Particular care to indemnity, waivers, and hold harmless clauses, should be taken by Strata buildings when they enter into strata management contracts. At Strata Insurance Solutions, we have recently reviewed various strata managers’ strata management contracts and Industry standard contract conditions. We have found, within this review, a range of clauses that should raise concerns for committees.
These clauses can:
- Mean that the body corporate/owners corporation provides indemnity to the strata manager for liability they may incur arising from activities undertaken on behalf of the body corporate/owners corporation.
- Limits or waives the insurers right to pursue recovery of costs against the strata manager.
- Hold the strata manager harmless in the event of legal claims.
If there is a legal claim, solicitors representing a plaintiff in a legal action may cast a wide net. This can mean that various parties are drawn into the legal matter – which can include both the body corporate/owners corporation and the strata manager, even where those parties are not negligent. Even where a strata manager can successfully defend an allegation of negligence, the defence costs of such a claim can still run into the hundreds of thousands of dollars.
Here are some sample clauses which we havefound in contracts that raised some concern:
- The strata manager will not be responsible for loss or damage to the body corporate/owners corporation unless such loss or damage is caused by wilful or negligent act of the strata manager;
- The body corporate/owners corporation must immediately on demand indemnify the strata manager against any matter for which the strata manager has no liability to the body corporate/owners corporation;
- The maximum liability of the strata manager arising out of the performance or non-performance of the Services, whether under the law of contract, tort or otherwise, shall be the amount of the agreed services fees for the year in which the liability arose;
- The strata manager is deemed to be discharged from all liability in respect of the agreed services and the additional services, whether under the law of contract, tort or otherwise, at the expiration of two years from the date of the act or omission giving rise to the liability, and the owners corporation/body corporate shall not be entitled to commence any action after that date.
Our first concern surrounds the indemnity and contractual liabilities that body corporate/owners’ corporations are entering. By agreeing to the first two terms and conditions in the points above, ifthe strata manager has a legal claim brought against them and they are able to defend this action on the grounds their actions were not wilful or negligent, by virtue of an indemnity clause, the body corporate/owners corporation could end up responsible for paying the strata managers legal expenses despite them being covered by the strata manager’s own insurance.
Generally, insurance policies contain contractual liability exclusions which means the insurer does not accept liability incurred by agreement in a contract. While some strata insurers might provide conditions that are more favourable to contractual liabilities entered into with strata managers, should the body corporate/owners corporation change insurer, the new insurer may have a more onerous contractual liability exclusions and it would rely on the committee at the time of changing insurer to understand the consequences contractual liability clauses in the strata management contract have on insurance. As well as this, those favourable terms and conditions might only extend to certain claims like public liability, covering only personal injury & property damage claims and not extend to other claims such professional indemnity covering financial loss resulting from professional negligence.
Our second concern is thatbody corporate/owner’s corporations are limiting the insurers rights of subrogation or recovery against the strata manager in the second two terms and conditions in the points above. Strata policies have Recovery or Subrogation clauses which generally states that you must not do anything that prevents or prejudice the insurers rights of recovery/subrogation.
Strata managers should have Professional Indemnity, Management Liability & Public Liability insurance that adequality covers them in the event of a legal claim brought against them. If the strata managers actions were not deemed to be a wilful or negligent act, that should be a defence available to the strata managers insurer at the time of a claim. It should not be left to a body corporate/owners corporation to cover the cost of the strata managers legal defences. Likewise, if the strata managers acts, errors or omissions are wilful or negligent and this causes a financial loss to the body corporate/owners corporation or lot owners, the strata managers insurance should indemnify them against actions for these with no limitation on time or liability amount other than as permitted by law.
Strat Insurance Solutions recommends that committees undertake a review of their strata management contract and specifically look for indemnities, waivers or hold harmless clauses. In the event such terms exist the body corporate/owners corporation should seek further advice from their insurance broker and/or legal advice. Where the risks associated with such clauses are too high, they should seek to negotiate different contract terms with the strata manager before entering in to a new contract with the strata manager.
This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Shandit Pty Ltd T/as Strata Insurance Solutions strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Shandit Pty Ltd T/As Strata Insurance Solutions is a Corporate Authorised Representative (No. 404246) of Insurance Advisernet Australia AFSL No 240549, ABN 15 003 886 687.