We are a nonprofit volunteer ski patrol. The for-profit ski resort we serve has asked us, a nonprofit, to indemnify it against possible damages. Should we accept?
This is the fifth question in our Week of Great Nonprofit Questions - December 18-22
This seems to be the Grinch question of the year. Asking the question of whether volunteers should indemnify a for-profit company taking advantage of their specialized skills and services to make a profit without paying for those skills and services seems to answer itself. Why would volunteers indemnify a for-profit in return for nothing except the right to protect the public?
Indemnification clauses are always dangerous. Depending on the specific language of the provision, they require one organization to indemnify and protect the other against costs and expenses arising from claims for damages arising in connection with the activities under the agreement. Many of these agreements require one party to indemnify and protect the other even against damages caused by the other. The key point to understand is that indemnification is a contractual liability only. The obligation is usually not covered by the insurance the organization has to protect against its own negligence or malfeasance. The insurance doesn’t protect against the contractual obligation to indemnify the other party for its negligence or malfeasance. Even if the indemnifying party had absolutely nothing to do with the cause of the injury, however, it could be contractually liable to an injured party under the contract with the party causing the injury. (See Nonprofit Issues®, Nonprofit’s cost of indemnification agreement is $700,000, 6/16/11.)
There are certain situations in which it is possible to get insurance to protect another defendant, such as insurance covering landlords in special event situations. But as a general matter, it is not likely to cover the recipient of services on an ongoing basis. Each party should retain its own insurance to protect itself. There is no need for one to protect the other or for each of them to indemnify the other. A “mutual indemnification” only gives the insurance companies the opportunity to fight with each other about avoiding liability, delaying the ultimate resolution of the issue and increasing the costs.
I always recommend that my client not provide an indemnification unless it can be sure it is covered by insurance. But in this case, where the volunteer organization is a nonprofit with no economic advantage from the relationship, and the for-profit is getting free services that make its business a lot more attractive, it makes no economic sense at all. The for-profit ought to indemnify the nonprofit, but I would be willing to live with each side getting its own insurance.