As explained in the first installment of this series on indemnity clauses, in most cases when a hotel is managed by a chain management company, all the hotel employees, including the general manager and the executive team, are employees of the owner, not the management company. However, even though as a technical matter all of the hotel’s employees are the employees of the owner, the management company generally requires that it be in almost complete control of operations.
The usual language in a hotel management agreement reads like this: The management company shall “have exclusive responsibility and complete and full control and discretion in the operation” of the hotel. Or: The management company “will have the sole and exclusive right and obligation to operate the [hotel] in its professional judgment and discretion, free from interference by [the owner] or its representatives.” In a vacuum, this should mean that the management company is responsible for injuries to persons or property as a result of the negligence or misconduct of the hotel’s employees.
As an aside, it is important to realize that a chain-managed hotel is actually operated by the general manager and the executive team assigned to the hotel, with no day-to-day involvement by the management company, even though the management agreement implies otherwise. Of course, the chain’s policies and procedures need to be followed by the general manager and the executive team, and major decisions may need to be made “upstairs,” but the management companies give great authority to their general managers and the executive team members. Nonetheless, having bargained for the right to have full “control and discretion” in the operation of the hotel, it is difficult for the management company to point to the general manager or the executive team members – or to a lower level employee – if something goes wrong.
But large hotel management companies, particularly those based in the United States, make very good targets for persons injured while on a managed hotel’s property. Therefore, each chain’s “standard” hotel management agreement almost always contains an indemnity provision that would obligate the owner “to indemnify [the management company] from any liability for injury to persons or damage to property by reason of any cause whatsoever, either in and about the hotel or elsewhere, arising out of or in any related to the hotel or the performance of [the management agreement]” by the management company.
Conversely, according to these standard agreements, the management company would not be obligated to indemnify the owner, no matter what the cause of the injury was. Or at least the agreement would be silent on this matter.
In the days when there were just a handful of international management companies, and when owners were less sophisticated, this one-way (and patently unfair) indemnification arrangement was common. Eventually, however, owners started to push back, and new entrants to the hotel management industry proved to be more flexible than the original handful of big chains. Accordingly, in the past 15 years or so – due to pressure from more sophisticated owners and from competitive forces – there has been increasing balance in the indemnification provisions.
That balance will be discussed in the next installment.
Contributed by Michael Evanoff, Marlborough Hospitality Services, Singapore