This is Part I of a 2 part series about the importance of indemnification in facility lease agreements. An authority in the field of sport insurance, John discusses why indemnification is important to the facility operator and explains two forms of indemnification. In Part II he will explain another form of indemnification and suggested insurance requirement. Part II will appear next week.
Sports/recreation organizations (ex: teams, leagues, tournament hosts, camps, individual instructors, gymnastics studios, martial arts studios, hunt clubs, etc.) often lease outdoor or indoor sports facilities to conduct their activities such as playing and practice. Likewise, sports facility owners (both municipal and private) make the facilities available to sports organization in exchange for rental income or to serve the community.
A written Facility Lease Agreement is normally prepared by the legal counsel of the sports facility owner and must be signed by the sports/recreation organization prior to use. Before signing such an agreement, the sports/recreation organization (and its attorney and insurance agent) should always review the lease terms to make sure that they are fair as regards to liabilities accepted and transferred and whether the sports/recreation organization is in compliance with the insurance requirements.
Indemnification/Hold Harmless Provision
Liability is one of the most important issues that is addressed under sports facility lease agreements. Liabilities can arise out of injuries to third parties (ex: spectators and participants) that are related to improper construction of facilities, improper maintenance or facilities, arising out of trespassers that get hurt on the facilities either during the off season or after hours, improper supervision or instruction given during the practice or playing of the game or activity itself, umpiring, security, concessions, other vendors, emergency medical care, parking lots, etc. Under the eyes of the law, either party to the contract or both parties to the contract are legally liable for these types of incidents mentioned above to the extent that such party is responsible for safety in such area and to the extent that such party has been negligent. However, the normal allocation of tort liability under the legal process can be circumvented if the lease agreement calls for a different result where one party contractually accepts the liability that may ordinarily belong to the other party.
An indemnification or hold harmless provision in these lease agreements governs whether the sports/recreation organization or facility owner is contractually responsible when a third party (ex: spectator or player) is injured and suffers damages. In summary, this provision requires one party to the contract (indemnitor) to pay for the legal defense costs and to pay damages on behalf of the other party to the contract (indemnitee) under certain circumstances. The indemnification/hold harmless provision can be drafted to allow for three different outcomes: 1) Limited Form: each party is responsible for only its own negligence, 2) Intermediate Form: one party is responsible for 100% of the total liability for both its sole negligence or its partial negligence, or 3) Broad Form: one party is responsible even if the other party is solely negligent.
Since the sports facility owner is the party to the contract that normally is in the position of “power”, it is not surprising that its legal counsel will normally draft the indemnification/hold harmless provision to fall under 2) or 3) above.
Limited Form Indemnification/Hold Harmless Provision
The most equitable type of indemnification/hold harmless provision (Limited Form) requires each party to be responsible for its own negligence and to pay the legal defense costs and damages on behalf of the non negligent party that is also shot gunned into the lawsuit. This type of indemnification/hold harmless provision is in keeping with a spirit of reciprocity and fairness. Sports/recreation organizations should always attempt to negotiate the Limited Form provision.
Some may question why the Limited From provision should even be included in a facility lease agreement since it does not shift liabilities and only restates the liabilities that exist under common law. However, adding such a provision does serve a legitimate purpose in that it provides for a contractual remedy (in addition to the tort remedy) that makes it easier, less expensive, and more certain for the indemnified party to enforce its rights when only the indemnitor is at fault.
Sample language for the Limited Form is as follows: Both the Sports/Recreation Organization and Facility Owner agree to mutually indemnify and hold harmless one another and their respective directors, officers, employees, volunteers, and agents for all imposed by law third party claims, damages, losses, and expenses including but not limited to reasonable attorney’s fees resulting from bodily injury and physical injury to tangible property including loss of use thereof caused by the Sports/Recreation Organization’s or Facility Owner’s own negligence arising out of the subject matter of this lease.
Intermediate From Indemnification/Hold Harmless Provision
The next most equitable type of indemnification/hold harmless to the sports/recreation organization (Intermediate Form) requires the sports/recreation organization to be responsible for all liability for both parties as long as the sports/recreation organization was either solely or partially (could be as little as 1%) negligent. Before agreeing to this type of Intermediate Form indemnification/hold harmless agreement, the sport organization must verify that it General Liability policy contains “contractual liability” coverage for these types of lease agreements.
Sample language for the Intermediate Form is as follows: The Sports/Recreation Organization agrees to indemnify and hold harmless the Facility Owner and its respective directors, officers, employees, volunteers, and agents for all imposed by law third party claims, damages, losses, and expenses including but not limited to reasonable attorney’s fees resulting from bodily injury and physical injury to tangible property including loss of use thereof to the extent caused by the sole or partial negligence of the Sports Organization arising out of the subject matter of this lease. (Note: this language contains some key terms and provisions that give it a better chance of being covered by the sports/recreation organization’s General Liability policy.)
John Sadler is president of Sadler & Company, Inc., an insurance agency that specializes in sports and recreation insurance in all 50 states. Sadler has over 25 years of experience and is a licensed attorney, sports insurance expert, and sports risk manager. For more information on sports insurance and sports risk management, visit www.sadlersports.com and click on the links to the blog and risk management reports/forms/videos.
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