Special Report

Emergency Physician Contracts: Terms to Ponder

by William Sullivan, DO, JD, FACEP, FCLM, Contributing Editor; Director of Emergency Services, St. Mary's Hospital, Streator, IL; Clinical Instructor, Department of Emergency Medicine Midwestern University, Downers Grove, IL; Clinical Assistant Professor, Department of Emergency Medicine, University of Illinois, Chicago; Sullivan Law Office, Frankfort, IL

Most emergency physicians perform medical services pursuant to some type of written provider agreement. Whether an employment contract or an independent contractor agreement, these provider agreements establish a physician's rights, responsibilities, and legal liabilities. Unfortunately, some physicians fail to realize that some contract terms can have a significant adverse effect on their legal rights. Once a contract is signed, both parties must abide by the terms – even if the terms were not clearly understood when the contract was signed. Failing to adhere to contractual responsibilities, or "breaching" the contract, may make the breaching party responsible for monetary damages. For this reason, it is important to understand a contract before signing it and to eliminate unfavorable terms when possible. Below are some of the more commonly litigated contract issues.

Malpractice Insurance

Full payment of malpractice insurance premiums is a standard provision in almost every emergency medicine contract. When reviewing a contract, two issues regarding malpractice insurance are important.

Coverage Limits. Unless state statutes require less coverage, standard professional liability policy limits should be at least "$1 million/$3 million," meaning that there is a $1 million limit for a single incident and $3 million limit per year. Be careful since often contracts will not state specific limits and malpractice insurance policies can have limits as low as $100,000/ $300,000. If a contract does not specifically state coverage limits, in the absence of statutory requirements to the contrary, lower malpractice policy limits may be insufficient to protect a physician's assets. For example, if policy limits are $1 million/$3 million and there is a judgment against the physician for $500,000, the policy would entirely cover the judgment. If instead the physician only had policy limits of $100,000/$300,000, the physician would have to pay $400,000 of the judgment from personal assets. As one example, see American Physicians Assurance Corp. v. Schmidt, 187 S.W.3d 313 (2006) where a physician was left responsible for paying more than $800,000 of a judgment in excess of his insurance policy limits when he did not accept settlement offers for the policy limit of $1 million. Fortunately, in this case the physician was able to negotiate terms of a settlement that did not require him to pay money out of personal assets.

Insurance Type. There are two basic kinds of professional liability insurance coverage. Occurrence-based insurance depends upon when an alleged act of malpractice "occurred." As long as the policy is in effect at the time the incident occurred, the physician is covered for the claim. Claims-made coverage protects a physician only if it is in force when an alleged act of malpractice occurred and when the company receives notice that a "claim is made" against the physician. This is an important distinction and underscores the importance of promptly reporting potential malpractice claims to your insurer.

In Thoracic Cardiovascular Associates v. St. Paul Fire and Marine Insurance Co., 891 P.2d 916 (1994), a group of physicians dropped their claims made insurance policy and declined "tail insurance" offered by the insurer. The insurance policy lapsed on February 16, 1988. Unbeknownst to the group, a malpractice lawsuit had been filed against the group on October 15, 1987, but the group was not served with notice of the lawsuit until July 12, 1988 – almost five months after the group's malpractice insurance policy lapsed. When the group reported the claim to the insurer, the insurer refused coverage, stating that the claim was reported after the insurance policy had lapsed. The appellate court agreed, holding that the plain language of the insurance contract required a claim to be reported to the company within the policy period in order for coverage to apply. Since the claim was reported after the policy lapsed, even though the claim was filed during the policy period, the insurance company was not required to insure the group.

The case President v. Jenkins, 814 A.2d 1173 (2003), contains a comprehensive discussion about an obstetrician who failed to pay malpractice premiums while securing another malpractice policy and who later discovered he had no coverage for a claim that occurred between the end of one occurrence-based policy and the beginning of a second claims-made policy.

Tail insurance, also called extended reporting coverage, is a way to stay insured when a claims-made policy ends. Tail insurance is a lump-sum premium paid to the insurance company that secures coverage for future claims. An easy way to understand the concept of tail insurance is the general equation that "claims made policy + tail insurance = occurrence based policy." Tail insurance is quite expensive – often costing $40,000 or more for emergency physicians. Look elsewhere if an emergency medicine contract does not offer either occurrence-based insurance or claims made insurance with full tail coverage.

Restrictive Covenants

Restrictive covenants can be divided into non-compete clauses and non-solicitation clauses. Both are designed to keep one contracting party from damaging the business interests of the other contracting party. In medical contracts, non-compete clauses attempt protect established medical practices from contractors who leave and then try to take the practice's patient base with them. For example, a clinic that spent 20 years developing a patient base could lose a large number of patients if a well-liked physician leaves and sets up a practice across the street. Non-compete clauses may also attempt to keep a former contractor from attempting to outbid a former group for a service contract with a hospital. Non-solicitation clauses generally attempt to prevent a former contractor from hiring a group's employees once the contractor leaves.

Each state has different criteria for enforcing restrictive covenants. In general, restrictive covenants must be reasonable in scope and duration, must protect some congnizable business interest, must not prohibit a contracting physician from pursuing activities not engaged in by the employer, and must not violate public policy. A majority of the published cases regarding contract actions against emergency physicians involve restrictive covenants. In none of the cases has a court decided against the emergency physician. For example, in Duneland Emergency Physician's Medical Group v. Brunk, 723 N.E.2d 963 (2000), the Indiana Court of Appeals held that a restrictive covenant against an emergency physician was unenforceable because a group has no protectable business interest in a former employee that leaves to work for a competing group. In its opinion, the court noted that patients did not "select a hospital emergency room based on which physicians worked there" and therefore preventing a physician from working in a competing emergency department served no legitimate purpose.

In Premier Health Care Services, Inc. v. Schneiderman, 2001-Ohio-7087 (2001), the Ohio Court of Appeals held that once a group's contract to provide emergency services at a hospital terminates, it no longer has a legitimate business interest in preventing former employees from working at the hospital. Additionally, in this case the court held that dismissal of all the emergency department staff physicians from a Level I trauma center would adversely affect medical care and was therefore against public policy. The restrictive covenant preventing the group's physicians from working in the hospital after the termination of the group's contract was therefore considered invalid.

Emergicare Systems Corp. v. Bourdon, 942 S.W.2d 201 (1997) held a restrictive covenant against an emergency physician as unenforceable – in part because it prevented the defendant from continuing to serve the public as an emergency physician.

In addition to legal precedent, several professional organizations have policies against restrictive covenants. The American Bar Association's Rules of Professional Conduct Rule 5.6 prohibits restrictive covenants in attorney contracts. While the American Medical Association currently discourages restrictive covenants, the latest revision of the AMA's Council on Ethical and Judicial Affairs Opinion E-9.02 seeks to permit restrictive covenants in physician contracts under certain circumstances. ACEP Policy #400284 condemns restrictive covenants in physician contracts as being against the public interest.

Even though restrictive covenants may be difficult to enforce against emergency physicians, litigating their enforceability may be costly. When possible, it is better to remove restrictive covenants prior to signing a contract, or to at least limit a restrictive covenant's applicability. Presenting the considerable amount of legal precedent against enforcing restrictive covenants may be useful in persuading a group to delete a restrictive covenant from its contract.


Understanding some of the more common contract terminology can help a physician create a contract that protects both parties. When in doubt about whether a contract may be right for you, hire an attorney to assist you.