What is an indemnification clause and should we accept a one-way one?

Indemnification decides who pays when something goes wrong and a third party sues. A one-way clause has the association indemnifying the Management Company — including, in the broadest versions, for claims arising from the company's own negligence — with no reciprocal obligation running back.

Those broad versions are common in standard agreements and they are the single clause most worth spending counsel's time on. The association is being asked to fund the defense of a firm it hired for its expertise, for errors in exercising that expertise.

What Boards commonly negotiate: mutual indemnification; carve-outs so the association never indemnifies for the company's negligence, gross negligence, or willful misconduct; and a cap tied to the professional liability limit the company actually carries. Reasonable firms accept the carve-outs. A firm that will not is telling you how it expects the relationship to go.

Pair it with the E&O question. An indemnity is only worth the balance sheet behind it, and a company with a $250,000 professional liability limit managing a $2M annual budget is thin cover for anything serious.