waive claims against attendees?’ So, it's a really big issue. There's a lot of nuances as you can see. Lisa you and I spend a lot of time talking with clients about negotiating it.

Again, I think indemnification is a really good tool in the toolbox and quite honestly it doesn't cost you really anything. Cost you the time and effort to negotiate in the contract. Contrast with the other I word, insurance which can cost you things. But certainly, the parties you want to know have adequate insurance going into the contract relationship as well. Lisa, anything to add?

Lisa: I think it's important to think about what those words are in the clause as Barbara already pointed out. We know we always talk about in contracts that words are very important, but in an indemnification situation it's particularly important to analyze each of those words. As Barbara said as to what you're identifying for what's included what's not included. I'm seeing lots of customers ask hotels to have a clause that says, the hotel will indemnify the group for any claim arising out of the sale or service of alcohol. Well, that means any claim. Regardless of whether or not the hotel did anything wrong or not. And hotels aren't going to agree to that, because they only want to have to indemnify if they did something wrong.

So again, the nuance of those words can be very important. When Barbara mentions insurance, again the insurance is what pays for that indemnification. Your insurance company steps in to defend the case and to pay for the settlement or the judgment. And often time, for smaller or social events I'll have customers say, ‘Well, why should I have to agree to indemnify why should I have to have this insurance.’ And I tend to say, ‘Well, the more fun your event is going to be, the more likely it is that somebody's going to trip and fall and get hurt. And that's why the hotel looks at indemnification and why you need to have insurance.’ Because it's very easy for somebody to trip and fall and end up with a million-dollar claim.

If you're the father of the bride and you've agreed to indemnify the hotel if you don't have insurance to cover that, you're going to find yourself in a world of trouble. Barbara, anything you recommend beyond that?

Barbara: Lisa just to dovetail, one thing you mentioned about the insurance is the financial backing behind the party's promise to indemnify. I am seeing phrases slipped into indemnification and here again why it's so important to look at every word. We'll agree to indemnify to the extent of our insurance coverage, right. There's that cap already built-in. I think I see that a lot. Another thing I see are a bit of the comparative negligence standpoint. So, Lisa gave a scenario earlier. Maybe a hotel later poured coffee on someone's lap during a banquet service. It wasn't necessarily a waiter's fault; it may have been the AV company didn't take down a cord or the group did something.

So, sometimes in the indemnification provisions, there is a call for comparative negligence for apportioning negligence in a certain way and making the parties responsible for that. So, that's something to look for as well. Finally, you'll often see a provision either within the indemnification clause or later in the contract which talks about survivability. And this simply means that the indemnification obligation of the parties continues even after the meeting has come and gone.

There's lots of time often in most states to make a claim for personal injury. Sometimes that might not happen for six months or a year later, and you want to be able to go back to that contract and seek out that indemnification that was promised to you. That's really the purpose of the survival clause, so you'll often see that in contracts. Again, pretty standard but something you definitely want to look for. This has been Legalease with the Ladies powered by HopSkip. Please leave your comments and feedback below. Please also subscribe to our channel. We look forward to seeing you again soon.

The information provided in this video does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information in this video may not constitute the most up-to-date legal or other information. Readers of this website should contact their attorney to obtain advice with respect to any particular legal matter.