When Is Negligence Gross? Understanding Indemnification Provisions In Hotel Management Agreements

• Published date: 24 April 2025
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Media, Telecoms, IT, Entertainment, Contracts and Commercial Law, Trials & Appeals & Compensation, Professional Negligence, Hotels & Hospitality
• Law Firm: Pryor Cashman LLP
• Author: Mr Todd Soloway, Bryan Mohler and Simon Shahinian

Hotel management agreements, like other commercial contracts, often contain clauses apportioning liability among the parties for potential losses or damages arising out of specific events or actions. Known as indemnification provisions, this language is of particular importance in hotel management agreements given the nature of the parties' relationship'where an owner is ceding operational control of its hotel to the manager, often for decades.

These provisions need to strike a balance between the interests of the owner and manager. Hotel managers, who typically earn a fee for their management services but do not meaningfully share in the profits of the hotel business, generally want assurances that, like any service provider, they will not be held responsible for liability arising out of hotel operations.

From a manager's perspective, since the hotel owner owns the business, it should also be responsible for any liability arising out of business operations. Conversely, the owner, who is entrusting a highly valuable asset to the hotel manager, desires protection against a rogue operator who incurs liability by running the hotel business in an irresponsible manner.

In this article, we discuss how hotel industry stakeholders attempt to address these competing concerns in hotel management agreements through indemnification language, how courts interpret these provisions, and considerations for hotel owners and managers when negotiating such provisions.

Common Indemnification Language in Hotel Management Agreements

Indemnification provisions in hotel management agreements often adopt one of a few forms. Most frequently, hotel owners agree to indemnify managers from and against any claims or liability of any kind arising from or related to the management, operation, or maintenance of the hotel, except to the extent such claim or liability is the result of the manager's 'gross negligence or willful misconduct.'

In some cases, before a hotel owner may avail itself of the foregoing exception, it must further obtain a final determination from a court of competent jurisdiction that the liability was 'solely' the result of the manager's gross negligence or willful misconduct; in other words, if the manager's gross negligence or willful misconduct was only one of several causes for the liability, the hotel manager remains indemnified.

Sometimes, the protections granted to the hotel manager are arguably even broader, by explicitly indemnifying the manager even in cases where liability arises out of the negligent acts of the manager, or by failing to caveat the owner indemnity for anylevel of misconduct by the hotel manager.

Additionally, in some instances, the exception is applicable only if the underlying act or omission resulted from gross negligence or willful misconduct of specifically identified senior...